What is the Invoice System?


With the introduction of the invoice system approaching in about two years, the registration process started on October 1.  This introduction will significantly change the method of deducting for consumption tax paid on taxable purchases.

What are Invoices?

The invoice system is a system that differs greatly from the conventional method of deducting purchase tax, in that only registered businesses can issue invoices, and buyers are permitted to deduct purchase taxes only if the invoices are preserved.  As a general rule, taxable purchases from businesses that are not registered are not eligible for purchase tax credits.

Under the current system, the consumption tax of 100 yen paid by a company on the purchase of 1,000 yen worth of consumables (excluding tax) can be deducted from the consumption tax received by the company from its sales.  The net amount remaining after the deduction is then paid to the government as consumption tax.  Such a deduction of consumption tax paid from consumption tax received is called a “purchase tax credit”.  Currently, this credit can be taken regardless of whether the seller is registered or not.

After the introduction of the invoice system, if the seller of the consumables is not a registered business, this purchase tax credit will no longer be available. Even if the buyer paid 100 yen in consumption tax, they will not be able to deduct it from the consumption tax they receive with their sales.

This invoice system will be introduced on October 1,2023 and will apply for transactions on and after that date.


The invoice system is formally called the qualified invoice system. In a “qualified invoice”, the seller informs the purchaser of the exact applicable tax rate, the amount of consumption tax etc. It is a document or electronic data that contains certain information such as the seller's registration number and consumption tax amounts.

  1. Name of the business issuing qualified invoices
  2. Registration number
  3. Date of the transfer, etc. of taxable assets
  4. Details of the assets or services involved in the transfer, etc. of taxable assets
  5. The total amount of the tax-excluded values or the tax-included values, broken down by tax rates, and the tax rates applied
  6. Amounts of consumption tax, etc. for each tax rate
  7. Name of the recipient of the document(s)

Differences from the Current System

Currently, a system of retaining rate-classified invoices - not the qualified invoice retention system - is used.  Qualified invoices can only be issued by business operators that are registered as qualified invoice issuers.  A rate-classified invoice could be issued by anyone, regardless of registration.  Even if a payment was made to a tax-exempt business that was not required to pay consumption tax, such a seller also could apply for a purchase tax credit.  In addition, the seller (the entity issuing the qualified invoice), is obligated to issue a qualified invoice when so requested by the buyer.  Under the current system, there is no obligation to issue invoices.

October 2019 ~ September 2023 October 2023~
Tax rates standard tax rate 10% reduced tax rate 8%
Invoices retention of rate-classified invoices retention of qualified invoices
Account books retention of account book(s) listing certain items

Registration for Issuers of Qualified Invoices Has Started


Only registered businesses will be able to issue invoices, and the registration process started on October 1. There is still plenty of time before the deadline, but it is recommended to complete the procedures early so that you don't forget.

Overview of Registration Procedure

Businesses wishing to be registered as a qualified invoice-issuing business must submit an "Application for Registration as a Qualified Invoice-Issuing Business" to the director of the local tax office.

Only businesses subject to consumption tax are eligible for registration.  For instance, tax-exempt businesses with sales of less than 10 million yen per year for the previous two fiscal years, or businesses that have just been established, are not eligible for registration.  However, even if your company is currently a tax-exempt business, you can submit an application if you will become a taxable business in the fiscal year in which you wish to register.

The Flow from Application to Registration, and Deadlines

After an "Application for Registration as a Qualified Invoice-Issuing Business” has been submitted, the appropriate tax office will examine the application.  If the registration is approved, the registration number, etc. will be sent to the applicant, and published.

Applications for registration have been accepted from October 1, 2021.   In order to be registered by October 1, 2023, in principle, an application for registration must be submitted by March 31, 2023.  In certain cases, the deadline for submitting an application for registration may be extended to June 30, 2023, but basically it would probably be best to keep in mind that the deadline is March 31, 2023.

An application form can be submitted by mail or by e-Tax.   If submitting the application form by mail, the address would be the "Invoice Registration Center" of each National Tax Administration bureau.

Merits/Demerits of Switching from Being a Tax-Exempt Business to a Taxable Enterprise

As stated previously, only businesses that are registered as taxable enterprises for consumption tax are allowed to issue invoices.  Following is a summary of the advantages and disadvantages for businesses that are currently exempt from the consumption tax to switching to being taxable entities.

