Tag: VAT records

5. VAT for Digital Goods and Service ⑩ What records should be maintained for VAT purposes when selling digital goods?

Posted on by KAZUHISA MOCHIZUKI

When selling digital goods, especially in a VAT-regulated environment like Japan, maintaining accurate and comprehensive records is crucial. Here are the types of records that should be kept:

  1. Sales Records:
    Detailed records of all sales transactions, including dates, amounts, types of digital goods sold, and the VAT charged. Each transaction should be traceable with sufficient details to identify the customer and the nature of the goods or services provided.
  2. Customer Information:
    Information about the customers, particularly their location, to determine the correct VAT treatment. For digital goods, it’s important to establish whether customers are consumers or businesses and in which country they are located.
  3. Invoices and Receipts:
    Copies of all invoices and receipts issued. These should clearly show the amount of VAT charged and state that the figures include VAT if that is the case. For sales with qualified invoices to be issued, invoices should meet the local VAT invoice requirements, including details like the VAT number of the customer if applicable.
  4. Payment Records:
    Documentation of payments received, including the method and date of payment. These records should link payments to their respective invoices.
  5. VAT Return Filings:
    Copies of all VAT returns filed and any corresponding documentation supporting the return. This includes calculations of how much VAT was due and how much was actually collected.
  6. Refund and Adjustment Records:
    Details of any refunds, discounts, or adjustments made on sales of digital goods. These records should explain the reason for the adjustment and show how the VAT calculation was altered as a result.
  7. Audit Trail:
    An audit trail that links all documents and records for each transaction to facilitate reviews and audits by tax authorities.
  8. Access to Digital Platforms:
    If using third-party platforms or marketplaces, ensure access to transactional data that might be held on these platforms, as it’s essential for VAT reporting and compliance.

These records typically need to be retained for a number of years, according to local tax laws (often around seven years in Japan). Maintaining these records not only supports compliance with VAT regulations but also helps in financial management and audit preparedness. Engaging with a tax professional who understands the specifics of digital goods and VAT requirements can provide additional guidance and ensure that record-keeping practices meet all necessary standards.
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. 

3. VAT Compliance ⑥ How long should businesses retain VAT records for audit purposes?

Posted on by KAZUHISA MOCHIZUKI

Businesses in Japan should retain VAT records for a specific period to comply with audit requirements:

  1. Retention Period:
    VAT records, including invoices, receipts, import/export documents, contracts, accounting records, and bank statements, should be retained for at least seven years from the end of the fiscal year to which they relate.
  2. Reason for Retention:
    These records serve as evidence to support the amounts reported in VAT returns and may be requested by the National Tax Agency (NTA) during audits or inspections.
  3. Penalties for Non-Compliance:
    Failure to retain records for the required period could result in penalties, fines, or adverse consequences during tax audits.

Maintaining organized and accurate records for the prescribed period is essential for demonstrating compliance with VAT regulations and ensuring a smooth audit process. A Japanese tax professional can provide guidance on record-keeping best practices and assist in establishing efficient record retention procedures.
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. 

3. VAT Compliance ③ What supporting documents should be submitted along with VAT returns?

Posted on by KAZUHISA MOCHIZUKI

In Japan, businesses may need to include or retain various supporting documents when filing their VAT returns:

  1. Invoices:
    Invoices that detail taxable sales and purchases should be kept to substantiate the amounts reported.
  2. Receipts:
    Receipts for expenses and business purchases where VAT has been paid should be retained to claim input VAT credits.
  3. Import/Export Documentation:
    Businesses involved in international trade should keep customs declarations and import/export invoices to support VAT claims.
  4. Contracts and Agreements:
    Significant contracts affecting VAT obligations, such as service agreements or long-term sales contracts, may need to be retained.
  5. Accounting Records:
    Comprehensive accounting records, including ledgers and journals, should back up the amounts declared in VAT returns.
  6. Bank Statements:
    Bank statements showing payments and receipts can help verify the financial transactions declared.

Although these documents may not need to be submitted with the VAT return itself, they must be available for inspection by the National Tax Agency (NTA) in the event of an audit. Consulting a Japanese tax professional can help ensure that your supporting documents are well-organized and align with VAT return requirements.
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.