- What is the new Japanese Invoice System？
Japan will implement a qualified invoice storage method (Japanese Invoice System) from October 2023. Under this new Japanese Invoice System, all qualified invoices, where tax credits for Japanese Consumption Tax (JCT) are applicable, will require proper storage as per the stipulated guidelines. Otherwise, deductions through tax credits may not be applicable, and the amount of JCT payments may increase.
- What is a Qualified Invoice?
A ‘Qualified Invoice’ is an Invoice or Receipt that is issued by a qualified invoice issuing company and includes the following 6 components
| 1. The name and registered number* of the qualified invoice issuer 2. Transaction Date 3. Transaction Detail (clarification of item subject to the reduced tax) 4. Transaction Amount (Display respective amounts by applicable tax rate 5. Consumption Tax Amount along with the applicable tax rate* 6. Name of the counterparty along with billing address | *Input of registered number and consumption tax along with the applicable tax rate is the key differentiator from the current invoicing system. |
- Who is a Qualified Invoice Issuer？
A Qualified Invoice Issuer is a taxpaying business that has applied to the tax office and has been registered as a qualified invoice issuer with tax office. Upon registration as a qualified invoice issuer, the business operator will be given a registered number, and that will also be available along with company name on the National Tax Agency website.
Submission of the “Eligible Invoice Issuer Application” to the authorized tax office by March 31, 2023 allows the business to become a Qualified Invoice Issuer from the first day of the introduction of the new Japanese invoicing system, which is October 1,2023.
HLS can support the application preparation and submission process.
Please feel free to contact us.
- Influence on a Tax Paying Entity
A current taxpaying entity is considered to be eligible to become a qualified invoice
issuer without exception and should apply to become a qualified invoice issuer.
For instance, if a taxpaying entity is a non-qualified invoice issuer, they will not be able to
take tax credits on the input consumption tax due to a non-qualified invoice. Such
disadvantage to vendors may result in suspension of trading transactions or
discount requests to equalize the amount of non-deducted consumption tax.
- Influence on a Non-Tax Paying Entity
Non-taxpaying or tax exempted entities are those that are exempted from consumption tax returns and tax payments. Essentially, a non-taxpaying entity cannot become a qualified invoice issuer. In order for a non-taxpaying entity to become a qualified invoice issuer, it must become a tax paying business first, and waive the benefits of tax exemption. Besides that, when a non-taxpaying entity issues an invoice that includes consumption tax, the consumption tax cannot be deducted by the invoice receiving vendor. However, a transactional measure of 6 years is provided as follows.
- For an invoice issued by a non-taxpaying entity between October 2023 – September 2026: Only 80% of the consumption tax is eligible for tax credit for invoice receiver
- For an invoice issued by a non-taxpaying entity between October 2026 – September 2029: only 50% of the consumption tax is eligible for tax credit for invoice receiver
- For all invoices issued after October 2029：No tax credit on consumption tax will be available for invoice receiver
The advantages/disadvantages for a non-taxpaying entity to become a qualified invoice issuer are summarized below:
| Advantage | Disadvantage | |
| In case of becoming a qualified invoice issuer | ■ Ability to create and issue qualified invoices、and no disadvantages on business trading/transactions ■ Ongoing business trading with vendors continues (no business loss due to consumption tax issues) | ■ Can no longer enjoy the tax exemption benefits ■ Need to file consumption tax returns resulting in an increase in professional fees ■ Cannot claim consumption tax deductions |
| In case of not becoming a qualified invoice issuer | ■ Enjoy tax exemption benefits ■ No need to file consumption tax returns ■ No additional professional fees | ■ Possibility of termination of business trading ■ Possibility of easily getting requested to offer discounts in the amount equivalent to the non-deductible consumption tax amount |
For non-taxpaying entities currently, please consider the advantages and disadvantages as mentioned above before deciding to become a qualified invoice issuer.
Please get in touch with your point of contact at HLS in case any specific explanations on this are required.
HLS can support the Qualified Invoice Issuer application and procedures.
Please feel free to contact us.
- Policy for our Client Vendors
If your vendor is a non-taxpaying entity, they cannot issue qualified invoices to you. As a result, after your consumption tax has been calculated, there is a possibility that your consumption tax payment increases (or consumption tax refund decreases). The difference could be equivalent to the non-deductible consumption tax amount from non-qualified invoices.
After the new Japanese Invoice System is implemented, in order to reduce your economic burden, if any, please consider the following measures towards your vendors.
- Please request your vendors to become qualified invoice issuers
- If your vendors do not become qualified invoice issuers, you may request them for a discount on their goods and services, which would be in the amount equivalent to the non-deductible consumption tax amount.
HLS can support the requirements to prepare a new policy letter for your vendors.
Please feel free to contact us.
