Japan Approves Tax Reform 2023

March 15, 2023

Summary

The Japanese Government approved Tax Reform 2023. The reform introduces transitional measures in the Qualified Invoice System (QIS) and outlines plans to review the rules applicable to platform operators and electronic record retention. The Japanese National Tax Agency also released a detailed FAQ about the QIS that provides an overview, details on the registration procedure, timelines, and obligations of the Qualified Invoice Issuers.

Timeline

Japan is introducing a Qualified Invoicing System from October 1, 2023.

Impact

Qualified Invoicing System requirement

Businesses in Japan are currently not required to issue tax invoices for supplies made to other businesses. This is about to change from October 1, 2023, as Japan is introducing a QIS for Japanese Consumption tax (JCT) purposes. Qualified Invoice Issuers will be required to issue Qualified Invoices to JCT taxpayers. Buyers will be required to have a Qualified Invoice to claim a deduction for any input JCT. Without a Qualified Invoice, the buyer may be exposed to a risk of losing JCT credit. With JCT rates of 8% or 10% applied on the supply, this could have quite an impact on taxpayer margins.

ūüĎČ Learn more about the Qualified Invoice System in Japan.

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Additional Consumption Tax measures

From a Consumption tax perspective, the Tax Reform 2023 introduces the following:

  1. Transitional measures in the Qualified Invoicing System

    The transitional measures, amongst others, include changes in the timing and the deadline to register as a Qualified Invoice Issuer, simplifications for new JCT taxpayers, and simplified documentation requirements for input JCT deduction for small businesses.
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  2. Review of the taxation of marketplace operators providing cross-border services

    Based on the global trend to shift the indirect tax burden to digital platform operators, the Tax Reform 2023 includes a plan to review the taxation of marketplaces providing cross-border services to promote a fairer and more neutral tax system.
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  3. Revisions of the Electronic Record Retention Law

    New requirements and procedures in the Electronic Record Retention Law have been proposed, which relate to scanned digital documents and electronic transaction records, to ease and accelerate the transition to electronic record retention.

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Naina Himatsinghka
Tax Researcher

Naina Himatsinghka is a Tax Researcher for Fonoa based in New Delhi, India. Prior to Fonoa, she spent four years managing Uber’s tax compliance and reporting functions for India and South Asia. Drawing on her eight years of experience as a tax professional, she’s excited to help Fonoa automate the world’s most cumbersome tax laws. Fun fact: After becoming a mother of two, she believes that tax problems are easier to solve than parenting twins.