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Does Japan Have Sales Tax? Understanding the Basics

Like most countries, Japan has a national consumption tax that operates similarly to US sales tax and European value added tax (VAT). 

<div class="disclaimer">Note: This article deals with indirect tax and not income tax or corporate tax. </div>

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What is Japan’s Consumption Tax (JCT)?

Japan’s consumption tax is applied to all sales at all levels, from wholesale to retail. The tax rate (not to be confused with VAT rate) is generally 10% on all sales to buyers in the country, with some exceptions like groceries taxed at just 8%. Just like sales tax, VAT, and goods and services tax (GST) in other countries, Japan’s consumption tax is designed to bring in revenue to pay for the country’s budget items like schools, hospitals, and roads. 

Consumption tax is owed on all retail sales, as well as sales of software as a service (SaaS) products. Exports are not subject to JCT.

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JCT vs. Sales Tax: Key Differences

In the US, sales tax is only charged at the final sale. This means that wholesale purchase (i.e. purchases that the buyer later intends to resell) are not subject to sales tax.

Japanese Consumption Tax (JCT), on the other hand, is more like VAT in that the tax is due each time a transaction takes place, even when making a wholesale purchase. However, every country’s consumption tax rate and rules are a little different. Part of Japan’s 2016 tax reform included allowing qualifying JCT taxpayers to claim tax credits on consumption tax paid, as long as certain criteria are met.

US sales tax is also governed at the state level, while JCT is nationwide. 

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How to Monitor for JCT Exposure

<div class="disclaimer">Note that all currency exchange estimates are approximate, based on the time of writing and subject to change.</div>

Even companies not based in Japan need to be aware of possible tax in Japan. Imports and digital services sold into Japan by non-Japanese companies are subject to JCT.

It’s vital to monitor your tax exposure if selling into Japan, because some tricky rules can mean that your business is required to collect JCT even if your sales into the country are limited. 

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Who needs to pay JCT? 

Similar to the economic nexus in the US, JCT liability is based on making a certain amount of sales to customers in Japan over time. 

In Japan, in most cases, businesses that exceed ¥10 million in Japanese yen (JPY, which equals about $70,000 USD or €62,000 Euro) into Japan over a “base period” are required to collect the tax. The base period is two calendar years prior to the current one. Example: For 2025, the base period would be calendar years 2023 and 2024.

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JCT on Goods

When it comes to sales of goods, JCT liability is relatively straightforward. 

Example: US-based exporter of peanut butter begins selling into Japan in 2023, making $20,000 (or about ¥3 million) in their first year from customers in the country. They build on that success and triple their earnings into about $60,000 US (or about ¥8.5) in 2024. Because they exceeded the ¥10 million cap in their two year base period, they are now required to register and begin collecting JCT from their customers in Japan.

However, there is a newer, recently released threshold for high-growth businesses. Businesses who exceed the ¥10 million in the first six months of the previous calendar year are also required to register and collect JCT. So if that same peanut butter importer immediately made ¥10 million in Japan in their first six months of doing business, they’d need to register and collect beginning the next calendar year.

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JCT on Digital Services

JCT on digital services operates differently than in most countries with VAT/GST tax systems. 

Unlike many jurisdictions where tax determination happens at the transaction level, Japan determines taxability on a product-by-product basis. This means whether a product is taxed as B2B or B2C is based on how it is sold, not who purchases it. 

‍Japan’s National Tax Agency defines true B2B electronic services as those that can only be sold via formal channels, such as a deal with a sales representative. If anyone on the internet can purchase a product, then Japan won’t consider that a B2B transaction

Foreign (outside of Japan) businesses that sell purely to other businesses (B2B), like Salesforce, can take advantage of a “reverse charge mechanism.” Under this system, the foreign provider does not need to register for JCT at all. They can simply indicate on their invoice that the reverse charge applies, and the Japanese business customers handle all tax obligations, like reporting and remitting the tax.

