The Qualified Invoice System was adopted in Japan on October 1, 2023. All businesses are now required to issue and retain qualified invoices in accordance with this system. In practice, this means that both domestic transactions and transactions between Japanese and overseas businesses need to comply with the invoice system.

As a business owner, you might be concerned about how the invoice system will affect your overseas transactions. In this article, we’ll go over what you need to understand, including how the invoice system affects the input tax credit (also called a purchase tax credit) for transactions outside of Japan.

What’s in this article?

• Does the invoice system apply to overseas transactions?
  
• A case-by-case approach to the invoice system when making overseas transactions
  
• Items to check before making overseas transactions
  
• How invoicing works overseas
  
• Understanding the invoice system’s impact on both domestic and overseas transactions
  
• How Stripe Invoicing can help
  

Does the invoice system apply to overseas transactions?

Any transaction that is subject to Japanese consumption tax can be affected by the invoice system. Let’s break down the overseas transactions that are and aren’t affected.

Transactions that are not affected

Import transactions conducted by importers

The invoice system has no direct impact on goods that Japanese importers bring in from overseas. This is because importers are issued an import permit notice when their goods arrive from overseas and they pay consumption tax on them to the customs agency. This import permit notice has the same effect as a qualified invoice under the invoice system. Therefore, importers do not need to request a qualified invoice from exporters based overseas; they can simply use their import permit notice to get an input tax credit for the consumption tax they paid.

Import of goods traded overseas

The invoice system does not apply to import transactions conducted outside of Japan. The invoice system applies only to domestic transactions related to Japanese consumption tax (JCT) and the import transactions mentioned previously. Transactions such as the purchase of goods and services overseas are not subject to Japan’s consumption tax.

Transactions that are affected

Transactions involving overseas businesses that have permanent establishments (PEs) in Japan

A permanent establishment (PE) simply refers to a specific location where business is conducted. The invoice system is applicable to overseas businesses that have PEs in Japan. If an overseas business has a branch, factory, or other PE in Japan, the business is considered a taxable entity because it presumably conducts B2B transactions with other businesses in the country. In these cases, the overseas business must receive a qualified invoice in order to apply for an input tax credit, and the business must also issue qualified invoices to its business partners.

Overseas transactions in which no PE is involved but consumption tax still applies

There are also cases in which overseas businesses that do not have PEs in Japan are required to comply with the invoice system. Thus, you need to be careful not to make decisions based solely on the presence or absence of a PE in Japan.

According to Japan’s National Tax Agency (NTA), overseas businesses are required to register as taxable entities and are subject to consumption tax when conducting transactions in Japan, even if they do not have PEs. Applicable businesses and transactions include:

• Corporations with capital or capital investment of 10 million yen or more

• Taxable sales in Japan during the base period (i.e., the calendar year before last for individuals and the fiscal year before last for corporations) exceeding 10 million yen

• Taxable sales during a specified period (i.e., January 1 to June 30 of the previous year for individuals; in principle, from the start of the previous fiscal year to six months thereafter for corporations) exceeding 10 million yen

A specific example is when an overseas business without a PE purchases goods from a business in Japan and sells the goods to another business in Japan.

It is therefore important for Japanese businesses conducting transactions with overseas businesses that meet the criteria mentioned above to confirm in advance whether the overseas business is subject to consumption tax and is a qualified invoice issuer that has an invoice system registration number. The Japanese business needs to do this in order to ensure that input tax credits can be claimed in the future.

A case-by-case approach to the invoice system when making overseas transactions

When transactions take place within Japan

As explained previously, if a transaction takes place within Japan, it is considered a domestic transaction and is therefore subject to consumption tax. Thus, a customer in Japan purchasing goods from an overseas business needs to obtain a qualified invoice from that overseas seller.

On the other hand, when an importer brings goods into the country from overseas and pays consumption tax on them, they are issued an import permit notice, which can be used in place of a qualified invoice to receive an input tax credit. Thus, a qualified invoice is not necessary.

