Important Changes to the Japanese Tax Code You Need to Know About – 2024 Japanese Consumption Tax Amendments
Attention foreign businesses exempt from consumption tax!
This article highlights key changes and considerations from the 2024 Japanese consumption tax amendments that affect foreign corporations.
The 2024 tax reforms in Japan brought some significant updates to the consumption tax rules, particularly for foreign businesses engaging in transactions with Japanese customers.
These changes could have a big impact on companies operating in Japan without a local presence, so we’re breaking down the essentials for managers, finance teams, or anyone overseeing a foreign company’s Japanese operations.
Read on to get the key points you need to understand!
Table of Contents
- Updates to the “Special Taxable Sales Period” Exemption for Foreign Businesses
- Revised Tax Exemption Rules for Foreign Companies Starting Business in Japan
- Adjustments to Criteria for “Specified Newly Established Corporations”
- Changes to Simplified Tax Regimes for Foreign Businesses Without a Permanent Establishment
- Wrap-Up
1. Updates to the “Special Taxable Sales Period” Exemption for Foreign Businesses
Previously, all businesses—whether domestic or foreign—were subject to consumption tax if their taxable sales during a specific period (usually the first six months of the prior year) exceeded ¥10 million, even if their full-year taxable sales from two years prior (the base period) were below that threshold.
Companies could also use total payroll expenses as an alternative measure to determine this ¥10 million threshold.
Under the 2024 amendment (effective for tax periods starting after October 2024), foreign businesses can no longer use payroll expenses to assess this specific period.
Now, if your taxable sales in that six-month window exceed ¥10 million, you’re liable for consumption tax—regardless of payroll figures.
This shift means foreign companies need to keep a closer eye on their Japanese sales figures to avoid unexpected tax obligations.
Illustrative Example:
- Current fiscal year: January 1, 2025 – December 31, 2025
- Base period (N-2): January, 2023 – December 31, 2023
- Base period taxable sales: 1,000,000 JPY
- Special Taxable Sales Period (six-month window): January 1, 2024 – June 30, 2024
- Special Taxable Sales Period taxable sales: 15,000,000 JPY
Tax status: Taxable and will need to file JCT tax returns in FY2025
Reason: Though the base period taxable sales was below 10,000,000 JPY, the taxable sales during the Special Taxable Sales Period was more than 10,000,000 JPY.
2. Revised Tax Exemption Rules for Foreign Companies Starting Business in Japan
For companies without a base period (typically the two years prior to the current fiscal year), tax exemptions used to hinge on the amount of capital or investment at the start of the year.
If that amount was ¥10 million or more, the exemption didn’t apply.
Even with less than ¥10 million, newly established companies meeting certain “specified” criteria were also ineligible for exemptions.
The 2024 update (effective for tax periods starting after October 2024) clarifies this for foreign businesses kicking off operations in Japan.
If a foreign company with an existing base period begins taxable transactions in Japan after the end of that period, the current business year is treated as having no base period.
In this case, exemption status depends solely on the capital or investment amount at the year’s start.
For example, a foreign company with a September 2025 year-end that starts business in Japan during that year won’t have a base period until the 2027 fiscal year.
Until then, if its starting capital is ¥10 million or more—or if it meets the “specified newly established corporation” criteria—it’ll owe consumption tax from the get-go.
3. Adjustments to Criteria for “Specified Newly Established Corporations”
Newly established companies with less than ¥10 million in capital and no base period can lose their tax exemption if they’re classified as “specified newly established corporations.”
This happens when:
Another entity owns more than 50% of the new company’s shares (directly or indirectly), or otherwise controls it; and
That controlling entity (or a related company) had taxable sales exceeding ¥500 million in a period equivalent to the new company’s base period.
The 2024 amendment (effective for tax periods starting after October 2024) expands this second condition.
Now, it’s not just taxable sales in Japan that count—if the controlling entity’s total revenue (including overseas income) exceeds ¥5 billion, the exemption is off the table.
This broader scope could catch more foreign businesses off guard, so double-check your parent company’s global figures.
4. Changes to Simplified Tax Regimes for Foreign Businesses Without a Permanent Establishment
Foreign businesses operating in Japan without a permanent establishment (like a branch or factory) have historically been subject to consumption tax unless exempt.
Two helpful options—Japan’s Simplified Taxation System (which estimates input tax based on sales) and the “20% Special Rule” (a tax relief measure for small businesses transitioning to invoicing requirements)—were available to lighten the load.
The 2024 amendment (effective for tax periods starting after October 2024) shuts this door for foreign businesses without a permanent establishment in Japan as of the tax period’s start date. If you don’t have a physical presence, you can’t use these regimes anymore, which could mean a higher tax burden and more complex calculations.
5. Wrap-Up
The 2024 consumption tax amendments have cleared up some gray areas for foreign businesses, but they’ve also tightened the rules.
If you’re selling to customers in Japan without a local office, now’s the time to assess whether you’re liable for consumption tax under these new conditions.
From tracking taxable sales to reviewing your capital structure, a little preparation can save you from surprises down the road.
Who in Japan Can Help Me With This and Other JCT Challenges?
Japan Professional Alliance can offer immediate assistance in complying with Japanese Consumption Tax and other Japanese Tax requirements that you may have.
We offer a comprehensive JCT solution that will help you meet the minimum requirements of JCT at an affordable price.
All work will be led by bilingual CPAs fluent in English and Japanese.
- Assess whether the transaction with your Japanese customer is subject to JCT
- Complete your registration as a “Qualified Invoice Issuer” with the Japanese Tax Authorities
- Provide you with an invoice template that meets the requirements of a “Qualified Invoice”
- Act as your tax agent in Japan
- Prepare and submit Japanese consumption tax returns
- Make tax payments to the tax authorities on your behalf
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