However, foreign businesses who sell straight to consumers (B2C), or to a mix of B2C and B2B customers, are required to register and collect the 10% JCT just the same as Japanese businesses, assuming that their sales have hit the ¥10 million over the base period threshold. This means that digital businesses that sell to consumers generally have a more complicated tax relationship with the country of Japan, including requirements to register in the country.

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JCT Registration Requirements 

Domestic businesses are required to register and collect sales tax after crossing the ¥10 million threshold over the base period.

For foreign businesses with consumption tax liability in Japan, registration once they have hit the ¥10 million threshold is a bit more complex. 

First, complying with JCT requires an agent located in Japan (Zeirishi). The company’s Zeirishi serves as an intermediary between foreign businesses and the Japanese tax authorities, and handles tax filing and payments, as well as any other issues that may arise.

Second, you must remit an “application for registration as a business issue of qualified invoices (for a foreign business)” to the District Director of the Tax Office covering your payment place. 

Then, documentation you’ll need to submit includes: 

• Company identity details (name, address, etc.)
• Proof of incorporation (which must be translated into Japanese)
• Business tax ID number
• Details of company’s beneficial owner(s)
• Details of Japanese tax agent (Zeirishi)

Once submitting to Japan’s taxing authority, registration can take several weeks to complete. 

Upon approval, the company receives a business registration number which starts with a T + 13 digits. This number is vital not only for the company’s own tax compliance, but for allowing customers to claim tax credits based on doing business with that company. Businesses should be certain to include that tax ID number on all invoices to Japanese customers

Sphere can assist with automating the registration process in Japan and also provides an in-house, English-speaking Zeirishi, to assist with registration and communication with the NTA. 

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Calculation: What’s Taxed and What Isn’t? 

Current JCT Rates

The current JCT rate is 10% for most goods and services.

That tax is limited to 8% on a few specific items like groceries, non-alcoholic beverages, and certain newspaper subscriptions.  

Some services for non-residents are tax exempt. Exports are also not subject to JCT.

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What’s Taxable

Most goods and services sold in Japan are subject to JCT. This includes imported goods and services and digital services from foreign providers. While grocery items are taxed at a lower 8% rate, restaurant meals and alcoholic beverages are subject to the nationwide 10% JCT.

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JCT on SaaS & Digital Services

Digital goods and services, including SaaS, are subject to JCT. 

The major distinction is whether digital goods and services are for business or consumer consumption. 

B2B SaaS and digital products (those that are truly only sold to other business customers and inaccessible by consumers) are subject to the tax, but qualified foreign tax providers can avoid paying the taxes due to the “reverse charge mechanism.” Again, it's important to remember that Japanese taxing authorities outline what constitutes B2B sales.

B2C SaaS and digital products are subject to JCT.  However, as a result of recent Japanese tax reform, if foreign sellers sell to consumers via a qualified marketplace, then the marketplace is responsible for the JCT. This is similar to when a small US business sells goods through Amazon or Walmart and the larger marketplace is responsible for collecting and remitting the sales tax. For foreign sellers who don’t want or don’t have the capacity to deal with JCT, selling through a marketplace might prove to be the best option.

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Don't want to sell through a marketplace?

Sphere provides real-time tax calculation for JCT directly in your billing system. Setup takes 5 minutes!

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Reverse Charge Mechanism: Does it Apply?

The reverse charge mechanism can be used by foreign companies to avoid collecting and remitting JCT, but the scope of the reverse charge mechanism in Japan is more narrow than in other VAT / GST countries. This mechanism is meant to facilitate business between foreign and Japan-based businesses, meaning that only foreign businesses that sell exclusively to Japanese businesses (and not consumers) can apply the reverse charge mechanism. 

To qualify to use the reverse charge mechanism, the foreign business must:

• Only sell to other businesses - the way B2B businesses are defined are those that restrict access / purchase to individuals. This means that any company with a self-serve motion (where individuals can buy the product directly from a website) will have all their sales classified as B2C regardless of if they have business customers 
• Provide the amount of tax due on the invoice
• Notify their customer(s) beforehand that the reverse charge mechanism applies

Keep in mind that Japan’s taxing authority decides what business activities are classified as B2B on a product basis, not a transaction basis. Even if you sell a product like Notion (see: “Who needs to pay JCT?” above), which can be purchased by both businesses and consumers, Japan will consider that a B2C transaction and will require that your business register for JCT should you otherwise hit the taxability threshold over the base period. 

