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This article is provided by Asahi Tax Corporation (Tokyo).

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[Series] Introduction to Japanese Consumption Tax (JCT)

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Part 1: Basic Structure and Taxable Transactions
Tax Rate Breakdown and the 4 Conditions for Taxation

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[Executive Summary]

• Two-Tiered Structure: JCT consists of national and local taxes, requiring separate accounting treatments.

• Scope of Taxation: Business and services conducted within Japan are generally subject to JCT (10% or 8%).

• [Crucial] Import Refunds: To claim an import tax refund, the import permit MUST be in your company’s name.

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Introduction

For foreign entities expanding into the Japanese market or increasing their transactions with Japan, navigating the Japanese Consumption Tax (JCT) is an unavoidable challenge.

In recent years, the JCT landscape has become increasingly complex, particularly following the introduction of the Invoice System, the implementation of Platform Taxation, and the tightening of tax exemption rules. Understanding whether your company is liable for JCT, and whether it may recover paid JCT (refunds), is not merely a matter of compliance—it is a vital strategy for effective business planning and success in Japan.

In this 8-part series, the specialist consultants at Asahi Tax Corporation  offer a clear and practical guide to the essential JCT considerations for foreign businesses.

Note: While receiving a JCT refund is a significant financial benefit, applying for a refund may involve certain practical constraints, such as being legally required to remain a taxable entity for a specified period. These considerations will be discussed later in the series (Part 7). First, let us confirm the basic rules of taxation.

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1. Breakdown of JCT Rates (10% and 8%)

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Strictly speaking, Japan’s consumption tax consists of two components: a “National Tax” and a “Local Tax”. While businesses typically focus only on the combined rate of 10% (or 8% for certain items) in their day-to-day operations, these components must be separated when preparing and filing your tax return with the tax authorities.

Category	Standard Tax Rate	Reduced Tax Rate (Food & Beverages/Newspapers, etc.)
National Consumption Tax	7.80%	6.24%
Local Consumption Tax	2.20%	1.76%
Total JCT Rate	10.00%	8.00%

Note:
Tax Breakdown: Approximately one-quarter of the 10% tax is allocated to local governments. While the combined rate may be shown on “Qualified Invoices,” the national and local components must be distinguished in their accounting records.

8% (Reduced Rate) Items: This reduced rate primarily applies to food and beverages. However, alcoholic beverages and dining out (eating at restaurants) are subject to the standard 10%. In addition, subscriptions to newspapers published at least twice a week also qualify for the 8% reduced rate.

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2. Is the Transaction Taxable?  A 4-Criteria Checklist

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Whether a transaction in Japan is subject to JCT (a taxable transaction) depends on whether it meets ALL four of the following conditions:

1. Place of transaction: The transaction is conducted within Japan.
2. Business purpose: The transaction is carried out in the course of business.
3. Consideration: The transaction is performed for consideration (i.e., payment is received).
4. Nature of Transaction: The transaction involves the transfer or lease of assets, or the provision of services.

Note on Import Transactions: In addition to domestic transactions, JCT is also levied on import transactions when goods are brought into Japan from overseas. The JCT becomes payable when goods are released from customs control (i.e., removed from a bonded area).  As a result, importers must pay JCT at the time of import, creating an immediate cash outflow, even if no sales have yet been made in Japan.
Note: The JCT paid at import is generally recoverable as an input tax credit in the taxpayer’s consumption tax return.

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3. [Crucial] Import Transactions and the “Importer of Record”

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When importing goods into Japan, the most critical point regarding the JCT charged at customs is the name listed on the import permit.

• The Taxpayer: As a general rule, the importer of record (i.e., the person or entity listed on the import permit) is liable for the JCT.
• Prerequisite for Refund (Input Tax Credit): To recover the JCT paid at import,  the import permit MUST be issued in the name of your company. This is a strict requirement for claiming a refund or tax credit in your later tax return.
• Practical Advice: If the import procedures are carried out under the name of a customs broker or another company, your company may lose the legal right to claim the input tax credit—even if your company ultimately bore the tax cost.

Accordingly, deciding whose name is used for imports procedures is not merely an administrative matter; it can be a critical cost-management decision for businesses operating in Japan.

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4. Special Rule for Newly Established Corporations

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If you establish a corporation in Japan with a stated capital of JPY 10 million or more, the company automatically becomes a Taxable Business for JCT purposes from its first fiscal year of operation, meaning that JCT liability arises immediately.

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Coming up next: We will categorize the three types of “non-taxable transactions” and highlight the key rules necessary to help ensure you do not lose valuable  refund opportunities.

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Part 1: Basic Structure and Taxable Transactions 　（JP)(EN)
Part 2: Distinguishing Out-of-Scope, Non-Taxable, and Exempt Transactions and the “Taxable Sales Ratio”
Part 3: Determining Tax Liability: When Filing is Required Even Without a PE
Part 4: Digital Services and the Platform Taxation Regime (Implemented April 2025)
Part 5: Overview of the Invoice System and Issuance Obligations 
Part 6: When Should a Foreign Entity Obtain an Invoice Number?
Part 7: Refund Strategy in Japan and the Risks of the “3-Year Binding Rule”
Part 8: Essentials of Practice: Appointment of Agents, Filing Deadlines, and Accounting
[Special Epilogue] Future Timeline and Toward Your Success in the Japanese Market

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Should you have any questions regarding the matters discussed, please do not hesitate to contact us.
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Disclaimer: This article is for general informational purposes only and provides a high-level overview of the JCT system. It does not address all details or recent developments. Professional advice should be sought before making any business or tax decisions.