Indirect Tax News - January 2022

Update on new JCT invoicing system and commencement of registration procedure

A mandatory tax credit system called the “Tax-Qualified Invoicing System (JCT invoicing system)” will be implemented in Japan on 1 October 2023 under the Japanese consumption tax (JCT). JCT is similar to a European-style VAT and Japan’s invoicing system is designed to ensure proper taxation under the multiple tax rate system introduced in the country in 2019. Taxpayers under the new invoicing system will be required to register and maintain approved invoices issued by registered suppliers to be eligible to claim an input JCT credit (for more information, see our article in the December 2020 issue of Indirect Tax News).

Under the invoicing method adopted broadly in European countries, a taxpayer registers and bills using invoices that include the tax ID on the customer invoice. This invoicing format ensures that the supplier receives VAT from customers so that purchasers account for the paid amount as deductions. Japan currently uses a different system—the ledger method—to ensure the proper calculation of JCT, which is based on transaction evidence and the company’s books. The new system will require an entity to retain invoices containing certain information (“tax-qualified invoice”), as well as accounting books to claim an input tax credit and only qualified taxpayers (“JCT registered supplier”) will be able to issue a tax-qualified invoice.

Registration procedure

To become a JCT-registered supplier, an entity must submit an application to the National Tax Office. After the tax authorities review the application, they will notify the applicant and issue an identification number; registration will be published on the National Tax Agency website, which will enable a search of JCT-registered suppliers using the identification number. The application process is expected to take about two weeks in the case of e-filing and one month where a hard copy application is submitted.

The registration procedure to become a JCT-registered supplier commenced on 1 October 2021 and applications must be submitted by 31 March 2023 to qualify to use the new system from the implementation date of 1 October 2023.

Impact on JCT-exempt entities

Under the JCT law, if taxable sales in the base period (the period two terms before the current tax year) are JPY 10 million or less, an entity is treated as a non-taxpayer for JCT purposes and is exempt from the tax filing obligation. However, once an entity becomes a JCT-registered supplier, the entity will no longer be treated as exempt for JCT (regardless of the amount of its taxable sales) and will be required to submit a JCT return.


Under the new JCT invoicing system, a JCT-registered supplier will be required to issue tax-qualified invoices at the request of customers that are taxable entities and will have to retain copy of invoices issued.

On the side of purchasers, a taxable entity will be required to retain tax-qualified invoices containing an identification number, the amount of JCT and other items, as well as accounting books, to claim a JCT input tax credit. If a taxable entity makes a purchase from a non-JCT-registered supplier (e.g., a JCT-exempt entity, non-registered suppliers for JCT purposes), it will not be eligible to claim an input tax credit. Affected taxable entities should identify business partners and classify them as JCT-registered suppliers and non-JCT-registered suppliers for proper bookkeeping and tax filing in advance of the new JCT invoicing system.

Kenichiro Kishi

Miki Nitta