2024 Tax Reform expands the scope of foreign business operators subject to Japanese consumption tax

The Diet passed the bill implementing the 2024 tax reform proposals on 28 March 2024 (2024 Tax Reform). The 2024 Tax Reform includes changes that expand the scope of foreign business operators that are required to collect and pay applicable Japanese consumption tax to the Japanese tax authorities.

Major changes concerning Japanese consumption tax (JCT) under the 2024 Tax Reform are as follows:

• Under the JCT Act, a business operator is treated as a taxable business operator for a fiscal year if their taxable transactions for JCT purposes in the “base period” (the fiscal year before the last year) exceed JPY 10 million. Under the 2024 Tax Reform, a foreign business operator that has been established in its country for more than two years will be treated as a taxable business operator for JCT purposes if the foreign business operator’s share capital is at least JPY10 million (or equivalent) at the time of commencing its business in Japan.
• While offshore developers of digital contents are required to collect JCT from Japanese users and pay the collected JCT to the Japanese tax authorities in general, new JCT collection rules have been introduced in the 2024 Tax Reform where digital platforms with a transaction volume of JPY5 billion or more between offshore developers and Japanese users will be responsible for collecting and paying the JCT on behalf of offshore developers.

Key takeaway

The changes included in the 2024 Tax Reform will create new JCT liabilities for foreign business operators that were not previously subject to JCT. Foreign companies that intend to commence business in Japan and digital platforms whose users are in Japan should assess how these changes may impact their business operations.