Six Months Left Until the Start of the Invoice System

Introduction

With less than six months remaining until October 1, 2023, when the invoice system will start, we will herein reconfirm the burden reduction measures related to the fiscal year (FY) 2023 tax reforms.

A tax reform bill for FY2023 was passed and enacted at a plenary session of the House of Councillors on March 28, and measures to reduce the burden of the invoice system, such as the "20% Special Tax Limit" and "Special Exception for Small Amounts," will come into effect.

Confirmation of Four New Burden Reduction Measures

The FY2023 amendments passed and enacted on March 28 made four main important revisions to the invoice system from the perspective of reducing the system’s burden on businesses. Again, these are important revisions, so let us reconfirm them.

< Four new burden reduction measures >

• No obligation to issue return invoices for discounts of less than 10,000 yen
• Certain small businesses are only required to pay 20% of sales tax (Special 20% Tax Exception {limit})
• Businesses with sales of 100 million yen or less are not required to save invoices of less than 10,000 yen (Special Exception for Small Amounts)
• Flexibility in application for registration

No Obligation to Issue Return Invoices for Discounts of Less than 10,000 Yen

In principle, a return invoice should be issued to the other party when a business returns goods or gives a discount. However, if the amount of returned goods or discounts is less than 10,000 yen including tax, it is not necessary to issue a return invoice.

There are no restrictions as to who is free of this obligation, or concerning the period of exemption, so this applies for all businesses. Regarding bank charges borne by a seller (mentioned in the previous newsletter), even if such charges are included in expense accounts such as payment fees or miscellaneous expenses, the seller is not required to issue a return invoice as long as the taxable category for consumption tax purposes is return of consideration related to sales.

Certain Small Businesses are Only Required to Pay 20% of Sales Tax (Special 20% Tax Limit)

Businesses which switch from being tax-exempt businesses to taxable enterprises issuing invoices, due to the introduction of the invoice system, can pay just 20% of the sales tax amount for each taxable period that includes the dates from October 1, 2023 to September 30, 2026. No prior notification is required.

It is also acceptable for such businesses　to choose whether or not to be eligible each time they file a consumption tax return. The ability to set the amount of tax due at 20% of sales tax, regardless of the amount of consumption tax on expenses, is a considerable burden reduction in terms of administrative effort.

Businesses with Sales of 100 Million Yen or Less are Not Required to Save Invoices of Less than 10,000 Yen (Special Exception for Small Amounts)

Businesses with taxable sales of 100 million yen or less in the base period may   claim the deduction for consumption tax paid, for taxable purchases of less than 10,000 yen (including tax) during the period from October 1, 2023 to September 30, 2029 by keeping only books of account, without keeping invoices. Please note that the unit of determination for the Special Exception for Small Amounts is not the amount of each taxable item in a purchase, but rather the total amount of a single transaction.

Flexibility in Applications for Registration

In order to obtain registration of invoices from October 1, 2023, in principle, an application for registration had to be submitted to the tax commissioner (authorities) having jurisdiction by March 31, 2023. However, if an application for registration is submitted after April 1, but before September 30, it will be possible to obtain registration as of October 1. Therefore, even if you apply after reading this article, you will be well in time.

Invoices for Rail Fees

Introduction

Once the invoice system is introduced, in principle, it will be necessary to keep invoices issued by suppliers in order to apply the credit for purchase (consumption) tax. In this article, we will discuss invoices for railroad fares, with reference to the example of JR East.

For Small Everyday Fares, the Special Exception for Public Transportation

As mentioned above, in principle, an invoice must be preserved in order to apply for the credit for purchase tax, even if it is a railroad fare. However, when using public transportation such as railroads, there are cases where the preservation of invoices is not required due to the Special Exception for Public Transportation.

This special exception can be applied when the amount of one transaction is less than 30,000 yen, so unless a person is going on a business trip to a distant place using a  Shinkansen bullet train, etc., by applying this exception, they will not need to keep such invoices.

However, there may be cases where the Special Exception for Public Transportation cannot be applied, such as when the cost of a bullet train ticket surpasses 30,000 yen.

For railroad companies, if a ticket or express ticket is less than 30,000 yen, under the "Special Exception for Public Transportation”, they are exempted from the obligation to issue an invoice.

