New VAT in Japan – Last Minute Readiness Check.

(From my Linkedin post in September 2023)

From October 1, a new VAT rule will take effect in Japan under which so-called qualified invoices (a document issued by the seller) should be kept as a proof of VAT deduction.
As a seller you should issue your customers qualified invoices. As a buyer you have to assure to obtain and file qualified invoices.
 
Here are points for the last-minute readiness check:
1.     NTA registration
Have you completed registration to National Tax Agency (NTA) and obtained the invoice number?
2.     New requirement for invoice template
Is your customer invoice template up to the new rule with a necessary system change done or on schedule?
3.     Daily invoice processing workflow
Has your procurement workflow been update for the new requirements?
4.     Employee expense reimbursement
Are your employees aware of the change in expense reimbursement process and reimbursement handling system updated?
 
For open points, prioritize them for the action until October 1.

Here are some hints.
 
1. NTA registration
To issue qualified invoices NTA registration and an invoice number should be ready. NTA announces that applications arriving before March would be registered by October 1. If your application lagged, you may not issue qualified invoices by October 1. and may cause your customers a tax disadvantage. There is no way to accelerate NTA registration. Instead, to mitigate customers’ tax disadvantage you may offer tentative price adjustment until registration.    
 
2. New template
New rule defines mandatory fields of a qualified invoice. Even if your system is not ready yet do not worry. The new rule does not restrict the invoice should be system generated. You can print with a rubber stamp (even a handwriting) on the invoices for the time being. This may look a little awkward but at least their tax disadvantages can be avoided.
 
3. Invoice processing workflow
There is a tentative mitigation of non-qualified invoices allowing buyers 80% (50%) deduction. Taking this advantage, you should segregate non-qualified invoices and flag with VAT status ID.
 
4. Employee expense reimbursement
Employees often use small suppliers (bar, taxi, etc.) which could be non-qualified suppliers and the VAT be nondeductible. Practically there is no means to check their status beforehand and deselect them.
The best possible solution is to use the above mitigation measure. To this end, your expense reimbursement process to add VAT status ID.
 
In conclusion, again the sales side preparation is most critical. If you sell, the VAT paid by the customer should be substantiated by the qualified invoice you issue to them. On the other hand, when you are a buyer, you still have time to coordinate until year-end closing (even some cases can be adjusted on VAT return filing). Please take prioritized approach and make the most of preparation time left.