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Japan’s consumption tax for electronically supplied services

While boasting one of the world's leading economies, Japan is dependent on imported energy and raw materials. The countries tight industrial structure and guaranteed lifetime employment for most of its workforce are critical drivers of its economic success.

The content provided has been reviewed and updated as of Mar. 25, 2018.

Legislative effective date

Digital service legislation was introduced into the Consumption Tax Act (effective from Oct. 1, 2015 for electronic services).

Name of tax

Consumption tax (CT)

Statute of limitation

Five years

Standard rate of CT

10 percent

Electronic supplies

Japan’s definition of digital services specifically includes:
  • Provision of e-books, digital newspapers, music, videos and software (including various applications such as games) via the internet
  • Services that allow customers to use software and databases in the cloud
  • Services that provide customers with storage space to save their digital data in the cloud
  • Distribution of advertisements via the internet
  • Services that allow customers to access shopping and auction sites on the internet (e.g., charges on posting goods for sale)
  • Services that allow customers to access the space to sell game software and other products on the internet
  • Charges for online reservation services (e.g., booking restaurant and hotel accommodations)
  • English lessons provided via the internet


There are a number of tests that might apply to determine if registration for consumption tax is needed, but the most likely test for domestic businesses is whether taxable income exceeds JPY10 million (approximately US$90,000) in the two previous fiscal year (e.g., FY2018 is tested by FY2016 and FY2019 is tested by FY2017).

Some thresholds also apply to foreign businesses.

The provision of business to business (B2B) digital services, however, are not recognized as taxable and so do not need to be included in the JPY10 million registration threshold calculation.

Business customers will reverse charge consumption tax on B2B electronic services received from a nonresident supplier.

Customer identification

Customer identification is driven primarily by the nature of the service and the intention of the underlying contract. Services that are individually negotiated and specify a business person and/or business use in the contract are treated as B2B. This is also extended to services that are more likely to be used by businesses rather than individuals, such as commercial advertising.

Services which cannot be clearly defined as for business use only are treated as more general and therefore, fall within the business to customer (B2C) definition. This may mean therefore, that some services used by a business might be subject to a consumption tax charge.

Currently, there are no exemptions from charging CT. CT applies regardless of the type of organization: for example, nonprofit entities, charitable organizations, health education and government bodies are all subject to CT.

Customer location

B2C electronic services are taxed by reference to the customer’s usual place of residence and normal and reasonable methods to determine this should be used. In reality, this means that foreign recipients traveling in Japan will not be charged CT, whereas Japanese residents will. This principle also extends to situations where the B2C customer is in transit (i.e., on a ship or aircraft).

This in itself could create a conflict in the way services are taxed as some travelers, being a non-Japanese resident, will not be charged CT, whereas Japanese residents will be charged CT. This approach contrasts with other countries in that many other countries tax all B2C users on ships and aircraft by reference to the port of departure.

Supplier identification

The supplier would ordinarily be identified based on the contractual arrangements. However, in respect of transactions which are effectively conducted through the use of an intermediary, it is necessary to examine each part of the transaction separately to identify whether it is taxable and who has the consumption tax compliance responsibility.

Specifically, it is necessary to examine the transaction between the service provider and the intermediary, the intermediary and the recipient, and the service provider and recipient (even if there is an intermediary).

Where an intermediary is effectively a Japanese business acquiring a service from a foreign supplier and reselling that service under the B2C definition to a Japanese consumer, it would ordinarily not be able to obtain a deduction for the CT incurred from the supplier–because it is categorized as a B2C service. This can be alleviated if the foreign supplier is registered with the Japanese tax authority, National Tax Authority (NTA), and accounts for consumption tax in the normal way.

Procedural matters

In order to register, a foreign business must meet the following requirements:

  • Be a taxable person of consumption tax
  • Provide, or intend to provide, B2C digital services
  • Either have an office in Japan to provide B2C digital services or appoint a tax accountant proxy for consumption tax purposes
  • Be fully compliant with national tax liabilities and obligations; a delinquent taxpayer will not be allowed to register for Japanese CT.

If the above is met, the foreign business must file the “Application for registration as a registered foreign business” with the appropriate attachments (as below) via the district director of the tax office who has jurisdiction for the location of the tax payment.

  • Required attachments without exception:
    • Materials indicating name, address overseas and business details (e.g., a copy of the articles of incorporation, a copy of a register, company pamphlet or company website)
    • Materials describing digital services provided in Japan (e.g., company pamphlet and company website)
  • Required attachments in the case where a foreign business has an office in Japan to provide B2C digital services:
    • Certificate of registered matters or any other documents of the same kind for the office located in Japan (e.g., lease agreement and company pamphlet)
  • Required attachments in the case where a foreign business has no office in Japan to provide B2C digital services:
    • Certificate to evidence the authority of tax accountant proxy
  • Other reference materials
    • Company website address and email address

CT returns must be filed within two months after fiscal year-end (i.e., once per year).

Invoicing differs based on B2B and B2C transaction flows. In a B2B transaction, the service provider is required to notify the service recipient that the transaction is subject to a reverse-charge mechanism. In B2B transactions, the service provider must post a notice in a manner that is easily recognizable for the service recipient, for example, in the location where their transaction details are introduced on the internet, or in the notification document prepared when the details of a transaction are individually negotiated.

In respect of B2C transactions, registered foreign businesses are required to prepare invoices (digital invoices are acceptable) which include the following information:

  • The name of the document issuer and its registration number
  • The date of provision of the services
  • The content of the services
  • The payment amounts
  • Indication that the registered foreign business is liable for consumption tax
  • The name of the business (customer) receiving the invoice

A registered foreign business has a duty to issue such invoices upon a service recipient’s request.


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Table of contents

Introduction to the digital services VAT guide

A detailed guide to compliance with countries seeking to tax digital services supplied by nonresident suppliers.

Applying VAT to electronically supplied services

Key points to consider when determining how electronically supplied services should be accounted for with regard to VAT rules globally.

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