Introduction of "Invoice System" of Japanese Consumption Tax-Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

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Introduction of "Invoice System" of Japanese Consumption Tax

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Introduction of "Invoice System" of Japanese Consumption Tax

Starting from 1 October 2023, the Japanese government will officially implement the "invoice system" ("インボイス制度" in Japanese) for consumption tax. The invoice system, also known as " qualified invoice-based method" ("適格請求書等保存方式" in Japanese), is a method to receive tax credit for consumption tax corresponding to multiple tax rates on purchases. Kaizen will summarize the invoicing system based on the information provided by the National Tax Agency of Japan for the reference of our current and potential clients. Kaizen also provides accounting and tax services for Japanese company. If you have any questions, please contact our professional consultants.

Definition of the Invoicing System

In the case of the seller, a business operator who is registered as a " qualified invoice issuer" ("適格請求書発行事業者" in Japanese) is required to issue qualified invoice to the buyer upon request. At the same time, the seller shall keep a copy of the qualified invoice issued and delivered.

In principle, the buyer should keep the qualified invoice issued by the seller, who is a business issuer of qualified invoice, for the purpose of purchase tax credit. In addition, if the buyer prepares a purchase order in accordance with the qualified invoice and the purchase order is confirmed by the seller, the buyer is also entitled to purchase tax credit.
Registration System for Qualified Invoice Issuer

Only business issuer of qualified invoice can issue qualified invoice. A person who intends to become a qualified invoice issuer should submit an application to the tax office. The operator may choose whether or not to register as a qualified invoice issuer. Once successfully registered following an examination by the tax office, a registration number will be issued, and the number and information of the operator will be made available for public inspection. After registration as a qualified invoice issuer, even if the amount of taxable sales during the base period is below JPY 10 million (i.e., qualifying as a tax-exempt business), the operator will still be obligated to file consumption tax and local consumption tax returns.
Qualified Invoices

A qualified invoice issued by a qualified invoice issuer shall contain the following information:

(1) Name or title of the qualified invoice issuer and registration number
(2) Transaction date
(3) Transaction details (indicating that the item is subject to reduced tax rate)
(4) Compensation amount totaled separately by tax rate (excluding or including tax) and applicable tax rate
(5) Consumption tax amount categorized by tax rate
(6) Name or title of the business operator against whom the invoice is issued

Invoice that failure to record any of the information required above will not be regarded as a qualified invoice.
Non-Obligatory Registration

Registering as a qualified invoice issuer is not mandatory. Business operators can submit an application in accordance with its business situation. When considering whether or not to register, please take note of the followings:

(1) A buyer, who is a consumption tax taxable person and wishes receive tax credit for consumption tax on purchases, should obtain a qualified invoice issued by the seller;
(2) A buyer, who is a consumption tax taxable person but has opted for the simplified tax system, is not required to obtain qualified invoice from the seller;
(3) A buyer, who is a general consumer or tax-exempt business, is not required to obtain qualified invoice from the seller;
(4) If a tax-exempt business registers as a qualified invoice issuer, it is eligible for issuing qualified invoices. However, it will automatically become a taxable person and is required to file consumption tax return even if its taxable sales do not exceed JPY 10 million during the consumption tax filing base period;
(5) Those who are not registered as a qualified invoice issuer are not eligible for issuing qualified invoices. And accordingly, they are not required to file consumption tax return.
Transitional Measures

After the introduction of the invoice system, invoices issued by consumption tax-exempt businesses and general consumers, who are not registered as qualified invoice issuers, are, in principle, not eligible for tax credit for consumption tax on purchases. However, if a purchase is made with the abovementioned persons within a certain period of time, a certain percentage of the equivalent purchase tax can be deducted as a purchase tax amount, but the invoices bearing a description of the items as well as separate accounting invoices received from tax-exempt business operators must be retained and the ledger including a description that the transitional measure has been applied must also be retained. The percentage and corresponding time frame are as follows:

(1) From 1 October 2023 to 30 September 2026: 80% of the equivalent purchase tax;
(2) From 1 October 2026 to 30 September 2029: 50% of the equivalent purchase tax;
(3) From 1 October 2029, the deduction for purchase tax will no longer be available.
Documents Required for Registration

When applying for registration as a qualified invoice issuer, business operators in Japan should submit the "Application for Registration as a Qualified Invoice Issuer (for Domestic Businesses)" only, while business operators outside of Japan should submit the "Application for Registration as a Qualified Invoice Issuer (for Overseas Businesses)", as well as information identifying the applicant's name or company name, address outside of Japan, and the business scope of the company.
Registration Time

Business operators, who intend to register as a qualified invoice issuer on 1 October 2023, should submit an application by 30 September 2023. Business operators can apply for registration through Japan's electronic tax filing system e-Tax or by posting the application form and required materials to the Invoice Registration Center ("インボイス登録センター" in Japanese) of the jurisdiction. The jurisdiction of each Invoice Registration Center can be searched on the relevant website of the National Tax Agency.

From the time of submission of application form to the issuance of registration notice by tax office (as of 30 June 2023), it takes approximately six weeks for application made on e-Tax or approximately three months for paper filing by mail. If there are any errors or omissions in the submitted application, the time required will be extended.

Registration of Tax-Exempt Businesses

Only consumption tax taxable persons are eligible to become qualified invoice issuer. Therefore, if a tax-exempt business intends to register as a qualified invoice issuer, it is necessary to submit an application for registration and a "Report on the Selection of Taxable Proprietor Status for Consumption Tax" ("消費税課税事業者選択届出書" in Japanese). However, if a tax-exempt business registers as a qualified invoice issuer during the tax period beginning on October 1, 2023, it is not required to submit the "Report on the Selection of Taxable Proprietor Status for Consumption Tax".

