How to Display the Japanese Consumption Tax (JCT) Amount on a JCT Qualified Invoice Denominated in a Foreign Currency
One of the questions we are asked frequently is “My invoice is denominated in USD (or any other currency besides JPY) but do I also have to show the amounts in JPY?”
In this article, we will be answering that question and also explain how to calculate the Japanese consumption tax (JCT) amount for such invoices.
For a general discussion on what the requirements of a Qualified Invoice are, have a look at our other article.
Is it Necessary to Indicate Amounts in Japanese Yen for Qualified Invoices in Foreign Currency Transactions?
A Qualified Invoice may be issued in any currency that the parties in the transaction agree to, for examples USD, EUR, CNY etc.
However, the following item needs to be presented in JPY (Japanese Yen).
“consumption tax amount, etc., for each tax rate”
If this requirement is not met, the invoice will not be considered compliant with the Qualified Invoice Retention System so one needs to take note when setting up their invoice system.
So the next question that comes to mind is, how does one go about converting the foreign currency amounts into JPY in a method that is compliant with the Japanese Invoice System?
Methods for Calculating Consumption Tax in Japanese Yen
There are four methods for converting foreign currency amounts into Japanese yen.
The exchange rate should be based on the average rate (TTM) of telegraphic transfer selling (TTS) and telegraphic transfer buying (TTB) rates on the transaction date.
This is consistent with the treatment for corporate tax calculations.
However, if it is challenging to apply this method at the time of issuing the qualified invoice, reasonable alternatives such as using the exchange rate on the invoice issuance date or the settlement date consistently may also be acceptable.
The Four Calculation Methods
1. Convert the Total Consideration (Excluding Tax) by Tax Rate into Japanese Yen and Then Calculate the Consumption Tax Amount
[Formula]
Total Consideration (Excluding Tax) in Foreign Currency × TTM = Total Consideration (After Conversion)
→ Total Consideration (After Conversion) × Applicable Tax Rate = Consumption Tax Amount (JPY)
Note: TTM refers to the average rate between TTS and TTB.
2. Convert the Total Consideration (Including Tax) by Tax Rate into Japanese Yen and Then Calculate the Consumption Tax Amount
[Formula]
Total Consideration (Including Tax) in Foreign Currency × TTM = Total Consideration (After Conversion)
→ Total Consideration (After Conversion) × 10/110 or 8/108 = Consumption Tax Amount (JPY)
Note: When converting the total consideration amount by tax rate into Japanese yen, rounding treatment is at the discretion of the business operator. This rounding applies to the calculation of the total consideration amount by tax rate, not to the consumption tax amount stated on the qualified invoice.
3. Calculate the Consumption Tax Amount (Foreign Currency) from the Total Consideration (Excluding Tax) by Tax Rate, and Then Convert It into Japanese Yen
[Formula]
Total Consideration (Excluding Tax) in Foreign Currency × Applicable Tax Rate = Consumption Tax Amount (Foreign Currency)
→ Consumption Tax Amount (Foreign Currency) × TTM = Consumption Tax Amount (JPY)
Note: Rounding treatment for consumption tax amounts applies only when the amount is less than one yen. It cannot be applied when calculating foreign-currency-based consumption tax amounts.
4. Calculate the Consumption Tax Amount (Foreign Currency) from the Total Consideration (Including Tax) by Tax Rate, and Then Convert It into Japanese Yen
[Formula]
Total Consideration (Including Tax) in Foreign Currency × 10/110 or 8/108 = Consumption Tax Amount (Foreign Currency)
→ Consumption Tax Amount (Foreign Currency) × TTM = Consumption Tax Amount (JPY)
Leave Japanese Accounting and Tax Issues to JPA
As described above, transactions in foreign currencies in Japan must state the Japanese consumption tax amount in Japanese yen on qualified invoices.
There are four calculation methods to choose from.
At JPA, we assist with practical accounting and tax-related challenges you might face in Japan.
Please feel free to contact us through our inquiry form.
