An invoice is a document that a business issues to a customer to request payment in return for goods or services. If you operate a business, you’re likely familiar with these.

In Japan, invoices are used for all sorts of transactions, whether between two businesses or between a business and an individual customer. These documents are important for ensuring that payments from customers are made appropriately.

In this article, we’ll explore the role of invoices, their requirements in Japan, and information about invoicing that businesses need to know.

What’s in this article?

• What is an invoice?
  
• What are the invoice requirements in Japan?
  
• What other information must be included on an invoice?
  
• Considerations when issuing invoices
  
• Final points to know about invoices in Japan
  

What is an invoice?

As previously stated, businesses issue invoices to request payment for goods and services that have been provided to customers. Legally speaking, businesses aren’t required to issue invoices. However, it’s common practice to do so for almost any business transaction, as it can minimize the risk of non-payment and other customer-related problems.

The role of invoices

Invoices are similar to receipts and delivery slips; they are valid documents that serve as evidence that transactions have taken place. Although there is no legal obligation to issue invoices, it is impossible to prove that a transaction has taken place without an invoice, which can lead to a variety of problems for businesses and customers alike.

Taxes

As part of a tax audit, a business might be asked to submit supporting documents. If there are no accounting documents that can provide details of the business’s transactions, it will be difficult or even impossible to provide these records. By failing to provide clear and reliable information to the tax office, the business might incur additional taxes.

Further, without an invoice, tax deductions that would otherwise apply might not be applicable. For example, under the invoice system, invoices are considered important documents from the perspective of applicable input tax credits.

Risk reduction

Another reason invoices are necessary for all transactions is to hedge risk. Invoices—which record transaction details and function as evidence of billing—serve a very important role in ensuring smooth communication with customers. When businesses issue invoices appropriately, businesses and customers can understand and agree on the details of the transactions in writing, which can lead to smoother payments and fewer misunderstandings.

For example, if a customer fails to pay an invoice amount and falsely claims that they were never billed, their claims will not hold up if the business involved has properly issued an invoice. Furthermore, in the unlikely event that the customer refuses to pay, it can also be used as evidence in court that the business has the right to collect payment.

Because invoices reduce risk, they have become a given part of doing business in Japan. An invoice acts as official proof that a transaction has taken place and as a means of maintaining trust between the business and customer.

What are the invoice requirements in Japan?

In Japan, invoices must include certain pieces of information that businesses and customers need to be aware of, such as the amount being billed. As long as the information that needs to be communicated to the other party is included in the document, there are no legal requirements as to how an invoice should be created or formatted.

However, for an invoice to fulfill its intended function, it must be clear and easy for a customer to understand, and several details must be included.

Name of the customer

In the addressee field, you need to enter the name of the customer or business that received the service or product. When writing the addressee’s name, it’s important to write the official, registered name and that all elements of the name are written out fully. For example, don’t shorten “Company Limited,” to “Co. Ltd.,” or “Limited Liability Company” to “LLC.” For individual customers, make sure to write out their full name.

Further, when addressing an invoice to a business, ideally you’ll get the name of the department or person who will be in charge of processing the invoice and use “Mr.,” “Mrs.,” or “Ms.” before the person’s name. If you don’t have that information, then you should write “To Whom It May Concern.”

Check with the customer for any other details they want you to include, such as a phone number or address—these are common.

Name of the party issuing the invoice

As the invoice issuer, you either enter your business’s name, or, if you are a sole proprietor, your personal name. Normally, this information is written below the invoice date and invoice number.

Although it’s optional, it is also customary for a business in Japan to affix a company seal or the seal of the person in charge, along with the name of the issuer.

Invoice amount

The total amount of the transaction, including consumption tax, should be written in a large font size and labeled as the “Invoice Amount.” Don’t forget to clearly state that the total amount includes taxes.

Transaction date

Record the date on which the actual transaction took place. For products, this is the delivery date; for services, this is the date on which the services were provided.

In cases where there are multiple transactions within a month, it’s common to use what’s known as the “credit sales method.” This is a method of billing the customer on a monthly basis for all transactions that occurred within a specified period. To ensure you bill the client correctly, it’s important to record the date of each transaction and enter them correctly on the corresponding invoice.

Transaction details

You’ll want to provide more detailed information about the products and services you’re billing for. First, list the product or service name, including the product number (if applicable), the unit price, and the quantity. Next, record the subtotal, the total amount excluding consumption tax, and the total amount (i.e., the subtotal plus consumption tax). If a reduced tax rate applies to any of the products, clearly indicate that they are “items eligible for a reduced tax rate.”

What other information must be included on an invoice?

There are some additional items that you must add to invoices. These details are important to smoothly facilitate customer payments.

Document title

To ensure that the recipient can immediately recognize the document as an invoice, clearly write “Invoice” in the header of the document.

