Digital platforms face Consumption Tax liabilities on user services
The latest Japanese 2023 tax reform plan includes a review of the marketplace deemed supplier liability for providers of digital services. This is based on the global trend to shift the indirect tax burden to digital platforms.
2015 imposition of Consumption Tax on non-resident providers
Japan has imposed its 10% Consumption Tax on digital or electronic services since October 2015. This includes non-resident providers. However, so far, marketplaces and similar electronic interfaces are not held liable to tax obligations of their third-party sellers.
Japanese Consumption Tax is made up of the following: 7.8% National Tax; and 2.2% Local Tax. There is now a reduced rate of 8% on basic services and foodstuffs. Check VAT Calc’s global VAT and GST on digital services tracker to see which other countries have introduced indirect taxes on electronic services to consumers. This follows the EU 2015 e-services VAT reforms, and also in Norway, New Zealand, Australia and many others since.
What digital services are subject to Consumption Tax?
Japan has a very broad definition for electronic services. The following are all included:
- Streaming or download music, video
- Online journals and newspapers
- SaaS or cloud-based software and storage
Registering for Consumption Tax
There is non-resident Consumption Tax threshold of JPY 10million which must be reached in the previous two financial years. It is possible to voluntarily register. Foreign providers of digital services will need to appoint a local tax agent.
To determine if there is a taxable supply, providers must track the location of their customers. This can be based on:
- Payment address details (billing or credit card)
- IP address of device
There is no formal concept of the tax invoice in Japan. The compliance requirements are set through ledger obligations. A new Qualified Invoice regime is being introduced in October 2023, including a transitional invoice retention system which is now in place until then.
Under the Japanese Consumption Tax regime, consumers report their taxes, and may deduct tax incurred. To facilitate this, foreign providers must register with the National Tax Agency.
A simplified non-resident VAT registration procedure has now been established. There is the scope to deduct any locally incurred Consumption Tax, but the provider must be separately registered with the National Tax Agency, as above.
Marketplaces exempt from Consumption Tax responsibilities
Japan has not included facilitating marketplaces or similar electronic exchanges in the obligations to collect Consumption Tax on the transactions of their merchants. Their ad and listing services provided by non-resident platforms to Japanese sellers are taxable but using the reverse charge.
Japan increased Consumption Tax to 10% in October 2019.
Asia Pacific VAT on digital services
|Comments (click for details)||Rate||Date||Threshold||Comments|
|Australia||10%||Jul 2017||AUD $75,000|
|Armenia||20%||Jan 2022||AMD 115million|
|Bangladesh||5% - 15%||Jul 2019||–||B2B and B2C|
|Bhutan||7%||Jul 2021||Nu 5million|
|Cambodia||10%||Mar 2022||KHR 250m|
|China||6%-13%||N/a||Nil||Withholding VAT; B2B and B2C|
|Indonesia||11%||Aug 2020||IDR600m or 12k customers|
|Japan||10%||Oct 2015||JPY 10 million|
|Laos||7%||Feb 2022||LAK 400m|
|Nepal||13%||Jul 2022||Rupees 2m||Also 2% DST|
|New Zealand||15%||Oct 2016||NZD 60,000|
|Pakistan||2%||Sep 2021||Nil||Marketplace Withholding VAT|
|Philippines||12%||Jul 2023 ?||P 3million|
|Singapore||7%||Jan 2020||S$ 100,000|
|South Korea||10%||Jul 2015||Nil|
|Taiwan||5%||May 2017||NTD 480,000|
|Thailand||7%||Sep 2021||1.8m Baht|