Japan: Revised Consumption Tax act

Overview 

The raise of consumption tax rate has been widely discussed since the tax reform bill was promulgated in March 2013. The purpose of the tax rate increase is to get financial source for pension, medical and nursing cares due to the country’s declining birthrate and rapidly aging population. 

Major amendments 

1. Consumption tax rate

Under the revised Consumption Tax Act, the consumption tax rate is to be progressively raised to 8% (6.3% National, 1.7% prefectural) from April 1, 2014, and to 10% (7.8% National, 2.2% prefectural) from October 1, 2015. As a transitional measure, regarding the transactions of construction work, lease etc., the taxpayers can apply for the old tax rate if such transaction meets certain conditions. 

2. Interim tax filing 

Under the current Consumption Tax Act, filing interim tax returns is a must if the annual national consumption tax of previous fiscal period exceeds JPY 480,000. The interim tax payment amount is 1/2 of the previous fiscal period’s consumption tax payment amount. 

According to the revised Consumption Tax Act, after filing the “Optional Interim filing Application Form”, the taxpayer can choose to file and pay interim tax even its annual national consumption tax of previous fiscal period does not exceed JPY 480,000 

3. Use of exemption enterprise system to be restricted for certain type of Specified newly incorporated entity 

The current Consumption Tax Act allows specified newly incorporated entity to be exempted from consumption tax payment obligation if such entity’s capital is less than JPY 10 million at the beginning of the fiscal period and has no base period (*note: base period for corporation is normally a fiscal period of two years prior to the current fiscal period). This is called exemption enterprise system.

However, under the revised Consumption Tax Act, the use of exemption enterprise system will no longer be applicable to entity incorporated on or after 1 April 2014 if: 

i) more than 50% is directly or indirectly owned by another company or individual (Parent shareholder) at the beginning of the fiscal period. 

ii) taxable sales for either its Parent Shareholder or special related parties of its Parent Shareholder during the corresponding period to the base period of such newly incorporated entity exceeds JPY 500 million. Newly incorporated entity which satisfies the above mentioned conditions must submit registration form to the competent tax office.