Invoice number

Assigning a unique invoice number makes internal data management easier. This also simplifies the process of checking an invoice against receipts and other documents associated with the transaction.

Invoice issue date

It’s common to record the invoice issue date in the upper right corner of the invoice. Keep in mind, however, that it is also common practice to match the date with the customer’s closing date (i.e., the last day of the specified billing period). This means the date on which the invoice is actually issued might not necessarily be used in the document. Be sure to confirm the issue date with the other party in advance when conducting transactions for the first time.

Let’s look at an example: say the customer’s payment agreement specifies that the billing period closes at the end of the month, and the client is required to pay during the following month. You should set the issue date to the last day of the month of delivery. So, if you issue an invoice for goods delivered on August 1, even if you create and send the invoice on September 1, the issue date won’t be September 1; rather, it will be the last day of the billing period, August 31.

Payment deadline

The payment deadline is usually agreed upon at the time the contract is signed, so the payment deadline that you record should align with this agreement.

Bank transfer account information

Bank transfer information is important in order for customers to send you the total invoice amount. Make sure to include your bank name and code, branch name and code, deposit type, account number, and account name (including a phonetic reading guide, as necessary). Be careful to make sure that there are no omissions or mistakes, especially in the bank code or branch code.

Transfer fees

To build trust in the business relationship, it’s very important to establish in advance whether the issuer or the customer will pay any transfer fees.

If the customer will pay the transfer fees, it’s common practice to add a note to that effect in the remarks section of the invoice. For example, you can add a polite sentence along the lines of “We apologize for the inconvenience, but we kindly ask that you pay the transfer fee.”

Considerations when issuing invoices

Deciding whether to use a stamp or seal

In Japan, it is common practice to place an official stamp or seal on invoices, to show that the invoice has not been forged. When issuing invoices to a client in Japan, a company seal makes the document appear more authentic and creates a sense of trust.

Businesses are not obligated to include an official stamp or seal on their invoices. Regardless of whether or not a seal is affixed, the invoice will be recognized as valid supporting documentation as long as it meets the requirements outlined previously. A lack of seal will not invalidate the details of the transaction.

Since the spread of remote work in the wake of COVID-19, the practice of affixing a company seal on documents is gradually disappearing in Japan. As a result, even documents that previously required seals for tax purposes no longer require them. It is likely that seals and stamps will become less commonplace in the future.

Confirming all of the necessary information

After creating an invoice, you need to carefully review the content to ensure that it is both accurate and clearly stated. In addition to the required pieces of information, it’s also important to include additional details, such as a bank account number and payment due date, that the customer needs to easily pay the correct amount.

When preparing invoices, pay close attention to these details to avoid payment problems, such as the customer making late payments due to unclear payment terms or failed bank transfers due to missing account numbers.

Complying with Japan’s Qualified Invoice System　

As discussed above, there are certain requirements for invoices in Japan. However, to be eligible for a purchase tax credit, businesses must also comply with the current invoice system. This means that when invoicing, it is necessary to include the details required for the Qualified Invoice System in addition to the items normally included in an invoice.

Japan’s Qualified Invoice System is used by businesses to obtain input tax credits for consumption tax. The system came into effect on October 1, 2023. It requires businesses to deliver and retain qualified invoices to receive a credit for consumption tax purchases. Without a qualified invoice, a business cannot apply for an input tax credit.

For sellers to issue qualified invoices, they must first register as a qualified invoice-issuing business with the relevant invoice registration center.

A qualified invoice must also include more details than a regular invoice. It needs to have a Qualified Invoice System registration number that certifies that the issuing business is a qualified invoice issuer. A qualified invoice must also include the total amount—excluding or including tax—broken down by tax rate, as well as the tax rate that was applied: either 10% (standard) or 8% (reduced). Businesses should thoroughly familiarize themselves with this invoice system and take steps to be compliant with it if they wish to receive this tax credit.

Invoice storage is also important under the Qualified Invoice System. Businesses need to store qualified invoices separately from regular invoices and manage them properly.

Final points to know about invoices in Japan

In this article, we discussed the fundamentals of invoicing in Japan. An invoice is an important document, issued primarily to request payment from an individual or another business. Invoicing also requires consideration on the part of the issuer. The issuer should confirm various details with the customer in advance, including the invoice’s issue date and who will bear the transfer fees.

Invoicing might seem like a chore, but it is an important part of operating a business. In particular, issuing invoices that contain all the necessary pieces of information makes it possible to build strong and transparent relationships with your customers.

Online tools can make the invoicing process much simpler. You might want to consider introducing automatic sales tax calculation functions and accounting software into your business’s workflow. Stripe Invoicing complies with all of the Qualified Invoice System’s requirements. It also allows businesses to issue and store invoices appropriately using its automatic generation function. And because this tool has a variety of functions related to invoicing operations—such as the ability to manage accounts receivable, collect payments, and perform transaction reconciliation—businesses can make their back-office operations smoother and more efficient.