German Tax Updates in May 2024

1.  Earn-out Payments are not Taxable Until Received 

2.  Reversal of Hidden Reserves: Profit Surcharge of 6% is Legal 

3.  Caution Against Occupational Hazards for Short-Term Employees 

4.  Basic Information of the Electronic Logbook – Changes Must be Excluded or At Least Documented 

5.  Job Search: Which Application Costs are Tax Deductible?


U.S. Tax Update: IRS Announces Increase in Number of Tax Examinations

On May 2, 2024, the IRS released its Strategic Operation Plan (“SOP”) for the future.  In this plan, it was revealed that the IRS aims to increase the number of tax examinations significantly.

As a background, in August 2022, the U.S. Congress passed the Inflation Reduction Act (“IRA”), which aimed to invest in clean energy and reduce the budget deficit. With this law, a total of $80 Billion in additional funding was allocated to the IRS to increase tax revenues by strengthening tax enforcement. Specifically, the main focus was to increase revenue by modernizing the IRS to improve its services and strengthening tax examinations. Subsequently, in June 2023, the negotiations between Republicans and Democrats to reduce the budget deficit resulted in a reduction of $20 Billion from the additional budget for the IRS. Still, for the IRS, whose budget has been continuously cut, this additional budget represented a significant win. For the IRS facing a variety of challenges, this SOP is being viewed as a major step toward reform.


Taxation on Lottery Winnings in the U.S. (Japanese Text Only)

米国の宝くじですが、米国では日本と違い当選者が出なかった場合は当選金が次の抽選に繰り越されるため、当選金の金額が桁違いとなることが多く、2023年7月10日現在、CA州のMEGA MILLIONSと呼ばれる宝くじは1等賞金が$480million (672億円、$1=140円)、Powerballと呼ばれる宝くじは1等賞金が$650million (910億円、$1=140円)となっています。

New invoice system in japan 2023

Introduction to the New Japanese Invoice System Implementation & Qualified Invoice Issuers

May 2023

  1. 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.  

  1. 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.

  1. 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. 

In order to become a qualified invoice issuer, “Eligible Invoice Issuer Application” must be submitted to the authorized tax office.

In order to be registered from the first day of the introduction of the new Japanese invoice system, October 1, 2023, the application was accepted from October 1, 2021 to March 31, 2023 in principle, but it is now possible to be registered on October 1, 2023 if the application is submitted by September 30, 2023, even after April 2023. (Tax Reform 2023)

It is also possible to register on or after October 2, 2023, but please note that the submission deadlines are different. 

To avoid confusion, we recommend your business to file the registration as early as possible.

HLS can support the application preparation and submission process.

Please feel free to contact us.

  1. 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.

  1. 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:

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
In case of not becoming a qualified invoice issuer■ Can enjoy the tax exemption benefits​
■ Filing of consumption tax return is not necessary, hence no additional professional fees​
■ Possibility of termination of business trading due to disadvantage to the counterparty of the transaction (input tax credit is not available to the invoice receiver)​
■ 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. 

In addition, if tax exempted entities take the opportunity of the invoice system and become taxpaying entities as a qualified invoice issuer, it is possible to apply the special provisions for burden reduction measures. For details, please refer to 7. Burden Reduction Measures for Small Businesses (20% Special Provisions).

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.

  1. 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. 

  1. Please request your vendors to become qualified invoice issuers 
  2. 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.

  1. Burden Reduction Measures for Small Businesses(20% Special Provisions) 

When a tax exempted entity becomes a taxpaying entity as a qualified invoice issuer under the invoice system, the amount of the tax credit for purchases may be considered as a special tax credit (an amount equal to 80/100 of the amount remaining after deducting the total amount of consumption tax on the return of consideration for sales from the total amount of consumption tax on the total taxable base amount. (2023 Tax Reform). 

If this special provision is applied, 20% of the sales tax amount is to be paid.

Applicable period

Taxable period that includes the date from October 1, 2023 to September 30, 2026

Image of the applicable period (for a corporation with a December 31 year-end)

Businesses to which the provision can be applied

Businesses that have taken advantage of the invoice system to become a qualified invoice issuer from a tax exempted entity (including cases where a business has become a taxpaying entity by submitting a Consumption Taxpayer Election Notification). 

In other words, “Qualified invoice issuers with taxable sales of 10 million yen or less in the base period (*)” are eligible.

However, for example, the 20% special provision cannot be applied to the following taxable periods.

●Taxable periods including October 1, 2023 for businesses that submit a Consumption Taxpayer Election Notification and become a taxable business entity on or before September 30, 2023

●Taxable periods during which “tax exemption threshold system” will not be applied even if the entity ‘s taxable sales was 10 million yen or less in the base period(*).

*Base period: The second preceding fiscal years. 


●The 20% special provision can be applied regardless of whether general taxation or simplified taxation is selected.

No prior notification is required for application, and the choice can be made at the time of filing the tax return.

●Special provisions are also provided for the timing of submission of a Consumption Tax Simplified Taxation System Election Notice after the 20% Special Provisions are applied.

Please get in touch with your point of contact at HLS in case any specific explanations on this are required.


Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.

The Valuation of Startups (Japanese text only)




About U.S. Export Regulations – Part I: Overview of U.S. Export Regulations (Japanese Text Only)



Key Takeaways from the 2022 Amendments to Japan’s Transfer Pricing Administrative Guidelines: Loans and Debt Guarantees (Part 1 of 2)

  1. Introduction

In June 2022, the National Tax Administration Agency (NTA) announced amendments to the Transfer Pricing Administration Guidelines. The amendments are thought to reflect the January 2022 update to the OECD Transfer Pricing Guidelines on financial transactions, and they revise Japan’s legislation on the treatment of financial transactions and cost contribution agreements (CCA). It should be noted that this may affect Japanese companies operating outside of Japan, including those operating in the United States.


Information on Amendment to the Act on Electronic Preservation System for Books and Documents Related to National Taxes in Japan



HLS GLOBAL Social Insurance and Labor

Advisory Corporation

As part of the 2021 tax reforms, the Japanese National Tax Agency has made amendments to the Act on Electronic Preservation System for Books and Documents related to National Taxes, and this will take effect on January 1st, 2022.

These drastic amendments are being made in order to improve productivity by digitization of accounting processes, promote remote work and improve bookkeeping methods through the utilization of cloud-based accounting software. Before the new regulations are enforced, and for further details, please refer to the National Tax Agency website (in Japanese only), Electronic Preservation System for Books and Documents.


Why Comprehensive Tax Advisory Might be Essential for Your Business

Over the last decade, Japan has introduced various measures to combat perceived tax avoidance by multinational enterprises. Putting the activities of global corporations under increased scrutiny, it has become imperative for businesses operating in Japan to apply a sufficient amount of precaution and due diligence to all things tax-related.

As well as this, the global tax landscape continues to evolve, with each nation updating its own policies to be aligned with current trade and foreign policies. Should entities fail to navigate both the obligations of their home countries and Japan’s complex tax requirements, the consequences can be severe.

All this is to say that having a comprehensive tax advisory to support your expansion or Japan market entry activities is essential. We explore this topic and how to find your own tax advisory.