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October 31, 2022

Japanís consumption tax reform will be effective from 1 October 2023 | Implementation considerations

  • Japan is introducing a Qualified Invoicing System for consumption tax purposes from 1 October 2023.

  • Taxpayers should be aware of the new rules and the steps necessary to prepare for implementation.

  • This Alert summarizes the Qualified Invoicing System and common issues to consider.

Executive summary

Japan is introducing a Qualified Invoicing System for consumption tax purposes (JCT) from 1 October 2023. In many cases, taxpayers do not understand the full impact of this change on their systems and business processes. In addition, the efforts and time required for the implementation are often underestimated. It is important to be aware of the new rule-set since non-compliance would negatively impact both the taxpayer as well as its business partners. For example, buyers could find themselves in a situation where they cannot credit input JCT in domestic purchases of goods and services. Moreover, they may face penalty taxes if inadvertently claiming an input JCT credit in their tax returns. Sellers could also damage their business relationship with their partners if they do not issue proper Qualified Invoices.

This Tax Alert summarizes implementation of the JCT Qualified Invoicing System and highlights common practical issues to consider.

Detailed discussion

Japanese consumption tax (JCT) is similar to European Value Added Tax in many respects. It applies at 10% on domestic sales of goods and services as well as upon importation into Japan. There is also a reduced 8% applicable to certain food products and beverages. In addition, some transactions such as export transactions are exempt from JCT.

Japan is introducing a new invoicing system (Qualified Invoicing System) from 1 October 2023 that will closely follow VAT invoicing and hence will have features that are largely absent from the current JCT legislation. In summary, the fundamental changes are: (i) JCT taxpayers should register with the Tax Office to get a registration number as Qualified Invoice Issuers;1 (ii) Such Qualified Invoice Issuers need to issue Qualified Invoices to their business partners;2 and (iii) A buyer of products or services can only credit input consumption tax if the buyer receives a Qualified Invoice from a Qualified Invoice Issuer.3

In our interaction with companies, we see cases where taxpayers believe that the only thing to do is to register as a Qualified Invoice Issuer to get a registration number and to start to issue Qualified Invoices by adding that number and some other changes to the content and format. However, the introduction of the Qualified Invoice System goes beyond tax technical aspects and may require profound changes to companies’ operational processes and IT systems on both their purchase and their and sales side.

Common issues

The following is a (non-exhaustive) list of questions frequently asked by taxpayers that want to prepare for the introduction of new rules.

Issues for the sales side:

  • How to change the current invoice format and who can implement the changes in the IT systems?

  • What to do with transactions where no invoices will be issued but other transaction documents such as contracts are used for billing?

  • How are amounts rounded for JCT purposes?

  • What method to use for foreign exchange translation for JCT purposes?

  • How are invoices for discounts and returns of goods treated?

  • What needs to be done when a commissionaire is involved in the transaction?

  • How is output JCT declared? Can it be based on invoices only or on accounting records still?

  • How to meet the requirements for electronic retention of transaction documents?

Issues for the purchase side:

  • How to handle purchases from JCT exempt sellers, particularly where part of a deemed JCT is still creditable as an interim measure from 1 October 2023 and beyond?

  • How can it be confirmed whether the invoices are proper Qualified Invoices?

  • How to confirm that the seller is a Qualified Invoice Issuer?

  • How is input JCT declared? Can it be based on invoices only or on accounting records still?

  • How to meet the requirements for electronic retention of transaction documents?

The scope of the questions indicates that the impact of Qualified Invoices is not limited to tax. Taxpayers should also upgrade their IT systems and revise their internal procedures to address the above issues. Changes in IT systems can require time especially in cases where the taxpayer uses a global IT system which should be amended to meet Japan-specific requirements for Qualified Invoices.

An approach towards implementation

As the above shows, the introduction of Qualified Invoices can become a complex matter but what would be a reasonable approach? As a first step, taxpayers should look at the current operations (as-is) and conduct a Fit-Gap analysis. The second step would be to identify and to agree on what changes should be made from an operational and IT systems perspective to be in line with the Qualified Invoicing System. The third step would be to implement these changes.

Potential next steps

Time considerations are very important. It is difficult to say how long it would take to be ready to issue Qualified Invoices. Generally speaking, our experience shows that the length of the process would largely depend on the scale of the business, the volume of transaction types and complexity and number of IT systems at the taxpayer. Time is limited and there is less than one year remaining to implement the necessary changes.

It is important to keep in mind that non-compliance with these new rules can cause issues for the taxpayer and its business partners as well. For example, the buyer cannot credit input JCT if it does not receive a proper Qualified Invoice. Taxpayers should start implementation of the Qualified Invoicing System as soon as possible if they have not done so yet.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Co., Tokyo



  1. 2016 Tax Reform Act, Additional Provision (44-1).
  2. Consumption Tax Act 57-4 (1,2).
  3. Consumption Tax Act 30-9.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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