When a business supplies both taxable and exempt goods or services, VAT calculation can be more complex. Here’s how it typically works:
- Apportionment of Input VAT:
Businesses must apportion the input VAT (VAT paid on purchases) between taxable and exempt supplies. Only the portion of input VAT attributable to taxable supplies can be reclaimed. - Direct Attribution Method (Itemized Method):
If possible, directly attribute input VAT to the respective taxable and exempt supplies. For example, if certain purchases are used solely for taxable goods, the input VAT on those purchases can be fully reclaimed. - Pro-Rata Method (Proportional Method):
When direct attribution is not feasible, use the pro-rata method. This involves calculating the proportion of taxable supplies to total supplies and applying this ratio to the total input VAT to determine the reclaimable amount. - Separate Accounting:
Maintain separate accounting records for taxable and exempt transactions to facilitate accurate VAT reporting and apportionment. - Regular Review:
Periodically review and adjust the apportionment calculations to reflect changes in the business mix of taxable and exempt supplies.
Consulting a Japanese tax professional can help ensure accurate VAT calculations on mixed supplies, maximizing allowable input VAT reclamation and ensuring compliance with Japanese VAT regulations.
The information provided here is based on legislation as it stands on the date of publication and may not reflect subsequent changes. We advise clients to seek tailored professional advice before making any decisions based on this information.