Tag: refund

7. Reclaiming VAT ① Can non-Japanese companies reclaim VAT paid on Japanese expenses?

Posted on by KAZUHISA MOCHIZUKI

Non-Japanese companies can potentially reclaim VAT (known as Consumption Tax in Japan) paid on expenses incurred within Japan, but there are specific conditions and limitations to be aware of. Here’s how the process generally works:

  1. VAT Registration Requirement:
    To reclaim VAT in Japan, non-Japanese companies generally need to be registered for VAT in Japan. This is a crucial step because VAT refunds are typically processed through regular VAT returns.
  2. Business Purpose:
    VAT can only be reclaimed on goods and services that are used for business purposes, specifically for making taxable supplies. If the expenses are related to exempt supplies or are not directly linked to the business activity, the VAT on these expenses may not be recoverable.
  3. Local Establishment:
    Companies without a physical presence or permanent establishment in Japan often face difficulties in registering for VAT and subsequently reclaiming it. These companies may need to establish a local entity or work through a fiscal representative to manage VAT affairs.
  4. Documentation and Record-Keeping:
    To support a VAT reclaim, detailed documentation must be maintained. This includes invoices, receipts, and import documentation showing that VAT was paid. These documents must clearly indicate the VAT amount and be compliant with Japanese tax invoice requirements.
  5. Submission of VAT Returns:
    VAT reclaims are typically made through the submission of regular VAT returns. Companies need to file these returns within the stipulated deadlines, detailing their output VAT (if any) and the input VAT they intend to reclaim.
  6. Restrictions and Exclusions:
    There may be restrictions on reclaiming VAT for certain types of expenses, such as entertainment or non-business-related expenditures. Understanding these restrictions is important to ensure compliance and maximize VAT recovery.
  7. Time Limits:
    There are time limits within which VAT must be reclaimed. Typically, this is within a specific period from when the VAT was incurred or from the end of the tax period in which the expense was made.
  8. International VAT Reclaim Services:
    Some non-Japanese companies use specialized VAT reclaim services that handle the complex process of recovering VAT for businesses operating internationally. These services can navigate the local regulations and language barriers effectively.

Non-Japanese companies should consider consulting with a tax professional who specializes in Japanese tax law to navigate the complexities of VAT registration and reclaim procedures. This professional guidance is crucial to effectively manage VAT costs and ensure compliance with Japanese tax 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.

6. International Transactions ⑧ What are the documentation requirements for claiming VAT exemptions on exports from Japan?

Posted on by KAZUHISA MOCHIZUKI

Claiming VAT exemptions on exports from Japan requires comprehensive documentation to prove that the goods have indeed been exported and qualify for the zero-rated VAT treatment. Here are the essential documentation requirements:

  1. Export Sales Invoice:
    Prepare detailed invoices for all export transactions. These invoices should clearly state that the goods are intended for export and should include the value of the goods, the VAT rate applied (which would be zero-rated), and the terms of sale.
  2. Shipping Documents:
    Maintain copies of shipping documents that prove the goods were dispatched from Japan to a foreign destination. This includes bills of lading, airway bills, freight invoices, and other transport documents.
  3. Customs Declarations:
    Provide copies of the customs export declarations. These are official documents that confirm the goods have cleared Japanese customs for export and include details such as the description and value of the exported goods.
  4. Proof of Foreign Destination:
    Collect and file evidence that the goods have been received outside Japan. This can include delivery receipts, signed acknowledgments from the overseas buyer, or other proof of arrival at the foreign destination.
  5. Contracts and Orders:
    Keep copies of contracts or sales agreements with overseas customers, along with corresponding purchase orders, which detail the nature of the transaction and the terms under which the goods were sold and shipped.
  6. Record of Payment:
    Secure documentation showing that payment was received from the overseas customer, ideally linking the payment directly to the specific export transaction. This could be bank statements or payment receipts.
  7. VAT Returns and Documentation:
    When filing VAT returns, include all required documentation for exports to substantiate the zero-rating. Although detailed documents are not typically submitted with the VAT return, they must be readily available in case of a tax audit.

Maintaining these documents is crucial not only for VAT exemption claims but also for compliance with customs regulations and international trade laws. Regular audits and checks by Japanese tax authorities may require businesses to produce these documents to verify that all conditions for VAT exemptions have been met.
Businesses engaged in exporting goods from Japan should have robust systems and processes in place to manage and retain these documents. Consulting with a tax professional experienced in Japanese VAT and international exports can ensure compliance and optimize VAT management.

