The Japanese consumption tax system has been based on a business’s bookkeeping system while many foreign country’s is based on invoices. So, the bookkeeping is the basis for the calculation of the amount of consumption taxes for a taxpayer.

The Japanese system has been criticized for many years due to a lack of  reliability and transparency, and that became serious after the tax reform for consumption tax hike and multistage rate.

To solve these problems, the Japanese government decided to introduce a new invoice system, that forces taxpayers to calculate  the amount of their consumption tax liability based on the total amount in the invoices for a given tax year.

This new consumption tax system will come into effect from October 1, 2023.

What we should do?

	Seller (include Service Providers) Obligation	Purchaser (including Consumer of Goods or Services)
Obligation	“Invoice” must have a ‘qualified invoice issuer number’ (QIIN hereinafter)which the Seller can get upon their request to the tax office.Once they apply for the qualified invoice issuer number, the Seller needs to become a taxable business even if they are an exempt business.	Must calculate their consumption tax liability based only on ‘qualified’ invoices
Risk	If an exempt business keeps its ‘exempt’ status, such seller may lose business opportunity because it will increase the purchaser’s cost.	Purchaser has no obligation* to confirm if the ‘qualified invoice issuer number’ on an invoice is real or not. However, but if the number turns out to  fake, the Purchase will need to pay additional taxes + penalties.
How can we prepare?	The Seller has to determine whether or not the Seller wants to become a qualified invoice issuer(QII hereinafter). If the Seller chooses to become a QII, the Seller needs to apply for its own QIIN, which may take a month or so to be issued. Also, if the seller issues several documents such as delivery slips, invoices, receipts, and like, the Seller has to decide which document among all of these documents will be considered as the ‘ qualified invoice ‘ style. This “qualified invoice” is the document that will indicate the issuer’s QIIN and the amount of the consumption tax that is being invoiced. In addition, for each category of goods or services provided, the QII needs to indicate the applicable consumption tax rate; i.e. either 8% or 10%.	The Purchaser should find out whether their sellers fall into the qualified issuer category or an exempt category. Regardless of which category the sellers belong to, the purchaser should keep records of this. After the consumption invoice system comes into effect in October 2023, please be sure to always ask each new seller which category they belong to. Purchasers should be aware that many exempt issuers (i.e., sellers of goods and services) may want to increase their prices. This means that the purchaser’s costs will also increase.

For further information and consultation, ask your local tax officer or we can offer a consultation service .

* On August 21st, National Tax Agency announced that purchaser has an obligation to check the effectiveness of the numbers. In practice, it is acceptable that the purchaser checks only new partner’s, or　 a partner’s with whom the purchaser do business continuously. In case the number is turned to fake, the purchaser has to pay VAT etc. on the invoice unless there are reasons attribute to the seller.