The invoice system (the qualified invoice retention method) began in October 2023, and for tax-exempt businesses with sales of ¥10 million or less, "whether or not to register" became a real dilemma. The key to the decision is whether your customers are taxable businesses or general consumers. On top of that, the 20% special provision that eases the burden on those who register ends in September 2026, after which a 30% special provision for sole proprietors (2027–2028) is being prepared — the transitional measures change in stages. This article organizes the decision criteria, the calculation of consumption tax, and the latest schedule of transitional measures, with concrete examples.
Key points of the invoice system
The amount of consumption tax to pay is calculated as "consumption tax received on sales − consumption tax paid on purchases (the purchase tax credit)." From October 2023, to receive this purchase tax credit you must, in principle, retain a qualified invoice. Only a qualified invoice issuer registered with the tax office can issue an invoice[NTA — Overview of the invoice system (in Japanese)].
A tax-exempt business with sales of ¥10 million or less that has no consumption tax payment obligation cannot issue an invoice as it stands. To issue one, registration is required, and once you register, an obligation to file and pay consumption tax arises. This is the biggest point in the decision.
What happens to the other party if you don't register? (Transitional measures ease it in stages for now)
People often mistakenly think, "If they buy from a tax-exempt business, the other party can't take any credit at all," but in fact there are transitional measures, and they shrink in stages.
| Period | Credit for purchases from tax-exempt businesses, etc. |
|---|---|
| October 2023 – September 2026 | 80% of the consumption tax paid can be credited |
| October 2026 – September 2029 | 50% of the consumption tax paid can be credited |
| October 2029 onward | Cannot be credited (the full amount becomes an increased burden on the other party) |
In other words, the increased burden on the ordering side is limited to a part for now, and grows larger year by year. This is the background to the pressure to negotiate a "please register."
A one-sided reduction in payment or termination of business on the grounds that someone is a tax-exempt business may become a problem under the Antimonopoly Act (abuse of a superior bargaining position) or the Subcontract Act. The Japan Fair Trade Commission has shown its view[Japan Fair Trade Commission (in Japanese)]. Registration is entirely voluntary and cannot be forced.
Should you register, or is it fine not to?
Worth considering registration
- Your customers are mostly taxable businesses (mainly BtoB)
- You have dealings with large companies or public offices
- Your sales are close to, or likely to exceed, ¥10 million
- An industry where the presence of registration affects whether you win orders
Often fine not to register
- Your customers are mainly general consumers (mainly BtoC)
- Your customers are also tax-exempt businesses or on the simplified taxation
- You have agreement to continue dealings while remaining unregistered
For hair salons, cooking classes, handmade sales, and licensed professionals' services to individuals, and the like, the customer is a general consumer, so no invoice is requested — in many cases there is little real harm in remaining unregistered.
Calculating consumption tax if you register (three methods)
Once you become a taxable business, you can choose the method of calculating consumption tax from the following three (with requirements).
- Principle taxation: consumption tax on sales − actual consumption tax on purchases. Advantageous for industries with many purchases, but bookkeeping and invoice management are required.
- Simplified taxation: consumption tax on sales × (1 − the deemed purchase rate). For taxable sales of ¥50 million or less in the base period, with a prior notification required.
- The 20% special provision: consumption tax on sales × 20%. A burden-easing measure for those who register from being tax-exempt (explained below; time-limited).
Deemed purchase rates under the simplified taxation (by industry)
Wholesale (Category 1)
90%
Retail (Category 2)
80%
Manufacturing, etc. (Category 3)
70%
Restaurants, etc. (Category 4)
60%
Services, etc. (Category 5)
50%
Real estate (Category 6)
40%
Simplified taxation (deemed 50%): ¥100,000 × (1 − 50%) = ¥50,000
The 20% special provision: ¥100,000 × 20% = ¥20,000
Schedule of transitional measures (the 20% special provision, the 30% special provision, and the small-amount special provision)
A small business that registered for an invoice from being a tax-exempt business can set its tax payment at "20% of the consumption tax on sales." It applies up to the taxable period that includes October 1, 2023 – September 30, 2026. For sole proprietors, it covers up to the 2026 year (the filing done in 2027).
In the FY2026 tax reform, after the 20% special provision ends, a "30% special provision" targeting sole proprietors (setting the tax payment at 30% of the consumption tax on sales) is planned to be established for the two years of 2027 and 2028. Because it is a new measure, please confirm the details of the application requirements with the latest information from the National Tax Agency.
For a taxable purchase under ¥10,000 (tax included), you can take the purchase tax credit with only the retention of books, even without retaining an invoice. The period is October 1, 2023 – September 30, 2029. It targets businesses with taxable sales of ¥100 million or less in the base period (or ¥50 million or less in the specified period).
What to do once the 20% special provision ends?
After the 20% special provision ends, you choose from the simplified taxation or the principle taxation (for individuals, the 30% special provision is also available for a while). For industries with few purchases, such as services, the simplified taxation (effectively a 50% credit for Category 5) is often advantageous[NTA — No.6505 (in Japanese)]. The simplified taxation requires a prior notification, and as a rule it must be submitted before the taxable period you want to apply it to begins, so in the year you switch, watch the deadline for the notification.
FAQ
If my customers are only individuals, do I not need to register?
General consumers do not need an invoice, so if you are mainly BtoC, the impact of remaining unregistered is often small. Judge by whether taxable businesses are included among your customers.
Do I always have to pay consumption tax once I register?
Yes. Once you register, you become a taxable business and an obligation to file and pay consumption tax arises. You can choose the tax payment from the principle taxation, the simplified taxation, or the 20% special provision (time-limited).
Until when is the 20% special provision? And after it ends?
Up to the taxable period that includes September 30, 2026 (for individuals, up to the filing for the 2026 year). After that you shift to the simplified taxation or the principle taxation, and for sole proprietors the 30% special provision of 2027–2028 is also planned to be an option.
What if I'm asked for a price cut on the grounds that I'm unregistered?
A one-sided price reduction or termination of business may become a problem under the Antimonopoly Act or the Subcontract Act. Check the Japan Fair Trade Commission's view, and consider using a consultation desk if necessary. Registration is entirely voluntary.
Summary
Reference links (sources)
This article is written based on the materials of the following public bodies (neutral, primary sources). Transitional measures and special provisions are subject to reform, so always confirm the latest content with the National Tax Agency.
- National Tax Agency — Overview of the invoice system (the qualified invoice retention method) (in Japanese)
- National Tax Agency — Overview of the 20% special provision (a burden-easing measure for small businesses) (in Japanese)
- National Tax Agency — No.6501 Exemption from the tax payment obligation (in Japanese)
- National Tax Agency — No.6505 The simplified taxation system (in Japanese)
- Japan Fair Trade Commission — Views on the invoice system and the Antimonopoly Act, etc. (in Japanese)
* This article is general information, not tax advice. For whether registration is necessary or the choice of taxation method, please consult a tax office or a tax accountant.