Understanding the Transitional Measures of the Invoice System: A Guide for Japanese Companies

• Date: 31 July 2023
• Category: Consumption Tax, Invoice System, インボイス制度

Understanding the Transitional Measures of the Invoice System: A Guide for Japanese Companies

Hello, readers! In today’s post, we delve into an essential topic for Japanese businesses – the transitional measures for the invoice system. The invoice system is a mechanism that enables the issuance of qualified invoices concerning consumption tax liability, allowing for a precise calculation of the credit for purchase tax previously estimated by the consumption tax.
In the consumption tax system, tax-exempt businesses have been disadvantaged, leading to debates about the system’s discontinuation, as tax-exempt businesses will no longer deduct the purchase tax on goods and services received from other tax-exempt businesses. Although tax-exempt businesses are not being treated less favorably simply because they will no longer receive the portion of benefits they originally received, they may feel a sense of burden.
Transitional measures are now in place to alleviate these burdens. In this post, we will detail these transitional measures. Let’s ensure we understand the key points to facilitate a smooth response!

Deduction of Tax on Purchases After Introduction of the Invoice System

Following the invoice system’s introduction, taxable purchases from businesses other than qualified invoicing businesses will, in principle, no longer be eligible for the credit for taxable purchases. However, a six-year transitional measure has been established, which allows a certain percentage of taxable purchases from tax-exempt enterprises to be credited against purchase taxes.

Reason for the 6-year Transitional Period

The primary reason for the six-year transitional measure is that the invoice system’s implementation will impact many businesses, including tax-exempt businesses and consumers. Particularly, the amount of purchase tax due on purchases from businesses other than qualified invoicing businesses will be forced to be revised compared to before the system’s introduction, which may result in a greater financial burden for tax-exempt businesses.

How to Register as a Qualified Invoicing Business

To become a Qualified Invoicing Business, you must submit an application for registration to the district director with jurisdiction over your place of tax payment. The application form can be downloaded from the website of the National Tax Agency. The application can be submitted by e-Tax or by mail. e-Tax is recommended.

Special Exception for Tax-Exempt Businesses Registering Invoices (20% Special Exception)

Tax-exempt businesses should also be aware that there is a special exception when registering for the invoice system. This special exception is called the “20% special exception” and applies to businesses that become taxable businesses as a result of the invoice system.

In conclusion, the introduction of the invoice system is a significant change that will affect all businesses in Japan. It is crucial to understand the transitional measures and how they will impact your business operations. Stay informed and prepared to ensure a smooth transition to the new system.