When a Japanese business acts as an agent for an overseas business during the import process

Let’s imagine a situation where a customer (an individual) wants to purchase a product from an overseas business (Business A), which does not have a PE in Japan. Because Business A does not have a PE, it has limited capabilities to secure and operate domestic logistics routes in Japan. In such cases, a domestic agent (Business B) needs to handle the import procedures and storage of the product on behalf of Business A.

In this situation, the sale of the product itself is solely between Business A and the customer. However, when Business A’s product is stored in Business B’s warehouse—for logistics purposes—ownership of the product must be temporarily transferred from Business A to Business B. This occurs until completion of the sale, at which time ownership is transferred to the customer.

Despite this temporary transfer of ownership, Business A is still considered the technical owner of the product, and therefore bears the obligation to file import declarations and pay consumption tax incurred at importation. However, Business B, acting as the domestic agent, handles these import procedures on Business A’s behalf. Additionally, when the ownership temporarily changes during storage, it is considered a domestic transaction, as Business B is essentially purchasing the product from Business A. As such, Business B will have to pay consumption tax.

It can be complicated when Business A is the importer and owner of the goods, and Business B is the temporary owner of the goods at the time of shipment. The important thing to keep in mind in this case is that whether Business B applies for an input tax credit will differ depending on whether Business A is a tax-exempt or taxable business.

If overseas Business A is a tax-exempt business

If the overseas business, Business A, is a tax-exempt business, it won’t be liable for tax on domestic transactions with the Japanese business, Business B. However, even in this case, the purchase of goods from Business A by Business B is classified as a domestic transaction and is therefore subject to consumption tax as a taxable purchase.

Because it’s tax-exempt, Business A can’t issue qualified invoices, but Business B can calculate the amount of consumption tax based on the purchase amount from Business A. In other words, Business B can base the amount of consumption tax on the amount of consideration paid and apply the input tax credit for that amount.

If overseas Business A is a taxable business

If Business A is a taxable business, then Business B serves as both a customs broker and a tax representative for Business A. As a taxable business, Business A is liable for tax at the location of Business B’s domestic warehouse where the goods are stored. For example, when Business B (i.e., the buyer) purchases goods from Business A (i.e., the seller), this transaction is considered a domestic transaction, so Business A collects consumption tax from Business B. Business A must then pay the tax to the government.

For transactions between Business B and Business A, the consumption tax on product sales and imports is eligible for an input tax credit. Therefore, in order for Business B to receive an input tax credit for the consumption tax it paid at the time of purchase, it must obtain a qualified invoice from Business A.

When the importer of record and the actual importer are different

As mentioned previously, for import transactions, the business that receives the delivery of goods can apply for an input tax credit using an import permit notice. In this case, the business receiving the delivery is considered the “importer of record,” and the name of the “importer of record” is entered on the import permit notice.

However, if the “importer of record” and “actual importer” listed on the import permit notice are different, only the importer of record is eligible for the input tax credit, while the actual importer is not eligible for any credit.

Let’s look at another situation, this time where overseas Business A and domestic Business D have entered into a direct sales contract. When Business D has Business C—an import agent in Japan—handle import procedures on its behalf, Business C will conduct the import transaction as the “importer of record” and then bill Business D for the agency fee and consumption tax. Although Business D is the “actual importer” and ultimately bears the consumption tax on imports, the “importer of record” is Business C, and therefore Business D itself is not eligible for the input tax credit.

Items to check before making overseas transactions

Now that we’ve looked at overseas transactions that can be affected by the invoice system, let’s go over the items that you should check to ensure overseas transactions proceed smoothly.

Is the overseas business exempt from consumption tax or liable for it?

Again, even if the other party in a transaction is an overseas business, there are cases in which that business would be classified as taxable and thus subject to consumption tax.

Compliance requirements for the invoice system vary depending on whether the business is a taxable business or a tax-exempt one. So, if your business is considering transactions with an overseas business, you should ask about this in advance.

Is the overseas business registered for the invoice system?

