VAT and Sales Tax in Japan

Japan's consumption tax (shohizei, governed by the Consumption Tax Act, Act No. 108 of 1988 administered by the National Tax Agency) applies to the domestic sale of goods and services, as well as importation of goods into Japan. The current framework -- a standard 10% rate plus a reduced 8% rate for specific categories -- has been in place since 1 October 2019, and was substantially restructured on 1 October 2023 with the introduction of the qualified invoice (inboisu) system. What follows is a factual summary for informational purposes; businesses and individuals should consult a qualified tax professional (zeirishi) for guidance on their specific circumstances.

What are the Japanese consumption tax rates and what do they cover?

The standard consumption tax rate is 10%, comprising a 7.8% national consumption tax component and a 2.2% local consumption tax component, both remitted together to the NTA. A reduced 8% rate (6.24% national + 1.76% local) applies to two defined categories under the Consumption Tax Act: (1) food and non-alcoholic beverages sold for home consumption -- meaning takeout and delivery food qualifies but meals consumed on restaurant premises (dine-in) do not -- and alcohol is explicitly excluded regardless of consumption setting; and (2) newspaper subscriptions for publications issued at least twice per week under a fixed-term subscriber contract. The takeout-vs-dine-in boundary requires retailers to classify each transaction individually and is a documented source of compliance complexity, particularly for convenience stores and fast-food operators. Exports of goods and qualifying international services are zero-rated under Article 7 of the Act; full input-tax credit is preserved on costs supporting zero-rated activity. (NTA, consumption tax overview: https://www.nta.go.jp/english/taxes/consumption_tax/index.htm)

Who is required to register for consumption tax, and what is the small-business exemption?

The mandatory registration threshold is JPY 10 million in taxable sales during the "reference period" (kijun kikan) -- defined as the second fiscal year prior to the current year for corporations, or the second calendar year prior for sole proprietors. A business whose reference-period sales were JPY 10 million or below is a tax-exempt enterprise (menjo jigyo-sha) and has no obligation to collect or remit consumption tax unless it voluntarily registers. There is a secondary threshold: if taxable sales or payroll in the first six months of the immediately preceding year exceeded JPY 10 million, mandatory registration is also triggered regardless of the reference-period result. New corporations established with paid-in capital at or above JPY 10 million are mandatorily registered for their first two fiscal years, irrespective of sales. Tax-exempt enterprises that choose to remain unregistered do not collect consumption tax from customers, but they also cannot issue qualified invoices -- a significant commercial consideration in B2B supply chains (see next section). (JETRO, Overview of Consumption Tax: https://www.jetro.go.jp/en/invest/setting_up/section3/page6.html; NTA, Consumption Tax Act Article 9)

How does the qualified invoice (inboisu) system work, and what are the transitional measures?

Effective 1 October 2023, the qualified invoice retention method (tekikaku seikyusho hozon hoshiki) became the operative framework for input-tax-credit (ITC) claims. Under this system, a registered taxable business can in principle only claim an ITC on a purchase if it holds a qualified invoice issued by a seller that is registered as a qualified invoice issuer (tekikaku seikyusho hakko jigyo-sha) with the NTA. Qualified invoices must include: the issuer's NTA-assigned registration number (a T followed by 13 digits, unique to each registered issuer), the date, a description of the goods or services, the amount broken down by tax rate (10% and 8% separately), and the consumption tax amount calculated per rate category. Registration as a qualified invoice issuer is mandatory for businesses above the JPY 10 million threshold and is available voluntarily for smaller enterprises. Registered issuers are listed on the NTA's public announcement site.

The system introduced two sets of transitional measures. The first concerns buyers purchasing from non-registered (tax-exempt) suppliers: 80% of the notional input tax on such purchases may be claimed as ITC through 30 September 2026; this drops to 50% from 1 October 2026 through 30 September 2029; and falls to zero thereafter. The second set of transitional measures -- commonly called the "20% special measure" (niwari tokurei) -- applies to businesses that become qualified invoice issuers having previously been tax-exempt. If a business registers as a qualified invoice issuer for the first time and its reference-period taxable sales were JPY 10 million or below, it may calculate its consumption tax liability as just 20% of its output consumption tax (i.e., it retains 80% without requiring matching input documentation) for taxable periods falling between 1 October 2023 and 30 September 2026. A follow-on transitional measure for FY2027 and FY2028 sets tax liability at 30% of output tax for formerly-exempt businesses that registered as qualified invoice issuers. These measures reduce the compliance burden of first-time registration for small-business operators. (NTA, JAPAN INVOICE SYSTEM Oct.1,2023 (Revised Apr.2026): https://www.nta.go.jp/taxes/shiraberu/zeimokubetsu/shohi/keigenzeiritsu/pdf/0024006-039_01.pdf; Stripe, Transitional measures for Japan invoice system: https://stripe.com/resources/more/invoice-system-transitional-measures-japan)

What is the simplified consumption tax scheme?

Businesses with reference-period taxable sales not exceeding JPY 50 million may elect the simplified consumption tax scheme (kani kazei seido) under Article 37 of the Consumption Tax Act. Instead of tracking actual input tax on individual purchases, the simplified scheme applies a deemed purchase ratio (minashi shiire-ritsu) to total taxable sales, with ratios set by business category. The election is binding for two years and must be filed with the NTA by the end of the tax year preceding the year of application.

For a service business with few deductible input costs, the 50% deemed ratio often produces a higher ITC than actual tracking, reducing the effective tax rate. For businesses with high input costs (e.g., manufacturers sourcing expensive materials), actual-cost tracking under the standard method may be preferable. A qualified zeirishi can model which method produces lower liability given a specific cost structure.

How is consumption tax filed and paid?

Registered businesses must file a consumption tax return (shohizei shinkokusho) and remit any tax owing. For corporations, the annual return is due within two months of the fiscal year end; for sole proprietors, the deadline is 31 March of the following calendar year. Businesses with prior-year consumption tax liability exceeding JPY 480,000 are required to make interim filings and payments: once a year (prior-year liability JPY 480,000 to JPY 4 million); three times a year (JPY 4 million to JPY 48 million); or eleven times a year (above JPY 48 million), with each interim payment due within two months of the relevant period end. Tax is paid to the NTA through authorized financial institutions. Late payment attracts interest at the statutory delinquent tax rate. Returns may be filed electronically via e-Tax (NTA's electronic filing portal). (NTA, Consumption and Local Consumption Taxes Final Return Guide 2025: https://www.nta.go.jp/english/taxes/consumption_tax/pdf/2025/general_00.pdf; JETRO: https://www.jetro.go.jp/en/invest/setting_up/section3/page6.html)

For a comprehensive overview of Japan's tax framework including income and corporate taxes, see the Japan country overview. Businesses operating across multiple tax types may also find the Japan small-business tax overview relevant.

The rules summarized here are subject to legislative change. A registered zeirishi (certified Japanese tax accountant) or qualified tax professional can evaluate how consumption tax registration, the simplified scheme election, and the inboisu system interact with a specific business's commercial and financial structure.