Businesses that export to foreign countries may receive a consumption tax refund by filing a consumption tax return.
How does the consumption tax refund work?
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.
Let’s consider a case in which a company (X) is a taxable business and an exporting company that buys everything in Japan and sells everything overseas.
Under the Consumption Tax Act, sales from exports are treated as tax-exempt sales (Article 7(1)(1) of the Consumption Tax Act). So the seller (X) has not received any consumption tax. On the other hand, the X has paid consumption tax on purchases, and the consumption tax would be refunded by filing the consumption tax return.
On the other hand, “tax-exempt enterprises” are always exempt from paying consumption tax received on their sales to the tax office, also they cannot refund the consumption tax paid on their purchase.
So, if you are a business that exports, it is more advantageous for you to be a “taxable business” to get a refund.
|exampleは簡易な例||taxable business||tax-exempt business|
|Filing tax return||Yes needs||No|
|Do you pay consumption tax when Purchase||pay（1000*10%=100)||pay (100)|
|Do you receive consumption tax when you sale in Japan?||Receive (600*10%=60)||Receive (600*1-%=60)|
|Do you receive consumption tax when you export?||No (400*0%=00)||No (0)|
Procedures for tax-exempt businesses to become taxable businesses
To be a taxable business, it is necessary to submit a “Taxable Business Selection Notification.” The taxpayer shall become a taxable enterprise from the fiscal year following the submission of the Notification.
“Well, it’s better to be a taxable business this term because we started exports this year. Let’s file the Notification “. This comment is too late to be a taxable business this year. The corporation will become a taxable enterprise from the taxable year following the filing of the Notification.
In case you forgot to submit a taxable business notification
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.
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 1 to March 31. He/She begins to export from May 20. 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 for a shortened taxation period on June 15, he/she will be entitled to a consumption tax refund from July 1.
Continuous coverage for two years
A business that has been subject to the taxable business selection notification must, as a general rule, continue to apply it for two years. Even if you want to return to tax-exempt status because you no longer sell through export, you cannot return for at least two years. You need to file a consumption tax return and would need to pay taxes.