Japan’s proposed tax changes for 2024, which were released on 14 December 2023, include new measures that would require platform operators to remit Japanese consumption tax (JCT) on behalf of foreign digital services businesses. If approved, the platform operator rules would apply as from 2025.
JCT is a VAT/GST under which services provided via electronic and telecommunications networks (e.g., the internet), such as the provision of e-books, digital newspapers, music, videos and software (including various applications like games) are regarded as the “provision of e-services.” When a foreign business provides e-services to customers in Japan, the supply is basically subject to a 10% JCT. The provision of e-services is classified as either the “provision of B2B e-services” or the “provision of B2C e-services.” A reverse charge is applied to the provision of B2B e-services and there are no JCT obligations for foreign entities that provide such services in Japan, which means that foreign entities do not need to collect 10% JCT from their Japanese customers. On the other hand, foreign entities that provide B2C e-services and have mandatory/voluntary JCT obligations (e.g., because they exceed the annual taxable sales threshold) are required to file JCT returns and pay net JCT due to the Japanese tax authorities.
The tax authorities have discovered that some foreign entities that provide B2C e-services to Japanese consumers (e.g., foreign entities that distribute online games via an app store in the Japanese market) do not comply with the JCT rules (i.e., do not file JCT returns and do not pay JCT to the Japan tax office), and it is challenging for the authorities to ensure the collection of JCT in these cases. To address this issue, the government has decided to introduce a new taxation system under the JCT rules called “Platform taxation,” under which compliance obligations would be imposed where platform operators facilitate certain cross-border B2C online transactions.
Under the 2024 proposed amendment, foreign entities that provide B2C e-services to Japanese customers via a digital platform operated by a platform operator and whose taxable sales for JCT purposes exceed JPY 5 billion in a taxable period would be designated a “specified platform business.” In that case, the tax authorities would publicly announce the platform operators and the specified platform business would be required to inform the foreign entities that it is designated as such. The platform business would be required to collect JCT from Japanese customers, file JCT returns and pay the JCT to the Japan tax office on behalf of the foreign entities. No changes would be made to the compliance obligations in B2B transactions.
The Diet is expected to approve the proposal by the end of March 2024, with the new measures applying to transactions conducted by foreign businesses on or after 1 April 2025.
Kenichiro Kishi
BDO in Japan
JCT is a VAT/GST under which services provided via electronic and telecommunications networks (e.g., the internet), such as the provision of e-books, digital newspapers, music, videos and software (including various applications like games) are regarded as the “provision of e-services.” When a foreign business provides e-services to customers in Japan, the supply is basically subject to a 10% JCT. The provision of e-services is classified as either the “provision of B2B e-services” or the “provision of B2C e-services.” A reverse charge is applied to the provision of B2B e-services and there are no JCT obligations for foreign entities that provide such services in Japan, which means that foreign entities do not need to collect 10% JCT from their Japanese customers. On the other hand, foreign entities that provide B2C e-services and have mandatory/voluntary JCT obligations (e.g., because they exceed the annual taxable sales threshold) are required to file JCT returns and pay net JCT due to the Japanese tax authorities.
The tax authorities have discovered that some foreign entities that provide B2C e-services to Japanese consumers (e.g., foreign entities that distribute online games via an app store in the Japanese market) do not comply with the JCT rules (i.e., do not file JCT returns and do not pay JCT to the Japan tax office), and it is challenging for the authorities to ensure the collection of JCT in these cases. To address this issue, the government has decided to introduce a new taxation system under the JCT rules called “Platform taxation,” under which compliance obligations would be imposed where platform operators facilitate certain cross-border B2C online transactions.
Under the 2024 proposed amendment, foreign entities that provide B2C e-services to Japanese customers via a digital platform operated by a platform operator and whose taxable sales for JCT purposes exceed JPY 5 billion in a taxable period would be designated a “specified platform business.” In that case, the tax authorities would publicly announce the platform operators and the specified platform business would be required to inform the foreign entities that it is designated as such. The platform business would be required to collect JCT from Japanese customers, file JCT returns and pay the JCT to the Japan tax office on behalf of the foreign entities. No changes would be made to the compliance obligations in B2B transactions.
The Diet is expected to approve the proposal by the end of March 2024, with the new measures applying to transactions conducted by foreign businesses on or after 1 April 2025.
Kenichiro Kishi
BDO in Japan