If you are looking to start a ski resort business in Japan, it is important to understand how consumption taxes will apply to your particular case. Below is a guide to the consumption tax as it applies to business operators in Japan. Please do note, however, that these guidelines are not definite and are therefore subject to change depending on the new regulations that the government might release.
What is the Consumption Tax?
Consumption tax is an in-direct tax designed to be paid by the consumer and eliminate multiple taxation. Similar to VAT in the UK or GST in NZ/ Australia, the business collects tax on behalf of the tax agency.
Japanese Consumption tax is currently 8% of most goods and services with a few exceptions e.g. land purchases, medical services, education, etc. This includes the National Consumption Tax rate of 6.3% and a Local Consumption Tax rate of 1.7%). Initially most businesses are exempt from making payments to the agency.
The amount of taxable sales refers to the total amount of sales and transactions subject to consumption tax. Discounts, rebates and returns are not covered by consumption tax and are therefore deducted from this amount.
Overview of the Consumption Tax
Japan’s consumption tax covers all transactions related to the exchange of assets between and among business operators in the country. This includes the sale and rental of such assets as ski resort property and provision of services, e.g. property management. For a transaction to be subject to levies, it has to satisfy the following conditions:
- The transaction was made in Japan.
- The transaction was conducted by a business entity for the purpose of supporting its operations.
- The transaction was made for compensation – i.e. salary for consulting services.
- The transaction involves the transfer of assets or the provision of services.
For instance, rental fees from the ski resort properties and other business assets are subject to consumption tax. Contract work, consultancy services and other transactions meant to support business operations are also subject to the same tax.
Who is Taxable?
Businesses and entities that are required to file consumption tax returns in Japan include the following:
- Businesses with reported taxable sales of more than 10 million yen during the base period
- Businesses who may not have taxable sales of 10 million yen in the base period but have submitted the “Report on the Selection of Taxable Proprietor Status for Consumption Tax.”
- Businesses whose taxable sales for a Specified Period (the first six months before the Tax Period) is more than 10 million yen. The total amount is based on the total amount of salaries and other similar payments instead of on the amount of taxable sales.
Exemptions from Consumption Tax
Consumption tax is only relevant if:
- the base year (2 years prior to current year) revenues exceed 10,000,000 yen, or
- a company chooses to register.
Business entities whose taxable sales during the base period for the taxable period is equal or less than 10 million yen are exempt for consumption tax obligation. Nevertheless, it could be beneficial for your ski resort property to be registered because then you can get tax rebates. (see below)
If a business registers for Consumption tax, a tax return will need to be filed and Consumption tax will either need to be paid or a refund made available. A refund can generally be expected if a large purchase is made for business use. e.g a property purchased.
Important: make sure that your potential 1st year’s refund amount is large enough to warrant and cover 3 years of consumption returns and payments. We can do this estimate for you and advise whether to register or not.
Consumption Tax When Selling Property
As mentioned when you buy a property for business purpose you stand to gain a consumption tax rebate. The opposite also applies, when you sell a property while you are registered for consumption tax, 8% of the sale price (building portion) will need to be paid to the tax agency.
|Individual||Corporate (off shore)|
|Tax Year||Calendar||Aligned to Home country|
|Income / Corporate Tax||Business income 5% ~ 40%|
Less than 5 years – 30%
More than 5 years – 15%
|15% of profit ~ 8mn yen|
23.2 % on profit over 8 mn yen
4.4% of Corporate tax as “local Tax
* No separate rate of tax for capital gains
|Reconstruction tax||2.1% of income tax due||none|
|Interim tax payment||Needed if previous tax exceeded 150,000 yen||Needed if previous tax exceeded 200,000 yen|
How to File Consumption Tax Returns
Businesses and sole proprietors who do not have domicile and residence in Japan apart from their office in the country, or a foreign corporation needs to nominate a tax agent. The tax agent is the entity’s representative in Japan and will be responsible for submitting the Consumption Tax Returns and tax payments in the country on behalf of the taxpayer. To nominate a tax agent, the taxpayer needs to submit a “Notification of Tax Agent” to the District Director of the local Tax Office where the business is located.
Another option is to have a tax accountant proxy to act as a representative in relation to the processing and submission of tax returns and applications with the Tax Office. Tax accountant proxies must be a Certified Public Tax Accountants (CPTA) or a Certified Public Tax Accountants Corporation in accordance with the Certified Public Tax Accountant Act. A CPTA is also authorized to prepare tax documentation for submission to the Tax Office and provide tax consultation services and support when filing the tax returns.
Notifications, returns and other documents related to the filing and payment of Consumption Tax in Japan should be submitted to the District Director of the Tax Office that has jurisdiction over the company’s “Place for Tax Payment.” For businesses owned by foreign national proprietors, as well as businesses whose head office is not located in Japan, the Place for Tax Payment refers to the following:
- Non-resident sole proprietor
- Office location – for businesses with an office, facility or establishment located in Japan. If there is no physical location for the business in Japan, the Place for Tax Payment can be the sole proprietor’s relatives’ address or domicile.
- Primary asset’s location – if there is no physical office, the place for tax payment may be the location of the company’s primary asset.
- The most recent place for tax payment – if the two conditions do not apply, the location of the previous place for tax payment will be used.
- Location of other tax returns, claims and related transactions – if the conditions above are not applicable to the proprietor’s situation.
- Kojimachi tax office – if the above conditions are not applicable.
- For foreign corporations
- Office location – the location of the company’s office, business facility or any equivalent in Japan.
- Location of the primary asset – if the above is not applicable, the location of the company’s primary asset or where it receives payment for real estate lending.
- The most recent place for tax payment – in instances where the company used to have a place for tax payment but no longer has this facility.
- Location selected for tax returns, claims and other transactions in relation to consumption tax.
- Kojimachi Tax Office – if the conditions above do not apply.
Consumption tax for ski resort business is a levy placed on the sale and rental of business assets in Japan. It also includes assets imported into Japan from other countries. Proper reporting and payment of tax returns is crucial for every business in the country. For foreign nationals that have set up offices in Japan but whose main office or headquarters is located elsewhere, nominating a tax agent and/or tax proxy is a must. Other taxes to consider include property aquisition tax, fixed assets tax, capital gains tax, withholding and income tax.
Consumption Tax FAQs
Can the consumption tax change?
Yes. There are ongoing debates about raising the consumption tax to 10% starting October 2019.
What transactions can be tax deductible?
The following transactions are eligible for tax deductions:
- Principle (regular consumption) – if the taxable sales are at least 95%, the consumption tax for this transaction is deductible; otherwise, the amount to be deducted is based on the itemised consumption tax for every purchase. Always keep your invoices and accounts ready to be able to qualify for this deduction.
- Special Provision (simplified taxation system) – if the taxable sales amount to 200 million yen or less during a specific base period, you may use the final sales tax and the deemed rate of purchases as the consumption tax for these transactions.
Is the consumption tax included in the price tag?
Yes, it is compulsory to include the consumption tax into the price tag.
Is medical insurance for my staff subject to consumption tax?
Medical care and medical insurance is one of the many exemptions to the items and transactions subject to consumption tax. Other items include education fees (tuition, entrance and examination fees), lease of land and housing units,
Can someone help me to figure out the consumption tax?
Yesm of course. Please, contact us if you need assistance in support with the consumption tax for your ski resort property.