What small business should know about qualified invoicing system

To understand Qualified Invoicing system, it is necessary to understand the basics of the Japanese consumption tax system.

When a business purchases something for 100 yen, it pays 110. Of that amount, 10 is the consumption tax. (100*10%=10).

When that item is sold for 150 Receives 165 yen. 15 of which is a consumption tax. (150*10%=15).

The business merely keeps the 15 yen for the government and is obligated to pay this to the tax authority. However, he does not reimburse the total 15 yen but deducts the 10 yen he owes when purchased.

The consumption tax of 5 yen is paid with the consumption tax return.

Tax-exempt businesses, however, are exempt from paying consumption tax. The consumption tax of 5 yen will go to his pocket legally.

Tax-exempt businesses are small businesses. A business is tax-exempt if its sales or payroll for the previous year’s first half is less than 10 million yen, or if its annual sales for the previous two years are less than 10 million yen.

Consumption tax payable = consumption tax received – consumption tax paid

In order to reduce this consumption tax payable, “deduction” is important. There is a requirement for a deduction: to keep the invoice at the time of payment.

So, to reduce the consumption tax burden → deduct the tax → keep the invoices.

From October 2023, the new law will add another requirement. Invoices issued by a “Qualified Invoice Issuing Business” must be kept.

So, To reduce the tax burden on the taxpayer → Deduct the tax → Keep invoices issued by qualified invoicing businesses.

In other words, purchasers are disadvantaged if they do not purchase from a Qualified Invoicing Business. Such disadvantage to vendors may result in the suspension of trading transactions or discount requests to equalize the amount of non-deducted consumption tax.

The process to become a Qualified Invoicing Business is simple. Applying to the tax office and getting the registered number.

There are important rules.

Once a company becomes a qualified invoicing business, it cannot become a tax-exempt business even if its base period sales are less than 10 million yen.

Now tax-exempt businesses must choose.

(1) Keep being a tax-exempt business. If so, they should not become a Qualified Invoicing Business.

(2) Become a Qualified Invoicing Busines so customers can reduce their consumption tax liability through “deductions.”

How do you make this choice?