On October 1, 2023, the “Qualified Invoice System” was introduced in Japan. This system incorporates several major changes surrounding issuing and retaining invoices, so it is important to be aware of how the changes may impact business operations, price setting, and bookkeeping. This article provides a quick and easy guide to this invoice system.
What’s in this article?
- What is the Qualified Invoice System in simple terms?
- What is the Qualified Invoice System used for?
- Who will be impacted by the new invoice system?
- What happens if you do not register onto the Qualified Invoice System?
What is the Qualified Invoice System in simple terms?
The Qualified Invoice System is a new system designed to clarify the rate and amount of consumption tax in transactions, allowing businesses that pay consumption tax to receive the appropriate purchase tax credits.
Businesses subject to consumption tax can receive appropriate purchase tax credits by registering as a “qualified invoice issuing business,” and issuing and storing “invoices (qualified invoices)” that meet the prescribed descriptions and requirements.
When issuing an invoice, there are several mandatory items that must be included in the invoice.
As shown in the table above, there have been two major changes with regard to the details that must be filled in when invoicing on the Qualified Invoice System. First, in addition to the business name, the business’s registration number must also be entered. Once the registration process is complete, your registration number can be found on the National Tax Agency website. Second, the invoice must now include the applicable tax rate and the amount of consumption tax totaled for each tax rate. Some transactions may only be taxed at one tax rate. However, if more than one tax rate is applicable, it is necessary to fill in each tax rate.
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Up until September 30, 2023
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On and after October 1, 2023
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|---|---|
| Name or title of the business | Name or title of the business and registration number |
| Transaction date | Transaction date |
| Description of the goods and services | Description of the goods and services |
| Compensation amount totaled separately by tax rate | Total compensation amount for each tax rate (either excluding or including tax) and the applicable tax rate |
| Name or title of invoice recipient | Consumption tax amount categorized by tax rate |
| Name or title of invoice recipient |
What is the invoice system used for?
The Qualified Invoice System was introduced as a solution to the confusion caused by the reduced tax rates system from 2019, and as a solution to accurately communicate to buyers the consumption tax amount. Under the reduced tax rates system, a standard tax rate (10%) and reduced tax rate (8%) were established. But due to the possibility of multiple tax rates being applied to both sales tax amounts and purchase tax credits, the Qualified Invoice System was introduced. This system requires the issuance of qualified invoices as a condition for receiving purchase tax credits.
Who will be impacted by changes to the invoice system?
The Qualified Invoice System affects most taxable businesses operating in Japan because it requires the issuance and retention of qualified invoices to receive purchase tax credits.
Moreover, the implications of this system extend beyond the sellers (the recipients of orders and issuers of invoices). Even the buyers (the purchasers of orders and recipients of invoices) must keep some points in mind.
Under the Qualified Invoice System, the seller is, in principle, required by the buyer to issue a tax invoice. And the buyer must keep books and records (such as tax invoices), in order to receive a purchase tax credit.
What happens if you do not register onto the invoice system?
A key aspect of the Qualified Invoice System is that only registered businesses, known as “qualified invoice issuing businesses,” are allowed to issue qualified invoices. Conversely, businesses that are not registered cannot issue qualified invoices. In other words, if the seller is not registered, the buyer will not be able to receive a tax invoice and, in principle, will not be able to receive purchase tax credits. As a result, there could be a greater tax burden on the buyer.
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