Japan: New mandatory VAT invoice system from October 2023

The Japanese consumption tax (JCT) regime, also known as value-added tax (VAT), will be subject to a mandatory new invoicing system. This new system, known as The Qualified Invoice System, will be implemented from 01 October 2023. Here’s what businesses need to know about the upcoming changes and how they will impact their VAT return process.

The Qualified Invoice System

In essence, the new qualified invoice system is similar to countries that implement value-added tax (VAT) on goods and services and allows taxpayers to claim VAT returns (input tax credit). However, they will only be considered eligible if they retain a qualified invoice from a registered invoice issuer. Applications to become a registered invoice issuer need to be submitted to the National Tax Office. Deadlines for these applications close on 31 March 2023. 

Once approved, registrants may issue qualified invoices to customers and must retain copies of these invoices. However, it’s important to note that non-registered businesses cannot issue qualified invoices. 

E-Invoicing and VAT compliance in Japan

Since Japan uses different rates for their consumption tax (VAT), namely 8% and 10%, the current system makes it challenging for businesses to list their payments correctly. Therefore, as a part of the new Qualified Invoice System, it has been approved and confirmed that the Japanese Government will use PEPPOL as the new standard for compliant e-invoicing. PEPPOL is an e-invoicing framework adopted by 32 countries worldwide; Japan is now one of these countries. Under the new system, the e-invoicing requirements are to follow a strict timeline, and e-invoicing is mandatory for all input VAT credit purposes, starting 01 October 2023.

The Japanese Government has also stipulated specific requirements to ensure that e-invoices are compliant. These requirements specifically centre around the information that the invoices must contain. 

VAT treatment in the interim

In the meantime, as businesses anticipate the new system, tax authorities have settled for a rate-classified invoice system. This applies from 1 October 2019 through to 30 September 2023. This system allows JCT taxpayers to differentiate invoices between 8% and 10%. 

The new system aims at combating the confusion around imposing different VAT rates, ultimately reducing the risk of incorrectly calculating their input VAT due to ambiguous and/or incorrect VAT invoices. 

Prepare your business for change

Although the new changes may seem as if they aren’t relevant just yet, businesses must get ahead of the compliance curve.

Introducing the qualified invoice system may have profound implications for some companies, and proactive preparation will ensure that these implications yield business opportunities instead of compliance exposure. 

As the new system requires companies to adapt new IT systems, businesses must ensure that their internal processes and third-party contracts align with these upcoming changes, to fully utilise the new VAT return opportunity fully. 

VAT Refunds from Japan for your business

Please reach out to VAT IT experts who can guide you through every step of the journey, ensuring that you process your refunds effectively and efficiently in accordance with Japanese rules and regulations.