Japanese Tax

Consumption Tax Filer: Should you elect to be one?

Consumption Tax Filer banner


Individuals or small capital companies (with paid-in capitals under 10 million yen) can elect the tax filer status or non-filer status of Consumption Tax during the first 2 years from the inception of the business or its incorporation. The default status is the non-filer, so unless you elect otherwise, you will automatically be a non-filer of Japanese Consumption tax.


If you expect sales in the first 2 years, your choice should be the non-filer status because you can pocket the consumption tax on sales (minus the consumption tax on expenses).


But there are a few situations where you will benefit from choosing the consumption tax filer status.

1) If your business requires a large amount of initial investment such as restaurants or accommodations, your choice should probably be the tax filer status.

2) If your sales are expected to come from overseas. You should definitely elect the consumption tax filer status. You will always get a consumption tax refund.


Here are the reasons why:

1) The consumption tax is payable between what you receive on sales and what you pay on expenses. If you are planning to start a restaurant and will heavily invest in kitchen equipment and interior decorations, whose investments will only be recovered after 3 years of business, you should apply for the consumption tax filer status and get a refund of 10% of the investment.

2) Consumption tax liability is the difference between what you receive and what you pay. You will not receive Japanese consumption tax on revenue from overseas, so if you do not receive any consumption tax from domestic sales and pay consumption tax on your domestic expenses for day-to-day operations, the balance will be negative. A negative balance means you will be refunded for it. Remember that the consumption tax is for consumers, not businesses.


Please note that it does not matter whether your sales are services (e.g. consultation) or things (e.g. export of Japanese Sake for example).


The downside is that once you elect to be a consumption tax filer, you will have to stay as one for at least the next 2 years. However, if you purchase a fixed asset such as machines or software that costs more than 1 million yen, it will be 3 years. So, you have to weigh which status is more beneficial in cash flow over the course of 2 or 3 years.