
How Exporters Can Benefit from Japan’s Consumption Tax Refund
Yoshio YamaguchiShare
Generally, in terms of consumption tax, being a tax-exempt business is more advantageous than being a taxable business, as it results in lower tax payments to the government. However, there is an exception: export businesses. I will explain why it is more beneficial for export businesses to be registered as taxable businesses by breaking down the consumption tax calculation mechanism.
What is a Taxable Business Operator?
Only taxable business operators can receive consumption tax refunds through consumption tax returns. Tax-exempt business operators are not required to file consumption tax returns and therefore cannot receive tax refunds.
A taxable business operator is an entity that must submit consumption tax returns and has either the obligation to pay consumption tax to the government or the right to claim refunds.
A tax-exempt business operator is an entity that has no obligation (and is unable) to file consumption tax returns, and therefore has neither the obligation to pay consumption tax nor the right to claim refunds.
The determination between taxable and tax-exempt status is generally based on the following criteria:
- If sales from two fiscal years prior exceeded 10 million yen (including export sales): Taxable business operator status applies
- If sales for the first 6 months of the previous fiscal year exceeded 10 million yen AND salary payments during that period exceeded 10 million yen: Taxable business operator status applies
- For startups or new businesses: Companies with capital of 10 million yen or more automatically qualify as taxable business operators, even without prior sales history.
For detailed information, please refer to the National Tax Agency.
How Consumption Tax Works
For Regular Taxable Businesses
The amount of consumption tax to be paid to or refunded by the government is calculated by:
Taking the consumption tax collected from customers and subtracting the consumption tax paid on purchases.
If the result is positive, you pay that amount. If negative, you receive a refund.
For example, let's say a taxable business buys goods for $660 and sells them for $1,100. The purchase price includes $60 in consumption tax, and the selling price includes $100 in consumption tax.
$1,100 ($100) - $660 ($60) = $440 ($40) (Numbers in parentheses represent consumption tax which must be paid during the tax return process or the consumption tax eligible for input tax credit).
While the business has $440 in hand, $40 of that is consumption tax.
The business must file a tax return and pay this $40 to the government, leaving them with a final profit of $400.
In the Case of Tax-Exempt Businesses
$1,100 (0) - $660 (0) = $440 (0)
The final profit remains $440. Tax-exempt businesses have an advantage of $40 in tax profit compared to taxable businesses.
This explains the basic mechanism of consumption tax calculations.
When the Exporter is a Taxable Business Entity
Export transactions are calculated differently. Revenue from exports is classified as "tax-exempt sales". When selling at a price of 1,100, the consumption tax included is exempt from tax filing obligation.
1,100 (0) - 660 (60) = 440 (-60)
As a taxable business entity, you file a consumption tax return and receive a refund of 60. Your final net proceeds will be 500.
When the Exporter is Tax-Exempt
1,100 (0) - 660 (0) = 440 (0)
Since tax-exempt businesses do not file consumption tax returns, they will not pay tax nor claim the tax refund. As a result, their net earnings are 440, which is less than what a taxable business would receive.
Note: If there are domestic sales in addition to export sales, filing a tax return might result in a tax payment position.
If export sales are 220 (0) and domestic sales are 880 (80), 1,100 (80) - 660 (60) = 440 (20)
In this case, filing a tax return would require paying 20 in tax, resulting in net earnings of 420—even less than as a tax-exempt business.

Procedures for Tax-Exempt Businesses to Become Taxable Businesses
As mentioned above, businesses are generally not considered taxable entities unless they meet certain requirements, such as having sales exceeding 10 million yen in the second preceding business year. However, there are two ways a tax-exempt business can voluntarily elect to become a taxable business.
Qualified Invoice Issuer
When you become a Qualified Invoice Issuer, you automatically become a taxable business operator.
As of October 2024, it takes approximately 1–1.5 months from submitting the Qualified Invoice Issuer registration application until receiving approval. Your consumption tax filing obligations begin from the date your registration is approved.
Since overseas customers in export destinations are not subject to Japan's consumption tax system, exporters likely do not need to issue qualified invoices. However, becoming a Qualified Invoice Issuer is one way to transition to taxable business operator status.
Application for Taxable Enterprise Status
By submitting an "Application for Taxable Enterprise Status," you can become a taxable enterprise. Upon submission, you will become a taxable enterprise starting from the fiscal period following the submission.
In Conclusion
Generally, tax-exempt enterprises that benefit from tax savings are more advantageous than being a taxable enterprise. However, for businesses where exports make up the majority of sales, being a taxable enterprise is more beneficial since you can claim consumption tax refunds. If your sales include both export and domestic transactions, you should run simulations to determine whether operating as a taxable or tax-exempt enterprise would be more advantageous.