Japan Tax Reform 2024 : JCT impact on foreign companies & digital platforms

Proposed in December 2023, the Japan’s Tax reform has been voted by the Diet on March 28.

Besides changes in Corporate and International Taxation, the reform modifies the liabilities for Japanese Consumption Tax which can heavily impact foreign businesses.

I. Limitation of JCT exemption through revised immediate registration criteria

A. Taxable sales over JPY 10 million in a specific period of the first 6 months of the tax year

📢 removal of the cumulative condition of minimum salary costs of JPY 10 million in the specific period

B. Paid-in capital ≥ JPY 10 million

📢 removal of the cumulative condition of newly incorporated company (< 2 years)

C. Annual worldwide sales of the foreign parent company over JPY 5 billion

📢 extension of the special rule for newly incorporated companies whose parent company’s JCT taxable sales exceed JPY 500 million in the base period (Y-2)

The annual sales threshold of JPY 10 million in the base period (Y-2) remains applicable to foreign entities if the above conditions are not met.

Volontuary JCT registration is possible for companies not meeting any of these criteria.

II. Introduction of deemed supplier’s JCT liabilities of digital platforms

Starting from April 2025 (with a grace period of one year), digital platforms facilitating cross-border sales of digital services of foreign sellers towards Japanese individuals will become liable for JCT collection on these transactions, under the status of Designated Platform Operators, if the total facilitated sales’ amount exceeds JPY 5 billion in the tax year.

This measure can oblige foreign digital platforms to get JCT registered in Japan.

Since October 2015, foreign sellers of digital services are liable for JCT collection in Japan if their B2C sales exceed the registration threshold of JPY 10 million.

This liability will be shifted to Designated Platform Operators who will collect and remit JCT to the Japanese National Tax Agency (NTA). The offshore sellers will not be liable for JCT on their deemed sales towards digital platforms.

The B2B sales of electronic services are not concerned by this obligation as the JCT registered service recipients are liable for JCT collection in Japan under the reverse charge mechanism.

📢 Next step before July 31, 2024 : Digital platforms (local and foreign) shall asses the amount of the facilitated B2C cross-border sales of electronically supplied services in the fiscal year ending on or before 31/07/2024 and notify the NTA by 30/09/2024 if the threshold of JPY 5 billion was exceeded. The designation will be effective starting from 01/04/2025.

For the subsequent tax period, the platforms exceeding the threshold can notify the NTA within 2 months after the end of the tax period, for the designation becoming effective 6 months later. The designation remains in place until the facilitated sales fall below JPY 5 billion for three consecutive tax years.

The designated platform operators will collect and remit the JCT on their own and facilitated sales. They will have to disclose some information of foreign sellers in the annual JCT return.

The NTA will publish the list of designated platform operators which would be required to inform the foreign sellers about their new status.

The foreign sellers will be able to get JCT unregistered in Japan in absence of other taxable supplies above JPY 10 million per tax year. It can be useful to keep the registration in place for being able to deduct JCT on local purchases and expenses.

JCT rules in Japan

JCT Rates

The are two JCT rates Japan:

• Standard rate of 10 %
• Reduced rate of 8%: food and non-alcoholic drinks, newspapers subscriptions

Certain supplies are zero-rated or JCT exempt in Japan: exports, sales or lease of land, monetary transactions, sales of securities and public services.

Taxable supplies

The JCT is due on imports, local supply of goods and services.

The reverse charge mechanism is applicable on B2B supply of digital services of foreign sellers if the recipient is JCT registered in Japan.

Registration thresholds

• 10M JPY of annual sales in the base period (Y-2) or in the specific period (S1 of Y-1)
• 10M JPY of paid-in capital of the newly incorporated company
• 500M JPY of annual sales in the base period of the newly incorporated entity’s parent company

Specific rules will apply for foreign companies starting from October 2024. (See point 1 of this article.)

Registration Procedure

Voluntary registration is possible in Japan.

Non-resident company must appoint a local tax representative.

Following documents are required for the JCT registration:

• JCT registration form
• Certificate of incorporation
• Trade register extract
• Articles of Associations
• Tax certificate from the country of establishment
• Passports of Directors and shareholders;
• Power of Attorney for the tax representative

JCT Compliance

JCT returns are due annually, within 2 months after the tax year (by February 28).

JCT deduction & recovery

Input JCT is deductible from the output VAT collected by the JCT registered businesses.

Foreign companies without taxable supplies in Japan can get JCT registered for obtaining the refund of JCT paid on their local business purchases and expenses. The registration must be done one year prior to the expense year.

BtoBnice will be happy to support your company with JCT registration and JCT compliance in Japan: contact@btobnice.com