6. International Transactions ⑤ Is VAT on imports recoverable for non-Japanese businesses?

Posted on by KAZUHISA MOCHIZUKI

Yes, VAT on imports, known as Consumption Tax in Japan, can be recoverable for non-Japanese businesses, but certain conditions must be met. Here’s how the process generally works:

  1. VAT Registration Requirement:
    To recover VAT paid on imports, a non-Japanese business must first be registered for VAT in Japan. This is necessary because VAT recovery is managed through the filing of VAT returns, where the business deducts input VAT (VAT paid on imports) against output VAT (VAT collected on sales).
  2. Business Purpose:
    The imports must be for business purposes. VAT can only be recovered on goods and services that are used in the course of making taxable supplies. For instance, if the imported goods are used to manufacture products that are sold in Japan, the VAT on these imports would typically be recoverable. In the case of services, while the situation will become more complicated the same priciple applies. 
  3. Documentation:
    Proper documentation must be maintained to support the claim for VAT recovery. This includes customs documents that show VAT was paid upon importation, invoices, and proof that the goods or services are used for business purposes.
  4. Filing VAT Returns:
    The VAT recovery process involves declaring the input VAT on the regular VAT return forms. The business will offset this against any output VAT owed to the tax authorities, and if the input VAT exceeds the output VAT, they may receive a VAT refund or credit.
  5. Restrictions and Non-Recoverable VAT:
    There are some restrictions on VAT recovery. For example, VAT on goods and services not used for business purposes or used to make exempt supplies is typically not recoverable. It’s important for businesses to understand these limitations.
  6. Local Representation:
    Non-Japanese businesses without a physical presence in Japan often need to appoint a local tax representative to handle their VAT affairs, including registration, return filing, and recovery processes.
  7. Timing and Deadlines:
    There are strict deadlines for filing VAT returns and making claims for VAT recovery. Businesses need to be aware of these deadlines to ensure they reclaim any recoverable VAT efficiently.

Given the complexity of VAT laws and international trade, non-Japanese businesses are advised to consult with tax professionals who specialize in Japanese tax law. This ensures compliance with all regulatory requirements and maximizes the potential for VAT recovery.
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.

6. International Transactions ② Is VAT charged on imported goods and services in Japan?

Posted on by KAZUHISA MOCHIZUKI

Yes, VAT, known as Consumption Tax in Japan, is charged on most imported goods and certain imported services. Here’s how it is applied:

  1. Imported Goods:
    VAT is levied on goods imported into Japan. The VAT is calculated based on the cost, insurance, and freight (CIF) value of the goods plus any customs duties and other applicable taxes. This ensures that imported goods are taxed in a similar manner to goods supplied within Japan, maintaining fairness and neutrality in taxation.
  2. Payment at Customs:
    VAT on imported goods is usually collected at the point of entry by the customs authorities. Importers must pay this VAT before the goods can be released from customs.
  3. Imported Services:
    For services, VAT applies if the place of supply is considered to be in Japan. This includes services such as digital products or online services consumed in Japan, regardless of where the provider is located. Most other services are considered to be supplied outside Japan if the recipients are located outside Japan. Foreign service providers may need to register for VAT and charge Japanese VAT if they provide services to Japanese consumers.
  4. Reverse Charge Mechanism:
    In B2B transactions involving imported services, the reverse charge mechanism often applies. This means the Japanese business receiving the service, rather than the foreign supplier, is responsible for accounting for the VAT. The Japanese company must report and pay the VAT as part of their regular VAT filing.
  5. Reclaiming VAT:
    Businesses that import goods for use in their taxable business activities can often reclaim the VAT paid at the point of entry as input tax, similar to VAT paid on domestic purchases.
  6. Compliance and Documentation:
    Importers need to maintain thorough documentation, including customs declarations and proof of VAT payments, for tax compliance and potential audits.

For businesses involved in importing goods or services into Japan, understanding these VAT obligations is crucial for correct tax handling and compliance. It’s advisable to work with a tax professional who can provide guidance specific to your business activities and help ensure 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.

6. International Transactions ① Are exported goods subject to VAT in Japan?

Posted on by KAZUHISA MOCHIZUKI


No, exported goods are not subject to VAT in Japan. Exports are generally zero-rated, which means that while VAT is technically applicable, it is levied at a rate of 0%. Here’s how it works:

  1. Zero-Rated VAT:
    When goods are exported from Japan, they are treated as zero-rated for VAT purposes. This means that exporters do not charge VAT on these sales.
  2. Input VAT Reclamation:
    Although no VAT is charged on exports, businesses can still reclaim any input VAT paid on purchases related to the production of these exported goods. This is intended to ensure that goods exported from Japan are competitively priced in international markets, free of tax cost.
  3. Documentation Requirements:
    To qualify for zero-rating, businesses must provide appropriate documentation proving that the goods have been exported. This includes customs declarations, shipping documents, and other relevant export evidence.
  4. Compliance and Reporting:
    Businesses must still report these zero-rated sales in their regular VAT returns. Detailed records of exports and related input VAT credits should be meticulously maintained to support these filings.
  5. Risk of Audit:
    Export transactions are often scrutinized by tax authorities to ensure compliance with zero-rating requirements. Businesses must ensure that all necessary documentation is accurate and readily available in case of an audit.

