A Practical Guide for Foreign Companies
An invoice showing 10% consumption tax doesn't always mean your company can claim that tax back. Welcome to one of Japan's accounting rules that foreign businesses should know about.
Since October 2023, Japan has operated a Qualified Invoice System (インボイス制度), which affects how businesses claim consumption tax credits on their purchases.
What is the Invoice System?
Similar to VAT in Europe, Japan generally charges 10% consumption tax on goods and services, with a reduced 8% rate for certain items. Under the standard calculation method, businesses can deduct eligible consumption tax paid on purchases from the tax collected on sales.
However, to claim the full credit, businesses generally need invoices issued by suppliers registered under Japan's Qualified Invoice System, along with the required accounting records.
Registered suppliers have a 13-digit registration number beginning with "T", which can be verified through Japan's National Tax Agency. You can verify a supplier's registration status through the National Tax Agency's official Qualified Invoice Issuer Publication Site
What if your supplier isn't registered?
Not every Japanese business is required to register. Some smaller businesses and freelancers may remain unregistered.
For example, imagine your Japanese subsidiary pays a freelance designer ¥110,000, including a consumption-tax-equivalent amount of ¥10,000.
If the designer isn't registered, your company may not be able to claim the full ¥10,000 as an input tax credit.
Japan introduced temporary relief to ease this transition. Until September 2026, qualifying purchases from unregistered suppliers were eligible for an 80% input tax credit.
From October 2026, this has decreased to 70%.
The credit will gradually reduce to 50% in October 2028, then 30% in October 2030, before being phased out entirely in October 2031. Under the current 70% transitional rate, your company could potentially claim ¥7,000 instead of ¥10,000, provided the relevant conditions are met.
These differences can add up when working with multiple suppliers.
Another important change in 2026
The 20% Special Measure (2割特例), which allowed certain newly registered taxable businesses to pay only 20% of the consumption tax on their sales, is coming to an end.
While a new 30% measure will be available to eligible individual business operators for 2027 and 2028, this extension does not apply to corporations (KK or GK).
Foreign-owned Japanese companies previously benefiting from the 20% measure should therefore review whether the standard or Simplified Taxation System (簡易課税制度) is more suitable for their business.
How can Outsourcing Japan help?
For overseas finance teams, navigating Japanese invoices, tax classifications and recordkeeping requirements can be challenging.
At Outsourcing Japan, we help international businesses manage supplier invoices, bookkeeping and accounts payable, while coordinating with Japanese tax professionals when needed.
Need support with your accounting operations in Japan? Contact Outsourcing Japan to find out how we can help.