Tag: platform taxation

5. VAT for Digital Goods and Service ⑥ How is VAT charged when digital services are sold through a third-party platform?

Posted on by KAZUHISA MOCHIZUKI

For foreign businesses providing digital services toward Japanese consumers, the following platform taxation will be taking effect on and after April 1 2025. When digital services are sold to consumers in Japan through third-party platforms, the VAT obligations can vary depending on the platform’s role and the agreement with the service provider. Here are some key considerations:

  1. Platform Responsibility:
    In many cases, third-party platforms that facilitate sales of digital services are responsible for collecting and remitting VAT. This is particularly common when the platform controls the terms of sale, payment processing, and delivery of the service.
  2. Supplier Responsibility:
    If the platform only acts as a marketplace and does not control the payment or delivery of the service, the individual suppliers may still be responsible for charging and remitting VAT. In this scenario, suppliers must ensure they are registered for VAT in Japan if required.
  3. VAT Collection at Point of Sale:
    VAT must be included in the price paid by the consumer. The platform, if responsible, collects VAT at the point of sale and issues receipts that detail the VAT charged.
  4. Registration Requirements:
    Both platforms and individual suppliers must assess whether they need to register for VAT in Japan. Platforms often have mechanisms in place to manage VAT for all transactions that occur through their service, simplifying compliance for individual suppliers.
  5. Documentation and Reporting:
    The responsible party must maintain accurate records of all sales, VAT collected, and VAT remitted. Regular VAT filings are required to report these details to the Japanese tax authorities.
  6. Contractual Agreements:
    The agreement between the digital service provider and the platform should clearly state which party is responsible for VAT compliance. This helps prevent any misunderstandings or non-compliance issues.
  7. B2B Transactions:
    For sales to businesses, the reverse charge mechanism may apply. Platforms typically have systems to identify whether a purchaser is a business and apply the reverse charge accordingly.

Businesses selling digital services through third-party platforms should ensure clarity on VAT handling as part of their agreement with the platform. Consulting with a tax advisor can provide insights into the specifics of VAT compliance for digital sales in Japan, ensuring that both platform and suppliers fulfill their tax obligations accurately.
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.

2. Registration for VAT ⑨ How does the VAT registration process differ for e-commerce businesses?

Posted on by KAZUHISA MOCHIZUKI

The VAT registration process for e-commerce businesses in Japan involves unique considerations:

  1. Non-Resident Registration:
    Foreign e-commerce businesses selling digital products or services directly to Japanese consumers must register for VAT, regardless of their physical presence in Japan.
  2. Reverse Charge Mechanism:
    In some B2B transactions, the Japanese customer may need to apply the reverse charge mechanism, where the customer accounts for the VAT instead of the seller.
  3. Local Tax Representative:
    Foreign businesses might need a local tax representative to handle VAT matters in Japan, ensuring all returns and tax payments are filed and submitted on time.
  4. Platform Compliance:
    E-commerce businesses using third-party platforms or marketplaces might need to coordinate VAT collection and compliance with these platforms.

Given the specific rules and mechanisms that apply, e-commerce businesses should work with a Japanese tax professional to simplify the registration process and understand their unique VAT obligations.
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. 

2. Registration for VAT ⑦ Are there any exceptions or exemptions to VAT registration for foreign businesses?

Posted on by KAZUHISA MOCHIZUKI

Yes, there are exceptions and exemptions to VAT registration for foreign businesses in Japan:

  1. Low Turnover Threshold:
    Foreign businesses with taxable sales below 10 million yen over the base period generally don’t need to register for VAT unless they anticipate exceeding this threshold soon.
  2. Specific Exempt Services:
    Certain services, such as medical care, education, and specific financial transactions, are exempt from VAT, which could exempt the business from registration requirements.
  3. Reverse Charge Mechanism:
    In some cases, the reverse charge mechanism applies. Instead of the foreign business needing to register and collect VAT, the Japanese customer is responsible for accounting for VAT directly.
  4. Digital Services Simplification:
    Some digital services may qualify for simplified procedures, which can affect VAT registration requirements.

It’s essential for foreign businesses to analyze their activities in Japan to understand their specific VAT obligations and exemptions. A Japanese tax professional can provide tailored advice, helping companies avoid unnecessary registration while ensuring compliance.
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.