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Tax Exemptions & Special Cases

In Japan, some goods and services are not subject to consumption tax at all. These include:

• Most financial services, including currency exchanges
• Real estate transactions
• Public services
• Medical and health services
• Educational services

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Tax Credits & Japan’s Input Tax System

In the US, sales tax is essentially a “pass through tax.” It’s paid by the consumer at the point of sale, held by the seller, and then remitted to the state at the end of the taxable period. The sales tax collected merely “passes through” the seller’s hands. 

Input taxes in Japan are a similar concept. Basically, when a Japanese company buys from a qualified foreign vendor, the vendor states how much JCT the company should have paid, but the Japanese company isn’t actually required to pay that amount.

Then, the Japanese company can claim the amount they would have paid as a credit on their own consumption tax return. So, while they must report the charge on their tax returns, the Japanese business does not actually have to remit any tax, because the charge and the payment have offset each other and effectively cancelled one another out.

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Filing Requirements

Businesses with JCT liability are generally required to file annually. 

For companies who use a calendar year fiscal year, the due date is 2 months after the end of the year, or February 28th. For businesses who use a different fiscal-year, the due date is still two months after the end of the fiscal year. (Note that this requirement is for corporations. Sole-proprietorships have more leeway, and must file 3 months after the end of their year, which is generally March 31.)

Businesses can also opt-in to file and remit more often, such as monthly or quarterly. A business might opt to do this to keep their JCT remittances in line with their other tax payments, or to avoid paying out large lump sums at the end of the year.

High-volume businesses who make more than ¥480,000 are generally required to remit JCT payments more often. Aside from their annual tax filing, they are generally required to make additional interim payments, depending on sales volume:

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<div class="disclaimer">Caption: Note that these “interim payments” do not include the mandatory annual tax return, where you also remit and pay either all or part of your tax due.</div>

This interim payment system is common in most tax systems as a measure to ensure the continuous inflow of revenue into a country or jurisdiction’s coffers. 

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Remittance: How to Pay Japan’s Tax Authority 

The amount of JCT owed is paid at the time of filing, with penalties applying if either filing or payment is incomplete. 

The payment must be made via wire transfer from a Japanese bank. Foreign entities generally rely on their Zeirishi (Japanese representative) to handle the transaction. 

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How to Stay Compliant with Japan’s Tax System

Tracking JCT Exposure & Thresholds

If you are selling into Japan, it's vital to monitor your tax liability exposure. Just a single B2C transaction can open you up to JCT. 

For B2B businesses, keep track of when you started selling in Japan and ensure you’re applying the reverse charge compliantly.  

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How Sphere Helps with JCT Compliance

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Factors like changing tax policy and currency exchange rates make evaluating your exposure to JCT  tricky. AI-enabled tax compliance tools like Sphere help with:

• Real-time tax liability tracking – receive alerts before hitting the tax threshold.
• Automated tax filings and remittance – prepare and submit reports and payments on time to avoid fines and penalties.
• Real-time JCT calculation - on invoices or at checkout 
• In-house Zeirishi - to help navigate correspondence from the NTA 
• Multi-country compliance – manage JCT alongside EU VAT, US sales tax, Canadian GST, and more.

Automate your business’s tax liability and avoid international sales tax headaches.

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Stay Compliant & Simplify Your Japan Tax Obligations

Getting and staying compliant with Japan’s consumption tax presents significant challenges. A misstep can not only result in fines and penalties from Japan’s National Tax Agency, but also damage relationships with customers. 

While JCT compliance may seem daunting on the surface, Sphere's AI-powered platform dramatically simplifies the compliance process by handling the complex aspects of JCT management, allowing you to focus on growing your business in the Japanese market without tax compliance concerns.

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👉 Schedule a demo with Sphere today to streamline your tax compliance.