Japan’s consumption tax system underwent a major transformation with the introduction of the Qualified Invoice system on October 1st, 2023. This new system replaces the traditional transaction-based method with an invoice-based system, significantly impacting how businesses manage their consumption tax.
What is the Qualified Invoice system?
Under the new system, only invoices issued by registered “qualified invoice issuers” will be eligible for claiming purchase tax credit. This means that businesses will need to ensure their suppliers are registered as qualified issuers to claim tax deductions on their purchases.
Who is a Qualified Invoice Issuer?
Any enterprise can become a qualified invoice issuer by submitting an application for registration with the tax office. Upon approval, they will receive a unique registration number and be required to follow specific guidelines for issuing invoices.
What Information Must Be Included in a Qualified Invoice?
To be considered valid, a qualified invoice must include the following information:
- Name and registration number of the qualified invoice issuer
- Date of transaction
- Details of the transaction (including mention of reduced tax rate, if applicable)
- Total amount of consideration for each tax rate (excluding or including tax) and applicable tax rates
- Amount of consumption taxes (fractions allowed once per tax rate per invoice)
- Name of the entity to which the invoice is delivered
What Does This Mean for Businesses?
Businesses need to take action to ensure they are compliant with the new system:
- Verify Suppliers: Check if your suppliers are registered as qualified invoice issuers.
- Register as a Qualified Issuer: If your business is not already registered, apply for the registration before October 1st, 2023.
- Update Accounting Systems: Adapt your accounting systems to handle and store qualified invoices.
- Understand Transitional Measures: Familiarize yourself with the available transitional measures that might ease the adoption process.
It is important to note that purchases from non-qualified issuers (e.g., tax-exempt entities or general consumers) will not be eligible for purchase tax credit after the implementation of the Qualified Invoice system.
Kreston ProWorks: Your Partner in Navigating the New System
Our team of tax experts at Kreston ProWorks is here to guide you through the transition to the Qualified Invoice system. We can help you:
- Understand the new system and its implications for your business.
- Register as a qualified invoice issuer.
- Update your accounting systems and processes.
- Claim purchase tax credit efficiently.
Contact us today for a consultation and ensure a smooth transition to the new consumption tax system.
