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Japan tightens Consumption Tax for non-residents

New avoidance rules on tax registration threshold requirements

The new Japanese 2024 Tax Reform Proposals includes a measures to prevent non-resident businesses taking advantage of the current Consumption Tax registration threshold to avoid indirect tax obligations. The measures have now been submitted to the Chinese parliament, the Diet.

Currently, the annual sales threshold of JPK 10 million for two successive years is applied with certain exemptions. The latter is being legally exploited by some foreign companies to avoid the obligation to register for Consumption Tax.

The 2024 proposals are therefore putting forward the following changes for non-resident businesses:

  • They may not use the annual salaries threshold exemption;
  • The two-year base period test may not be used if the business is immediately over the threshold in year one; or
  • New foreign companies will also have their foreign owners income included, and will have to register if their owner’s global income is above JPY 5 billion per annum.

The proposals also include new marketplace obligations on B2C e-commerce sales from abroad.

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