One of the advantages of remaining a tax-exempt business is that your company would not have to deal with the paperwork related to processing sales taxes and invoices.

On the other hand, a disadvantage would be that sales would probably decrease, because the amount of consumption tax that used to be able to be charged in addition to sales would no longer be chargeable.

Besides, there is a possibility that your business partner would consider switching subcontractors in order to receive the purchase tax credit.  This is because it would be a rational decision to choose a subcontractor with whom one could receive the purchase tax credit, if the outsourced amount were the same.

Also Worth Looking into Simplified Taxation System

If your sales for the previous two fiscal years were less than 50 million yen, you can use the simplified taxation system, which is also an option.

Since you would be a taxable enterprise, you would have to pay consumption tax, but under the simplified taxation system, you calculate your purchase tax credit based on your sales.  In other words, there is no need to calculate it based on invoices.  In order to reduce the administrative burden of the purchase tax credit, please consider using the simplified taxation system.

Requests for Tax Reform in FY2022  Summarized


By looking at the requests from various ministries and agencies for tax system revisions, we can verify what each ministry and agency is considering, even if the revisions do not materialize.

Requests for FY2022 Tax Reform

The FY2022 tax reform requests compiled by various ministries and agencies have been presented.  The Ministry of Economy, Trade, and Industry (METI) requested an expansion and extension of the open innovation promotion tax system, an extension of special provisions for small-sum depreciable assets, and more.  Their requests focused on (1) open innovation and critical digital infrastructure to accelerate new business restructuring (generally for large companies), and (2) support for small and medium-sized enterprises (SMEs) coping with the economic situation of the COVID-19 disaster, as well as for business continuity and growth of small business operators.

Financial Services Agency Requests Integration of Financial Income Taxation

The Financial Services Agency (FSA) has raised a request regarding the taxation of financial income, which also became an issue in the election for the new leader of the Liberal Democratic Party (LDP).  Specifically, as part of the "unification of financial income taxation," the FSA requested that the scope of profit and loss adjustments, which is currently allowed for listed stocks (上場株式), publicly-offered stock investment trusts (公募株式投信), specified public bonds (特定公社債) and publicly-offered bond investment trusts (公募公社債投信), be expanded to include derivatives transactions and bank deposits/savings.  The current situation is that there are different taxation methods for different types of financial products.  The FSA's request is to integrate them.

Ministry of Economy, Trade and Industry Helping SME’s Improve Productivity

The Ministry of Economy, Trade and Industry (METI) requested that necessary measures be taken based on the actual situation of changes in the environment surrounding small and medium-sized enterprises (SME’s) and the status of their responses, including "extension of special measures for small-sum depreciable assets" in order to lighten the burden on SME’s resulting from the new corona virus pandemic, and to increase productivity through the improvement of business efficiency and office administrative capacity through digitalization, etc.

It also requested the "extension of special measures on taxation of entertainment expenses" and “looking into corporate and individual versions of business succession taxation.”

Calls for Reduction of Fixed Asset Tax Burden

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) requested that certain measures be taken to reduce the burden of fixed asset taxes on landowners, based on a review of the socio-economic situation and land price trends.  In the 2021 tax reform, considering the effects of COVID-19, measures were taken to ensure that the tax amounts for all land which would normally have incurred higher taxes as a result of revaluation in 2021, would remain unchanged for one year at the 2020 tax level.

On the other hand, with the economy still in a difficult situation, there are no such measures in place for fiscal 2021, and the ministry’s request is based on the fact that the burden of property taxes is expected to increase, especially in locations where land prices have risen significantly.

In addition, in the area of housing, the report requests measures such as extensions to "housing mortgage tax cuts”, “gift tax exemptions for housing acquisition costs," and "investment tax reductions for certified housing, etc.” - which are all due to expire at the end of fiscal 2021.  However, of these, the "housing mortgage tax cuts” are highly likely to be revised, because the Board of Audit has pointed out that the amount of mortgage tax exemptions exceeds the amount of interest paid on mortgages every year.

We do not know if all of the items mentioned above will be reflected in the 2022 tax reforms, as these are only requests from each ministry.  In December, the Outline for Tax Reform is expected to be released, summarizing the items that are most likely to be revised.

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