However, since the determination of 30,000 yen is based on the amount of a single transaction, etc., and in consideration of station operations, tickets and express tickets purchased from ticket vending machines and reserved-seat ticket machines, regardless of the face value of the ticket, meet the requirements for a simple invoice, and if a user of such a vending machine, reserved-seat ticket machine, or manned ticket window makes a request, It appears that a receipt will be issued.

Thus, it will be possible to obtain a simple invoice for train fares of less than 30,000 yen. It is not an issue of an invoice, but often a rule for expense reimbursement, such that there may be cases where employees are required to submit receipts for express tickets, etc. In such situations, obtaining a simplified invoice would be a good response.

No Invoice Support in regards to Suica Charging

Since Suica recharges are non-taxable transactions under the Consumption Tax Law, it appears that invoicing support will not be carried out. However, when Suica recharges are made at an automatic ticket vending machine, a statement that the transaction is non-taxable will be included on the receipt.

Although this point is not directly related to the invoice system, please note that charges to Suica cards are only deposits of money, so they are not deemed expenses under corporate tax law, nor are they taxable purchases under the Consumption Tax Law.

The utilized portion of the card’s balance is considered an expense and a taxable purchase at the time the card is used. This treatment is the same, whether before or after the new system’s introduction. Please keep in mind that receipts for Suica recharges are not considered expenses.

Purchases of Commuting Passes

Regarding commuter/commuting passes, the railroad user may apply the "Special Exception for Business Travel Expenses" as a commuting allowance. On the other hand, since the face value of a commuting pass may not be covered by the "Special Exception for Public Transportation" because it is more than 30,000 yen, a receipt is likely to be issued as a simple invoice at the user’s request. It is advisable for businesses to notify employees to obtain simple invoices for commuter passes, regardless of the amount.

Daily Transactions to Facilitate Financing

Introduction

What should you be aware of in order to get good terms for a loan? Banks also are corporations, so contributing to the bank's bottom line may help you get approval for a better loan. In order to broaden the scope of negotiations with banks, it is important to be a company that banks want to finance. What are some of the things to keep in mind besides business performance and financial position?

Companies that Banks Would Like to Finance

Interest income from loans to businesses is not the only source of revenue for banks. Financial institutions try to generate income through various other means. Furthermore, with interest rates low, banks must increase their sources of income other than interest.

Banks keep a monthly tally of how much is earned from each of their loan recipient companies. Those monthly earnings for the last 3-5 years or so are listed in the loan approval process documents.

They look at how much revenue is being generated between interest from loans and other income, and also how much is likely to be earned in the future, during the loan approval process.

Even if a company's performance and financial condition are not good, if the bank earns a lot of non-interest income from that customer, it can be a factor in favor of loan approval. This is because banks want to do business with companies that make them a lot of money.

Other than interest from loans, a bank's earnings from an enterprise include the following:

Commission Transactions

The first type of revenue, other than interest, that a bank earns from a company is transactions that incur fees. Fees paid by companies to banks include wire transfer fees, bill collection fees, foreign exchange fees, and Internet banking fees.

Each transaction fee is a small amount, but the more transactions that are made, the larger the overall earnings for the bank. Even if the fee for one transfer is 400 yen, if there are 100 transactions in a month, the revenue will be 40,000 yen - or 480,000 yen per year.

Incidental Transactions

The second type of non-interest income that a bank earns from companies is from incidental transactions - i.e., transactions other than loans.

Incidental transactions include account transfers for utility bills, payments of taxes and social insurance premiums, mutual funds, life insurance, and non-life insurance. Products sold by bank affiliates, such as credit cards, management clubs, and leases, are also included here.

Transactions with Employees

The other non-interest revenue the bank earns from client companies is through transactions with employees of the clients. By initiating and deepening transactions with the employees of the companies they are lending to, banks try to increase their earnings.

The first step to take is to have your bank open deposit accounts for your employees, and use those accounts as payroll accounts. The more employees you have, the more opportunities you have to increase the number of payroll deposit accounts there.

Because deposit volumes tend to be larger at banks that hold payroll accounts, transactions with employees are opportunities for banks to increase their earnings significantly.

As mentioned above, financial institutions strive to earn more money from companies not only through loans, but also through other transactions. For example, if you tell a new bank that if they decide to give your company a loan, you will open an Internet banking account with them and make 50 transfers per month, that alone may make the loan approval process a little more favorable.