When a foreign company sells products directly in Japan, it may be required to file the Japanese consumption tax return and pay taxes to the tax authorities. Or, when you establish a subsidiary in Japan, you may have the same obligation. 

Key Takeaways

• When a foreign company makes sales that are subject to platform taxation through a Specified Platform Operator, such as a designated Amazon entity, the foreign company is not responsible for filing or paying consumption tax on those sales, 
  
• Not under platform taxation, as a general rule, a business is exempt from the consumption tax return obligation if its taxable sales during both “the base period” and ” the specified period” do not exceed JPY 10 million.
• For the fiscal year in which a Japanese subsidiary is established, or the fiscal year in which a foreign company begins operations in Japan, the JPY 10 million capital stock criterion applies. 
• Once a company registers as a Qualified Invoice Issuer, it must file consumption tax returns regardless of whether its sales exceed JPY 10 million. 
  

1. Platform Taxation for Sales of Goods 

Platform taxation for sales of goods will begin on April 1, 2028. 

For sales covered by the new rules, foreign businesses selling goods in Japan through a designated platform, such as Amazon, will no longer be responsible for filing a consumption tax return on those sales, regardless of whether they are otherwise a taxable or tax-exempt business or a qualified invoice issuer. 

Instead, the relevant platform operator will report and pay the consumption tax on behalf of foreign businesses. 

Consumption tax paid by the foreign business on imports and taxable purchases, with the foreign business’s prior consent, will be treated as having been paid by the Platform Operator. The platform operator can then claim the corresponding input tax credit. 

In that case, the foreign business cannot file a consumption tax return to claim a refund of the same import consumption tax. 

2. The JPY 10 Million Test Based on Taxable Sales During the Base Period 

The following section explains matters other than foreign corporations subject to platform taxation. 

When a foreign company becomes a taxable business required to file and pay consumption tax. 

The most important rule is the JPY 10 million sales threshold. As a general rule, if taxable sales during the base period do not exceed JPY 10 million, the business is exempt from consumption tax for the relevant taxable period. 

For a corporation, the base period is generally the fiscal year two fiscal years before the relevant fiscal year.(*) For an individual, it is the calendar year two years before the relevant year. 

For example, the following base periods apply to a foreign corporation with a fiscal year ending in December 31: 

If taxable sales during the base period exceed JPY 10 million, the foreign company is a taxable business for the fiscal year being tested. 

• The test is based not on the foreign company’s worldwide sales but on its domestic taxable sales that are subject to Japanese consumption tax. 
• The JPY 10 million threshold is tested on a tax-exclusive basis. If a taxable business receives JPY 11 million from sales, that amount includes JPY 1 million of consumption tax, so its tax-exclusive sales are JPY 10 million. If a tax-exempt business receives JPY 11 million from sales, the amount is not treated as including consumption tax, and its sales for threshold purposes are JPY 11 million. 

(*) If the fiscal year two years before the relevant fiscal year was shorter than one year, for example because it was the company’s first fiscal year, the base period is the combined period of the fiscal years that began between the day two years before the beginning of the relevant fiscal year and the date one year after that day. 

3. The JPY 10 Million Test Based on Taxable Sales During the Specified Period 

Even if taxable sales during the base period do not exceed JPY 10 million, the consumption tax exemption does not apply if taxable sales during the specified period exceed JPY 10 million. 

For a corporation, the specified period is generally the first six months of the preceding fiscal year. 

For example, for a foreign corporation with the fiscal year ending December 2026, the specified period is January 1 through June 30, 2025. 

The business is tax-exempt if taxable sales during both the base period and the specified period do not exceed JPY 10 million, unless another exception applies. 

You may also use the total amount of wages paid during a specific period in place of sales revenue for that period. In other words, if sales revenue exceeds 10 million yen but the total amount of wages paid does not exceed 10 million yen, the business will qualify as a tax-exempt entity for the fiscal year ending December 2026. However, this option is available only to Japanese companies; foreign companies cannot use total wages paid in place of sales revenue. 

4. Foreign Companies With Stated Capital of JPY 10 Million or More 

A newly established corporation generally has no base period for its first and second fiscal years. If its stated capital at the beginning of such a fiscal year is JPY 10 million or more, it is not exempt from the consumption tax return obligation in that first and second fiscal year. 

For a foreign corporation, when it begins business in Japan for the first time, it is treated as having no base period for the first and second fiscal year. Consequently, if its stated capital is JPY 10 million or more at the beginning of either of those fiscal years, it becomes a taxable business from the first and second fiscal year. 

Special Consideration for Chinese Companies 

The stated capital shown in a Chinese company’s certificate of registration or articles of incorporation may differ from the capital shown on its balance sheet. The amount stated in the registration certificate or articles may represent capital scheduled to be paid in the future rather than the amount actually contributed to date. 

In such a case, we consider that the JPY 10 million test should be applied using the amount of capital recorded on the balance sheet rather than the amount stated in the Company’s certificate of registration.  

5. Specified Newly Established Corporations 

Even when a corporation has no base period, and its stated capital is less than JPY 10 million, it is not exempt from the consumption tax return obligation for a fiscal year without a base period if it is controlled by a large corporate group and qualifies as a specified newly established corporation. 

Broadly speaking, a corporation falls within these rules when both of the following conditions are met: 

• Another person directly or indirectly holds more than 50% of its shares or interests, or another prescribed control relationship exists. 
• For at least one of that controlling person and certain corporations having a special relationship with that person, Japanese sales during the period corresponding to the newly established corporation’s base period exceed JPY 500 million, or total revenue, including revenue earned outside Japan, exceeds JPY 5 billion. 

Accordingly, the rules should be reviewed even when the foreign company or Japanese subsidiary has stated capital of less than JPY 10 million if its overseas parent company is a large enterprise. 

6. Must an Amazon Seller Register as a Qualified Invoice Issuer? 

As an exception to the 10 million threshold rule, corporations, including a foreign company registered as a Qualified Invoice Issuer, cannot be a tax-exempt business even if its taxable sales during both the base period and specified period do not exceed JPY 10 million.  

Many foreign companies appear to believe that Amazon requires sellers using Amazon Japan to register as Qualified Invoice Issuers. 

According to Amazon’s website, however, sellers that are not registered as Qualified Invoice Issuers may still sell on Amazon. Amazon recommends obtaining a registration number. 

7. A Foreign Company is not Allowed to Use the Simplified Taxation System 

Under the general taxation method, the consumption tax payable is calculated by deducting consumption tax paid on purchases and expenses from the consumption tax received on sales. 

Small businesses may instead be eligible for the simplified taxation system. Under this system, the input tax credit is calculated by multiplying the consumption tax on sales by a deemed purchase ratio prescribed for each type of business, rather than by totaling the actual consumption tax paid on purchases and expenses. 

For taxable periods beginning on or after October 1, 2024, a foreign business without a permanent establishment in Japan on the first day of the taxable period cannot use the simplified taxation system. 

8. Can a Foreign Company Use the 20% or 30% Special Measure? 

The 20% Special Measure 

The 20% special measure is a transitional relief measure for small businesses that became taxable businesses solely because they registered under the invoice system. It limits the consumption tax payable to 20% of the consumption tax received on sales. 

However, a foreign business without a PE in Japan on the first day of the taxable period cannot use the 20% special measure for taxable periods beginning on or after October 1, 2024. 

The 30% Special Measure 

The 30% special measure was introduced by the 2026 tax reform as a relief measure for certain individual businesses that became taxable businesses as a result of invoice registration. 

The measure does not apply to corporations. Foreign corporations therefore cannot use the 30% special measure or the 20% measure.