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This article applies to:

  • Product: ONESOURCE Indirect Tax Compliance

Japan

Taxpayers in Japan can deduct input tax in full if the following conditions are met:
  • Taxable sales amount up to 500 million yen during the taxable period.
  • Taxable sales ratio (taxable sales, including zero rated sales/total sales) is 95% or more.
If the above conditions are not met, the deductible input tax has to be calculated by using either Itemized Method or Proportional Method.
note
There are separate tax codes in the software for each method and these codes cannot be combined (for example, using both set of codes in one tax return for one reporting entity); otherwise, this can lead to incorrect results in tax returns.
You are also obliged to complete different appendices to the tax return depending on the transactions performed:
  • If you performed transactions subject only to the new rate (8%), only Schedule 2 should be completed.
  • If you performed transactions subject to both new and old rates (8%, 5%, or 3%), Schedule 1 and Schedule 2-2 should be completed.

Itemized Method

Under this method, taxable purchases have to be split according to three criteria:
  1. Purchase type: Domestic/import/specified taxable purchase.
  2. Purchase usage: Taxable/non-taxable/common use.
    • Taxable: Purchases attributable to JCT taxable sales only.
    • Non-taxable: Purchases attributable to JCT exempt sales only.
    • Common use: Purchases attributable to both JCT taxable and JCT exempt sales.
  3. Purchase rates: Purchases split according to JCT rates, i.e., 3%, 5% and 8%.
If a taxpayer is applying the itemized method, he should map the amounts split according to the above criteria to appropriate tax codes. Names of tax codes for this method contain the following:
  • Purchase Type (Domestic Purchase/Import of Goods/Specified Taxable Purchase).
  • Purchase Usage (Attributable to JCT taxable sales only/Attributable to JCT exempt sales only/Attributable to both JCT taxable and JCT exempt sales).

Proportional Method

This method doesn’t require splitting of taxable purchases based on usage. The software contains tax codes designed specifically for this method: the codes are split only based on purchase type (Domestic Purchase/Import of Goods/Specified Taxable Purchase).

Appendices

The software contains the selection box
Do you have 3% or 5% sales/purchases transactions?
 in
A
 and
A1
 sheet, which is automated by recognizing tax codes used in the preparation of the tax return.
When you have only 8% transactions, the software automatically sets this box to default to
No
 and only Schedule 2 is populated.
When you also use tax codes with 3% or 5% rates, the selection box is set to
Yes
 and the software populates Schedule 1 and Schedule 2-2 instead.

Rounding of Taxable Sales Ratio

For calculation of input JCT, taxpayers can choose to use taxable sales ratio without any rounding or to round down the ratio. The software caters for this option via the selection box
Round the taxable sales ratio?
 in
P
 Sheet.
By default, the selection box is set to
No
 with no rounding for calculation purpose (as presented in the image below). If you change the box to
Yes
, the ratio is rounded down to two decimal places for calculation purposes.
note
This selection box for the rounding option is designed to satisfy different approaches for calculation purposes only. On the return form (for example, the box
Taxable sales ratio
 in Schedule 2) the ratio will always display with two decimal places only.

Working with Returns

The Japan JCT submission consists of two forms, Form 3-1 and Form 3-2, supported by tables. We support the following tables:
  • 1-1
  • 1-2
  • 1-3
  • 2-1
  • 2-2
  • 2-3
The tables that are used to fill out the forms depend on the rates that are present in the return. The forms are populated by tables based on the following rules:
  • By default the forms are populated by tables 1-3 and 2-3. These tables are for reporting transactions with current rates.
  • However, if the return contains any 3% or 5% and/or historical 8% transactions, the forms are populated by tables 1-1, 1-2, 2-1 and 2-2. These tables report transactions with both current and old rates.
  • If there are no old rate transactions in the return but you want to use tables 1-1, 1-2, 2-1, 2-2, use the checkbox
    Force use of tables 1.1, 1.2, 2.1, 2.2?
     on the Company Information sheet (sheet P) to do this.
  • There is a summary of this information, including which tables are actually in use for the return, on the P sheet, which is similar to the following:
    Return options
    Yes or No
    Force use of tables 1.1, 1.2, 2.1, 2.2?
    No
    Does return have 3% or 5% and/or historical 8% transactions
    No
    Use tables 1.1, 1.2, 2.1, 2.2?
    No

Special Measure for Calculation of Output Tax

There are two methods for calculating the net and output tax amounts for sales transactions.
  • The standard measure (or non-special measure) is to calculate the net amount and output tax amounts for reporting from the gross (Net + Tax). We take a fraction of the gross amount to calculate the net and output tax respectively.
  • The special measure maps the net amount and output tax amounts that have been imported directly from the ERP data and maps these accordingly to the return.
If you want to use the special measure, check the box at the top of Form 3-1. Otherwise, the standard measure will be used.

Deduction of Input Tax

Taxpayers in Japan can deduct input tax in full if the following conditions are met:
  • Taxable sales amount up to 500 million yen during the taxable period.
  • Taxable sales ratio (taxable sales, including zero rated sales/total sales) is 95% or more.
If the above conditions are not met, the deductible input tax has to be calculated by using either itemized method or proportional method.
There are separate tax codes in the software for each method and these codes cannot be combined (for example, using both set of codes in one tax return for one reporting entity). Otherwise, this can lead to incorrect results in tax returns.
You are also obliged to complete different appendices to the tax return depending on the transactions performed.
Itemized Method
Under this method, taxable purchases have to be split according to three criteria:
  1. Purchase type: Domestic/import/specified taxable purchase.
  2. Purchase usage: Taxable/non-taxable/common use.
    • Taxable: Purchases attributable to JCT taxable sales only.
    • Non-taxable: Purchases attributable to JCT exempt sales only.
    • Common use: Purchases attributable to both JCT taxable and JCT exempt sales.
  3. Purchase rates: Purchases split according to JCT rates, i.e., 3%, 5% and 8%.
  4. If a taxpayer is applying the itemized method, he should map the amounts split according to the above criteria to appropriate tax codes. Names of tax codes for this method contain the following:
    • Purchase Type (Domestic Purchase/Import of Goods/Specified Taxable Purchase).
    • Purchase Usage (Attributable to JCT taxable sales only/Attributable to JCT exempt sales only/Attributable to both JCT taxable and JCT exempt sales).
Proportional Method
This method does not require splitting taxable purchases based on usage. The software contains tax codes designed specifically for this method. The codes are split only based on purchase type (Domestic Purchase/Import of Goods/Specified Taxable Purchase).
Rounding of Taxable Sales Ratio
For calculation of input JCT, taxpayers can choose to use taxable sales ratio without any rounding or to round down the ratio. The software caters for this option using the check box
Round the taxable sales ratio?
 in P Sheet.
By default, the selection box is set to No with no rounding for calculation purpose. If you change the box to Yes, the ratio is rounded down to two decimal places for calculation purposes.
This selection box for the rounding option is designed to satisfy different approaches for calculation purposes only. On the return form (for example, the box
Taxable sales ratio
 in Schedule 2) the ratio is always displayed with two decimal places only.