VAT refund for foreign companies in Japan
Posted date:2023.02.28 Author：Kazuhisa Mochizuki
Application of Consumption Tax to foreign companies
Foreign companies are subject to the same rules of Japanese Consumption taxes.
- Foreign companies which do not have branch or office in Japan usually have its sales only outside Japan and no taxable sales within Japan.
- Accordingly, Foreign companies which do not have branch or office in Japan are tax-exempt enterprises under the Consumption Tax Law in most cases.
- Since Tax-exempt enterprises do not need to file consumption tax return and pay taxes due, at the same time, in return, they cannot claim refund of the excess Input Tax.
⇒ When foreign companies purchase goods in or import good into Japan, they cannot deduct/refund the input VAT incurred in Japan.
Creditable Input Tax
Foreign companies having its sales only outside Japan and no taxable sales within Japan. When they have paid Japanese input consumption tax, it is classified as the one solely attributable to sales other than domestic non-taxable sales in the context of the Itemized Method. Accordingly, a 100% of the input tax of the Purchases will be refundable for Japanese consumption tax purpose.
Foreign companies need to become a taxable enterprise by electing the status in order to claim consumption tax refund. As non-resident taxable enterprises, they also need to assign a tax agent in Japan, which is usually the same person with a tax proxy, to register in the relevant tax office.
The election must be made by the end of the first fiscal year when the foreign company starts taxable transactions etc. in Japan (Consumption Tax Act. article 9). Taxable transactions etc. in Japan include the situation where a foreign company starts purchasing taxable goods/ services in Japan solely attributable to sales outside Japan (Q&As published by NTA ).
Requirements to claim Creditable Input Tax
Appropriate book and invoices/ receipts must be kept for 7 years to claim Creditable Input Tax. (It is acceptable to keep only either of the book or invoices/ receipts for the 6th and 7th year.)
Appropriate book should contain the followings.
-For purchase of goods and services
- Supplier’s name
- Date of purchase
- The details of goods/ services
- The amount paid for the goods/ services (including consumption tax)
-For imported goods
- Date of the importation
- Details of the imported goods
- The consumption tax amount on imported goods
Appropriate invoices/ receipts should contain the followings.
-Invoices/ receipts for purchase of goods and services
- Name of the preparer of the documents
- Date of the transaction
- The details of the transaction
- The amount paid for the transaction (including consumption tax)
- The name of the purchaser*
*This can be omitted for invoices/ receipts issued by retailers, restaurants, travel agencies etc.
-For imported goods
- Director of the customs office with jurisdiction over the place of tax payment
- Date of import permit
- Contents of taxable goods
- Tax base for consumption tax on taxable goods and the amount of consumption tax related to received goods
- The name of the enterprise receiving the documents