By effectively managing these aspects, businesses can ensure compliance with Japanese VAT laws while optimizing their VAT position in relation to exports. Consulting a tax professional experienced in international trade and VAT can help navigate these rules and ensure that all necessary documentation and reporting are correctly handled.
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. 

4. VAT Compliance ⑩ How does VAT affect customs duties on imported goods?

Posted on by KAZUHISA MOCHIZUKI

When importing goods into Japan, VAT and customs duties are both important considerations, but they are distinct charges:

  1. Customs Duties:
    Customs duties are tariffs imposed on imported goods based on their classification and value. The rates vary depending on the type of goods being imported.
  2. Import VAT:
    VAT is applied to the value of imported goods, including the cost, insurance, and freight (CIF) value, plus any applicable customs duties. This ensures that the VAT applies to the total landed cost of the goods.
  3. Calculation Example:
    If you import goods with a CIF value of 1,000,000 yen and customs duties of 50,000 yen, the VAT is calculated on the total value of 1,050,000 yen. At a standard VAT rate of 10%, the import VAT would be 105,000 yen.
  4. Payment at Customs:
    Import VAT and customs duties are usually paid at the time of customs clearance. The importer must settle these charges before the goods can be released.
  5. Reclaiming Import VAT:
    Businesses can reclaim import VAT as input VAT if the imported goods are used for taxable business activities. This is done through the regular VAT return process, effectively reducing the business’s overall VAT liability.
  6. Record-Keeping:
    Accurate records of all import transactions, including customs declarations and VAT payments, are essential for compliance and to support any input VAT claims.

Understanding how VAT interacts with customs duties is crucial for accurately calculating the total cost of imported goods and ensuring compliance with Japanese tax regulations. Consulting a Japanese tax professional can help navigate these processes and optimize VAT and customs duty management.
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. 

1. Introduction to Japanese VAT ⑨ Can I get a brief overview of how VAT works in Japan?

Posted on by KAZUHISA MOCHIZUKI

This explains Japanese VAT in simple terms, including its key components and processes.

  1. Rates: Japan has a standard VAT rate of 10% and a reduced rate of 8% for essential items like food and newspapers.
  2. Collection Process: 
    Businesses charge VAT to customers on their sales and pay VAT on their purchases. They report the difference between the collected VAT and the paid VAT in periodic tax filings.
  3. Reporting: 
    Businesses must file regular VAT returns, usually on a quarterly basis, to the National Tax Agency (NTA). They remit the difference between the VAT collected from customers and the VAT paid on business expenses.
  4. Exemptions: 
    Certain goods and services, such as medical care and education, may be exempt from VAT.
  5. Reclaiming VAT: 
    If a business pays more VAT than it collects, it can reclaim the difference, helping reduce its tax liability.

A tax professional can guide you through these components and processes to ensure your business adheres to the rules while maximizing available benefits.
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.

1. Introduction to Japanese VAT ⑤ How does Japanese VAT affect my business?

Posted on by KAZUHISA MOCHIZUKI

Japanese VAT, also known as Consumption Tax, can significantly impact your business operations if you’re a non-Japanese enterprise selling goods or services in Japan.

  1. Pricing Adjustments: 
    Your pricing strategy needs to incorporate VAT to remain competitive while covering the tax liability.
  2. Registration Requirement: 
    Non-Japanese companies meeting the turnover threshold or those selling digital services to Japanese customers must register for VAT in Japan.
  3. Compliance Costs: 
    You’ll need to implement VAT collection, accounting, and reporting practices that align with Japanese regulations, potentially requiring changes to your internal processes.
  4. Reclaiming Input VAT: 
    If you’re paying VAT on your own purchases for goods and services in Japan, you can often reclaim it, helping reduce your overall tax liability.
  5. Cross-Border Complexity: 
    Importing or exporting goods and services may trigger special VAT rules, such as reverse charges or zero-rating.

Consulting a Japanese tax professional can provide clarity on registration requirements, pricing strategies, and compliance procedures, ultimately reducing your tax risks and helping your business operate smoothly in the Japanese market.
The tax 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.