Japan Consumption Tax digital services update

Finance Ministry to extend VAT collections to app stores 1st April 2025

The Japanese National Tax Agency has published Frequently Asked Questions to support the imposition of the deemed supplier Consumption Tax obligations on digital platforms for digital services. This comes into effect on 1 April 2025 for non-resident providers selling to consumers via marketplaces.

The Japanese Finance Ministry has confirmed that it wishes to make app stores, such as Google and Apple, responsible for collecting 10% Consumption Tax for third-party providers selling to Japanese consumers via their platforms. This is based on the global trend to shift the indirect tax burden to digital platforms.

The Finance Ministry will set a threshold for app stores, below which they will not have to register for Consumption Tax. Generally this non-resident threshold is taxable supplies below Yen 10 million for two consecutive years. Part of the problem has been app providers ‘splitting’ their income between separate companies to remain below this registration threshold.

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:

• Apps
• E-books
• Gaming
• Streaming or download music, video
• Online journals and newspapers
• Advertising
• SaaS or cloud-based software and storage
• Telecoms

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