Consumption Tax Criteria for Service Transactions

Where such services are provided in Japan, consumption tax shall be imposed (Consumption Tax Act Article 4.3.2).

In cases where the services are provided in Japan and in regions other than Japan, or where the place where the services are provided is not clear, if the location of the office, etc. related to the provision of the services of the person providing the services is in Japan, the services shall be deemed to have been provided in Japan (Order for Enforcement of Consumption Tax Act 6.2.6).

Export transactions are tax exempt

Services provided to non-residents of Japan are considered exports, and export transactions are exempt from consumption tax (Consumption Tax Act Article 7.1.5, Order for Enforcement of Consumption Tax Act 17.2.7).

Exception to consumption tax on cross-border electronic services

If the address of the cross-border electronic service recipients is in Japan, the service transaction is subject to consumption tax (Consumption Tax Act Article 4.3.3).

Electronic services are defined as services provided via electronic and telecommunication networks in the Consumption Tax Act Article 2.1.8-3, and in the NTA’s guidance material, “Services that allow customers to use software and databases in the cloud” is listed as an example of transactions covered by the “provision of electronic services”.

Technically, Japanese government does not have real control over the service providers outside its own jurisdiction. Therefore, the Japanese government is attempting to ensure effective tax payment by providing incentives for service recipients to be eligible for purchase tax credit. Specific taxation methods will be explained in a separate article.