In the case of a consumption tax exempt business with a taxable period from 1 January to 31 December, as exemplified below:

(1)

Registration date in between 1 October to 31 December 2023

Assuming the tax-exempt business registers as a qualified invoice issuer within the period from 1 October 2023 to 31 December 2023, it will not be required to file a Report on the Selection of Taxable Proprietor Status for Consumption Tax, but will be required to file an consumption tax return for that year.

(2)

Registration date after 1 January 2024

Assuming that the tax-exempt business intends to register as a qualified invoice issuer on 1 January 2024, the operator should file a Report on the Selection of Taxable Proprietor Status for Consumption Tax and submit an application for registration as a qualified invoice issuer at least 15 days prior to the first day of the tax period for which the operator becomes taxable business, i.e., the operator should submit an application for registration as a qualified invoice issuer by 15 December 2023.

Obligations of Qualified Invoice Issuer

Upon registration as a qualified invoice issuer, the following obligations shall be fulfilled:

(1) Even if the taxable sales during the base period do not exceed JPY 10 million, you are still obliged to file a consumption tax return in accordance with the law;
(2) If the counterparty requests an invoice, a qualified invoice must be issued;
(3) Qualified refund invoices should be issued when the transaction amount is refunded due to return or price reduction;
(4) If an error exists in the qualified invoice issued, a revised qualified invoice shall be re-issued immediately;
(5) A copy of the qualified invoice shall be retained;
(6) When there is a change in the registered information, such as name or company name, address of the head office of the company, etc., a notification regarding the change should be submitted immediately.
Tax Credit for Consumption Tax on Purchases

Tax credit for consumption tax on purchases refers to the deduction of consumption taxes on taxable purchases from consumption taxes on taxable sales during the taxable period.

In the case for an apparel seller purchases one piece of clothing from an apparel manufacturer at a cost of JPY 11,000 (JPY 10,000 + 10% consumption tax of JPY 1,000), if the apparel seller sells the apparel to the general public at a price of JPY 16,500 (JPY 15,000 + 10% consumption tax of JPY 1,500), the amount of consumption tax payable on the apparel is:

JPY 1,500 (sales tax) – JPY 1,000 (purchase tax) = JPY 500 (payable consumption tax)

Kaizen can assist clients in registering for the Japan consumption tax invoice system and our fee is JPY 22,000. If required, please contact our professional consultants for more information.

As the procedures for handling the accounting, book-keeping and tax returns filing after the implementation of the consumption tax invoice system will become more complicated, Kaizen will adjust the current fees for accounting, book-keeping and tax returns filing services. For more details, please refer to the appendix service fees schedule.

Kaizen Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licenses and permits, any compliance, tax planning, audit, and accounting in Japan. Please call and talk to our professional consultants for details.

Appendix - Accounting and Taxation Service Fees Schedule

(A)

Accounting and Tax Declaration Fees Schedule

Monthly Transactions	Book-keeping Fee (JPY / Monthly)	Annual Sales (JPY)	Tax Accountant Professional Fee (JPY / Monthly)	Tax Declaration Fee (JPY / Annual)
0-50	12,500	Below 10M	24,500	220,000
51-75	17,500	10M - 15M	55,000	264,000
76-100	22,500	15M - 30M	57,500	330,000
101-125	27,500	30M - 40M	62,500	396,000
126-150	32,500	40M - 50M	67,500	440,000
151-175	37,500	50M - 75M	72,500	462,000
176-200	42,500	75M - 100M	77,500	484,000
201-225	47,500	100M - 150M	82,500	506,000
226-250	52,500	150M - 200M	87,500	528,000
251-275	57,500	200M - 250M	92,500	550,000
276-300	62,500	250M - 300M	107,500	572,000
301-325	67,500	300M - 400M	132,500	616,000
326-350	72,500	400M - 500M	157,500	660,000
Over 350	+ 5,000 / 25 transactions	Over 500M	TBA	TBA

(B)

Other Taxation Service Fees Schedule

No.	Description	Service Fee (JPY)
1	Preparation and Filing of Fixed Assets Tax (Depreciable Assets) Return	25,000 up
2	Preparation and Filing of Withholding Income Tax Return	15,000 up
3	Preparation and Filing of Legal Record for Employee Information	50,000 up
4	Declaration of Consumption Tax Return (Depending on annual taxable sales)	68,000 up
5	Declaration of Consumption Tax Refund Return (Depending on the refund amount)	100,000 up
6	Declaration of Enterprise Tax on a Pro Forma Basis (For capital exceeds JPY 100 million)	90,000 up
7	Paying Tax on behalf of the Company (When company has not opened a corporate bank account)	25,000

According to the above table, the monthly fees shall be the sum of book-keeping fee and tax accountant professional fee.

i.e. monthly transactions of Company A are 55 and annual sales is JPY 13M,

Monthly fees shall be JPY 17,500 + 55,000 = JPY 72,500
Annual fees shall be JPY 72,500 x 12 + 264,000 = JPY 1,134,000

Disclaimer

All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.kaizencpa.com or contact us through the following and talk to our professionals:
Email: info@kaizencpa.com
Tel: +852 2341 1444
Mobile : +852 5616 4140, +86 152 1943 4614
WhatsApp/ Line/ WeChat: +852 5616 4140
Skype: kaizencpa

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Introduction of "Invoice System" of Japanese Consumption Tax

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