Qualified invoice system for C-tax – to be introduced from October 2023
In October 2023, the qualified invoice system (“invoice system”) will be introduced.
Consumption tax (“C-tax”) in Japan is similar to VAT (value-added tax), GST (goods and services tax), or sales tax in some other countries. There are two main methods of calculating C-tax: the invoice-based method and the accounts-based method. The new tax law has changed the calculation method to the invoice-based method from the accounts-based method.
The new invoice system allows companies to claim a credit for the C-tax paid only for expenses recorded based on “qualified invoices” with a registration number.
Although there will be a lot of impact on accounting practices after the introduction of the invoice system, the impact will be limited to the slight modification of the billing system, and it will not be too much of a burden for businesses to deal with in advance.
The following is an explanation of some of the important points.
1. Action required
The following are the three main points that the company needs to address in advance. (See below for details)
1) Submit an “Applications to be a registered invoice issuer ” and obtain a registration number (by March 31, 2023).
2) Prepare the template of the invoice that meets the requirements of “Qualified Invoice” (by September 30, 2023)
3) Study the impact of the accounting practice in the accounting department (e.g. accounting for non-qualified invoices)
2. Overview of qualified invoice system
Under the current consumption tax system, the amount of tax due can be calculated by the following formula
Consumption tax payable=Output C-tax received – Input C-tax paid
In the calculation of the tax amount due, if the transaction is a taxable transaction, regardless of whether the other party is a taxable or tax-exempt enterprise, the purchase tax credit was possible.
Under the new invoice system to be introduced in October 2023, the basic formula for calculating the amount due for consumption tax will remain unchanged, but the storage of “qualified invoices” will be required as a requirement for the purchase tax credit.
In the accounting process, it is necessary to confirm if the invoice received is a “qualified invoice” by checking the “registration number” on the invoice.
3. Applications to be a registered invoice issuer
To become a registered invoice issuer, a Japanese entity needs to complete the “Applications to be a registered invoice issuer.” The application for registration is available from October 1, 2021, and must be submitted by March 31, 2023.
The form for applying for registration can be available on the National Tax Agency’s website below.
If a Japanese entity fails to register it by March 31, 2023, it will be disadvantageous to its customers (i.e., its customers will not be able to take a C-tax credit for the transaction). There are other issues that need to be considered for tax-exempt businesses, but these are not discussed on this page.
Upon completion of the registration, each Japanese entity will be notified of its registration number. The registration number will consist of “T + a corporate number.” The registration number can be confirmed on the following website of the Qualified Invoice issuer.
4. Required information to be included in the qualified invoice
The following items are required to be included in a qualified invoice when you issue invoices to your customer after October 1, 2023.
The red items are mandatory items to be added to the current invoice.
(1) Name and registration number of the qualified invoice issuer
(2) Invoice date
(3) Details of the transaction (that the item is subject to a reduced tax rate)
(4) The total amount and the applicable tax rate by tax rate categories
(5) Consumption tax amount by tax rate categories
(6) Name of the business to whom the documents are issued
If the business does not sell products subject to the reduced tax rate, the requirements for a qualified invoice will be satisfied by (1) stating the registration number and (4) stating the total amount of consideration subject to the 10% consumption tax rate on the current invoice.