Japan Consumption Tax rise guidance

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Below is a summary of the latest guidance on the implementation procedures for the increase in Japanese Consumption tax.

1.   The rate of consumption tax rate will be increased from the current 5% to 10% in two steps. The first step of consumption tax rate increase to 8% will be effective on 1st April, 2014, and the second one is planned on 1st October, 2015.

2.   Please be noted that this rate should be applied to the transfer of assets, the provision of services in Japan, and the import of taxable products on or after the respective effective dates. To implement the increase in tax rate, for certain types of asset transfers or service transactions, several transitional rules (Keika-sochi) have been provided. The major rules are outlined below.

a.      Transport of passengers, freight charges, admission etc. (services provided to the public), only as specified in consumption tax law.

For physical payments before April 1, 2014 where service provision will occur on or after April 1, 2014, the charge is subject to the 5%.

b.       Construction / manufacturing contracts which are not considered to be "large" and/or not "longer" term. Items included (a) investigation,planning,and supervising contraction projects,(b)film Production and (c)software development, and so on.

Where contract is entered into during the period from October 1,1996 to September 30, 2013, but the transfer of assets occurs on or after April 1, 2014, this payment is subject to the 5%. However, for any increased portion of consideration agreed on or after October 1, 2013, the new rate will be applied. To apply for the old rate, the following requirements must be satisfied:(a)the contract must be "long term",  (b)the product must transferred to the customer at just one completion date,and (c) the product must be tailor made.

c.       Lease contracts

Where contract is entered into during the period from October1,1996 to September 30, 2013,the actual lease occurs before April 1, 2014 and continues on or after April 1, 2014,the consideration is subject to the 5%.  For lease payments changed on or after October 1, 2013, the new rate is applied. To apply for the old rate, either (a) the lease payment total more than 90% of the value of the item leased or (b) there is no early termination clause. In addition, it is needed that the lease period and lease payments under the contract must be clearly stated.

d.      Installment sales contracts

Where installments are due on or after April 1, 2014, pursuant to an installment sales contract entered into before April 1, 2014,such payments are subject to the 5% (interest portion is not taxable).

e.      Book subscriptions

If the subscribed amount is received prior to the effective date of the change, the old rate applies.

f.        Consumer purchases by telephone, web and other media

For all goods delivered prior to the effective date,generally the old rate applies. In addition, for goods purchased prior to the effective date but delivered afterward, the old rate will apply only if the original contact with the customer occurred more than six months prior to the effective date of the new rate.

3.   The tax exemption for newly established corporation, which is applied for first two fiscal years, will not be applicable if the following requirements are met, though the tax exemption rule has been generally applied to newly established corporation under some condition:

  • As of the beginning date of either of the first two fiscal years of this corporation, it is majority owned by a large corporation group - i.e. group where any group member has annual sales exceeding 5oo million yen in the Base Period (generally the fiscal year two years prior to the current fiscal year),
  • and this corporation is established on or after April 1, 2014

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