Businesses that export to foreign countries may receive a consumption tax refund by filing a consumption tax return.
Only taxable businesses are eligible for consumption tax refunds by filing consumption tax returns. Tax-exempt businesses are not required to file a consumption tax return and therefore do not receive a consumption tax refund.
For the basic concept of consumption tax, please click here.
A taxable enterprise is one that is obligated to pay consumption tax to the government by submitting a consumption tax return or has the right to claim a tax refund. A tax-exempt enterprise is one that is not obligated (or unable) to file a consumption tax return. They are neither obligated to pay consumption tax nor entitled to claim a refund.
A taxable enterprise is determined as follows.
Sales of more than 10 million yen for the two previous fiscal years (deals here include export sales) → Taxable enterprise
Sales for the first six months of the previous fiscal year exceeded 10 million yen, and the amount of salary paid during that period exceeded 10 million yen → Taxable enterprise.
If the business has just started and has no sales in the previous two years or the last year, and the capital is 10 million yen or more -> Taxable business
If the business has just started and has no sales in the previous two years or the last year, and the capital is less than 10 million yen -> Tax-exempt business
The consumption tax to be paid or refunded to the government is calculated as follows.
Consumption tax included in the sales price minus Consumption tax included in the purchase price.
If this is positive, you need to pay the tax to the tax office by filing the tax return. If it is negative, the tax will be refunded. For example, when a taxable enterprise purchases goods for 500 without tax and sells them at 1000 without tax, it will actually purchase goods at 550 including 50 consumption tax and sell them at 1100 including 100 consumption tax. It will keep the 50 tax in its hands. If it is a taxable enterprise, the company will file a consumption tax return and pay this 50 to the government.
In the case of a tax-exempt business, if a product is purchased for 500 yen without tax and sold for 1,000 yen without tax, the purchase price is actually 550 yen, including 50 yen in consumption tax, and the sale price is 1,100 yen, including 100 yen in consumption tax.
The tax-exempt business is exempt from filing a consumption tax return so that they can treat the 50 as their own.
However, in the case of exports, the calculation is different.
Since export sales are exempt from consumption tax (Article 7, Paragraph 1, Item 1 of the Consumption Tax Act), no consumption tax is charged on the export sales price of 1000. On the other hand, this business pays 50 consumption tax on the purchase of 500. This means that the company has paid the 50 consumption tax in advance. Therefore, if it is a taxable enterprise, then it can file a consumption tax return and receive a refund of 50.
If you are a tax-exempt business, it is the same that no consumption tax is charged on the export sales price of 1000, and 50 consumption tax is paid on the purchase of 500. The company cannot file a consumption tax return and cannot claim a refund of the 50 tax.
As mentioned above, in principle, a company is not a taxable enterprise unless it meets requirements such as having sales of more than 10 million yen for the two previous fiscal years. However, a tax-exempt business can easily become a taxable business by submitting a “taxable business election notification.”
However, it is important to note that if a tax-exempt business submits a “Taxable Enterprise Selection Notification,” it will become a taxable enterprise from the fiscal year following the one in which it submitted the notification. For example, if a business with a fiscal year ending in March 2021 submits a taxable enterprise election notification in February 2021, it will become a taxable business from the fiscal year beginning in April 2021.
It is too late to say, “Since we had exports this fiscal year (fiscal year ending March 2021), it would be more advantageous to be a taxable enterprise, so let’s submit the notification now (February 2021)”. You cannot claim a refund for consumption tax paid in advance in the fiscal year ending March 31, 2021. You will become a taxable enterprise from the fiscal year beginning April 2021.
When you failed to provide the taxable business notification in the previous year, you may be entitled to a consumption tax refund by applying for a special exception to shorten the tax period.
In principle, the taxable period for a consumption tax is one fiscal year, which is 12 months.The consumption tax period can be shortened by divided into three months or one month, depending on the taxpayer’s choice. If you want to reduce your taxable period, you can submit an “Application for Election or Amendment of Special Taxation Period” to the tax office. The tax period is cut from the period following the submission period (Section 19 of the Sales Tax Act).
For example, a taxpayer whose taxable period is from April 2020 to March 31 2021 begins to export from May 2020. However, he/she forgot to submit a taxable business selection notification during the previous period and remained a tax-exempt business. Even in this case, if he/she files “Application for Election or Amendment of Special Taxation Period” to shorten the taxation period on June 15, he/she will be entitled to a consumption tax refund from July 1 by submitting the tax return in every three months.
A person who becomes a taxable business by submitting a “taxable business election notification” must continue applying taxable business rules for two years. Even if a company is supposed to be exempt from taxation for the current fiscal year because its sales for the two previous fiscal years were less than 10 million yen, it cannot return to the tax-exempt status for two years submitted a taxable enterprise election notification.