On October 1, 2023, the qualified invoice method for the Invoice System was introduced in Japan. This method requires the issuance and storage of qualified invoices that comply with the Invoice System in order to receive purchase tax credits that reduce the amount of consumption tax that a company owes.

However, because these qualified invoices have specific requirements, vendors who issue these invoices under the new system have occasionally experienced difficulties.

Because of this, certain industries are allowed to issue simplified invoices (officially called “simplified qualified invoices”) with simpler requirements instead of regular qualified invoices. For the sake of clarity, we’ll use the term “simplified invoice” to refer to simplified qualified invoices only.

In this article, we will explain which industries can issue simplified invoices, what the requirements of these invoices are, how they differ from qualified invoices, how they should be formatted, and more.

What’s in this article?

• What is a simplified invoice?
  
• Transactions and industries eligible to use simplified invoices
  
• Requirements for issuing simplified invoices
  
• Differences between qualified and simplified invoices
  
• How to create simplified invoices compliant with the Invoice System
  
• Storage period for simplified invoices
  

What is a simplified invoice?

As mentioned above, qualified simplified invoices are invoices with a simpler format that require less information than qualified invoices. These invoices can be issued by certain industries, and they are also called simplified invoices.

Although the written format of these invoices has been simplified, they retain the same level of validity as qualified invoices, so buyers receiving these invoices can use them for purchase tax credits. Simplified invoices can include receipts for purchases made at a supermarket, convenience store, restaurant, or similar establishment.

Benefits of simplified invoices

The primary benefit of simplified invoices is that they require fewer entries than a qualified invoice, allowing receipts and purchase orders that meet the requirements of a simplified invoice to be accepted as eligible documents under the Invoice System.

As a result, there are no barriers to transactions between sellers in industries where it would be difficult to issue a qualified invoice and their buyers, allowing existing business relationships to be maintained.

Transactions and industries eligible to use simplified invoices

The Invoice System allows simplified invoices to be issued instead of qualified invoices for several industries.

Japan’s National Tax Agency considers the issuance of simplified invoices acceptable for transactions involving “sales to a large number of unspecified purchasers” (question 24, “which businesses can issue qualified simplified invoices?”). This allows companies that meet this requirement to issue these invoices.

The industries that are allowed to issue simplified invoices under the Invoice System include the following:

• Retail businesses
  
• Restaurants or other food and beverage businesses
  
• Photography businesses
  
• Travel-related businesses
  
• Taxis
  
• Businesses operating parking lots (limited to businesses selling to large numbers of unspecified customers)
  
• Businesses similar to those listed above that transact with a large numbers of unspecified customers
  

In these industries, issuing qualified invoices can be difficult, since they typically manage a large number of unspecified customers. As a result, receipts may be treated as simplified invoices as long as they contain all the information required for a simplified invoice under the Invoice System. There are no restrictions on handwriting these invoices.

Requirements for issuing simplified invoices

As with typical qualified invoices, issuing simplified invoices requires a business to be a taxable entity registered with the Invoice System as a qualified invoice issuer.

Tax-exempt businesses are not permitted to issue simplified invoices. Tax-exempt businesses should understand the benefits and drawbacks of registering with the Invoice System, and carefully consider a decision about whether to become a taxed business.

It’s also a good idea to use this time as an opportunity to consider introducing new features and tools that can increase business efficiency. For example, Stripe Invoicing can address the various needs associated with creating qualified invoices, and Stripe provides support for streamlining back-office operations.

Furthermore, transitional measures have been put in place that allow a business to automatically become a taxed business by registering for the Invoice System by September 30, 2029.

Differences between qualified and simplified invoices

The following table compares and explains the differences between qualified invoices and simplified invoices.

As you’ll see in the table above, the details of the simplified invoice on the right have some differences from those of the qualified invoice on the left. In particular, the name of the entity receiving the invoice is not required. In addition, either the total amount of sales tax or the tax rate applied can be shown, making it easier to issue documentation for transactions with a large number of unspecified purchasers.

However, both simplified and qualified invoices must contain the registration number of a qualified invoice issuer. As a result, when a seller issues a simplified invoice, this registration number must be clearly displayed so the buyer is eligible for purchase tax credits for the purchase.

How to create simplified invoices compliant with the Invoice System

As mentioned earlier, simplified invoices in the Invoice System generally use receipts. As a result, the receipt format is typically used when creating a simplified invoice.

To create a simplified invoice that complies with the Invoice System, it is acceptable to use (1), (2), and (4) from the table above as a normal receipt. However, be careful with (3), (5), (6), and (7), as these are specific pieces of information required by the Invoice System. The most important points to keep in mind when using a receipt as a simplified invoice are listed below.

Formatting the transaction details (3)

A statement should be included in the transaction details to indicate which products are subject to a reduced tax rate. Specifically, an asterisk () should be displayed for goods that qualify for a reduced tax rate so that these products can be easily identified, with a key that states, for example, “ indicates items that qualify for a reduced tax rate of 8%,” which clearly identifies the purpose and meaning of the symbol.

Formatting the registration number on a simplified invoice (5)

The registration number of the business authorized by the local tax office is perhaps the most important detail to include. The registration number should appear next to the title or company name of the qualified invoicing entity issuing the simplified invoice (in this case, the receipt).

Formatting the total cost and applied tax rate using either tax-excluded or tax-included price by tax rate (8% or 10%) (6)

The total amount of the transaction should be indicated in either tax-exclusive or tax-inclusive form for each tax rate applied. Even for simplified invoices, it is generally not necessary to indicate the tax rate (%) applied. This is optional. (However, make sure to record the applied tax rate when creating qualified invoices.)

Example: Here is the format to indicate the applied tax rate (%), which is optional for simplified invoices. For ¥1,000 of merchandise purchased at the reduced tax rate (8%) and ¥1,000 of merchandise purchased at the standard tax rate (10%), a record of the tax-included price along with the applied tax rate would appear as the following:

• Tax included total - 1 item at 8% - ¥1,080
  
• Tax included total - 1 item at 10% - ¥1,100
  

Formatting the total consumption tax amount for each respective tax rate (7)

The total amount of consumption tax for each tax rate applied should be shown separately. For simplified invoices, either the applied tax rate (%) or the total amount of sales tax may be shown. If only the applied tax rate is shown, each tax rate and the total cost of goods for that tax rate (6) should be clearly linked.

Example: Here is the format for showing both the applied tax rate (%) and the total consumption tax. For ¥1,000 of merchandise purchased at the reduced tax rate and ¥1,000 of merchandise purchased at the standard tax rate, the format would be the following:

• Consumption tax at 8% - ¥80
  
• Consumption tax at 10% - ¥100
  

For more information on formatting and examples of simplified invoices compliant with the Invoice System, refer to the National Tax Agency’s overview of methods for retaining qualified invoices (page 5).

Storage period for simplified invoices

Simplified invoices are important documents for buyers to obtain purchase tax credits. When issuing a simplified invoice, it is important for sellers to carefully review the information required by the Invoice System before issuing the invoice to the buyer.

It is also important to note that after issuing documents under the Invoice System, either qualified or simplified invoices, sellers must keep copies of the documents for a certain period of time.

In principle, this period is seven years and two months from the day following the last day of the tax period of the simplified invoice. For example, for a sole proprietor, the tax period is from January 1 to December 31. In this case, the last day of the tax period is December 31, so a simplified invoice issued on December 1, 2023 must be stored for seven years and two months after January 1, 2024 (i.e., for seven years starting from March 1, 2024).

For details, refer to the National Tax Agency’s overview of methods for retaining qualified invoices (page 11).