It is also important to confirm whether an overseas business is registered under the invoice system and therefore can issue qualified invoices.

Not all taxable businesses are qualified invoice issuers. In terms of input tax credits, in order to facilitate easier transactions with business partners, most taxable businesses have already registered for the invoice system. However, there is no legal obligation to register, and thus registration is completely optional.

For overseas businesses in particular, it’s possible that even though they are subject to consumption tax in Japan, they might not have registered as qualified invoice issuers. Only qualified invoice issuers who have registered for the invoice system in advance are permitted to issue qualified invoices. Therefore, if the overseas business is not one, the customer will not be able to obtain a qualified invoice from the overseas business and will not be eligible for an input tax credit.

If the input tax credit cannot be applied, pressure on profits will increase as transaction amounts do. Thus, it is important to request that an overseas business register with the invoice system or to otherwise negotiate with the business when conducting transactions with them.

How invoicing works overseas

In Europe, Asia, and numerous countries around the world, an invoice system for value-added tax (VAT) has been introduced.

According to a 2025 overview from Japan’s Ministry of Finance, the following points are common to Japan’s invoice system and those of other countries:

• Records: It is necessary to record the details of transactions related to input tax credits on qualified invoices and in accounting books, and to retain those records.
  
• Deductions: In principle, deductions for purchases from tax-exempt businesses are not permitted.
  

In addition, just as qualified invoices issued under Japan’s invoice system must comply with the country’s Electronic Books Preservation Act, other countries are also moving toward the use of qualified invoices in electronic formats. For instance, e-invoicing has become mandatory in Germany and Italy for certain businesses.

Invoicing requirements vary slightly from country to country, and Japanese businesses conducting transactions with overseas businesses must ensure that they fully understand the respective systems. This is because the application of input tax credits is based on the invoice system of the other country.

Understanding the invoice system’s impact on both domestic and overseas transactions

In this article, we explained the impact of Japan’s invoice system on overseas transactions, and specifically the types of overseas transactions that might be affected by the invoice system. Then we explained how to support the invoice system in overseas transactions based on specific cases.

Under Japan’s current invoice system, in order to receive input tax credits, the appropriate measures must be taken by both parties—the business selling and the customer buying. In particular, it is important for businesses that are qualified invoice issuers to create a business environment that supports the invoice system. This means documents need to be able to be delivered and stored smoothly.

It can be worth it to consider introducing online tools that can optimize work, such as automatic consumption tax calculation functions and accounting software, as they are extremely useful for creating invoices.

Japan’s invoice system has various requirements regarding input tax credits, and even for domestic transactions, the system can be complex to navigate. It’s necessary to understand matters such as transactions made with tax-exempt businesses and certain transitional measures. However, by preparing thoroughly in advance, you can respond appropriately to the invoice system.

How Stripe Invoicing can help

Stripe Invoicing simplifies your accounts receivable (AR) process—from invoice creation to payment collection. Whether you’re managing one-time or recurring billing, Stripe helps businesses get paid faster and streamline operations:

• Automate accounts receivable: Easily create, customize, and send professional invoices—no coding required. Stripe automatically tracks invoice status, sends payment reminders, and processes refunds, helping you stay on top of your cash flow.
  
• Accelerate cash flow: Reduce days sales outstanding (DSO) and get paid faster with integrated global payments, automatic reminders, and AI-powered dunning tools that help you recover more revenue.
  
• Enhance the customer experience: Deliver a modern payment experience with support for over 25 languages, 135 currencies, and 100 payment methods. Invoices are easy to access and pay through a self-serve customer portal.
  
• Reduce back-office workload: Generate invoices in minutes and reduce time spent on collections through automatic reminders and a Stripe-hosted invoice payment page.
  
• Integrate with your existing systems: Stripe Invoicing integrates with popular accounting and enterprise resource planning (ERP) software, helping you keep systems in sync and reduce manual data entry.
  

Learn more about how Stripe can simplify your accounts receivable process, or get started today.