Japanese Consumption Tax System overview

The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax.

1 Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration
2 Import transactions: cargo retrieved from a bonded zone

Enterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) and parties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods and procedures respectively provided for them. (If the amount of consumption tax on the taxable base of an enterprise (unless a tax-exempt enterprise) is less than the amount of consumption tax on purchases calculated as being deductible by the prescribed method, the shortfall is refunded by filing.) To ensure that double taxation does not occur at the production and distribution stages, a scheme has been adopted allowing the deduction of consumption tax on purchasing from consumption tax on sales. Enterprises whose taxable sales are 10 million yen or less for the base period (excepting enterprises that have opted to be taxable) and that meet certain conditions are exempt from consumption tax filing/liability for the current year. However, enterprises can elect to be taxable enterprises if the prescribed notification is submitted to the director of the tax office. A company that has no base period, such as a newly established company, whose capital at the start of the taxable year is 10 million yen or more and in certain other cases cannot be a tax-exempt enterprise in that taxable year.