Japan is introducing its invoice system (インボイス制度) to make sure business operators pay their share of consumption tax (消費税 or CT for short). It’s being promoted as a system where businesses can write off the amount of CT owed against qualifying invoices. In reality, it’s a scheme to collect CT from business operators. On the outset, that doesn’t sound as outrageous as many people opposing the system claim.
The uproar comes from the fact that businesses who earn less than 10 million yen a year have been exempted from paying CT. But now, the National Tax Agency (NTA) might as well have abolished the exempted business scheme (免税事業者) because essentially, this system corners in low-earning businesses.
Here’s how this cleverly devious scheme works for my industry (translation):
- Translator issues an invoice showing the translator’s qualified invoice issuer number, also known as a T number, and a value of 100,000 yen for providing translation services. Translator also tacks on the obligatory CT at 10% for an grand total of 110,000 yen.
- Client pays 110,000 yen to the translator, and come March the following year, pays whatever CT they owe the government minus 10,000 yen.
If the translator doesn’t register with the NTA *and* doesn’t earn 10 million yen a year, they are exempt from paying CT the following fiscal year.
Here’s what happens if the translator doesn’t have a T number:
- Translator issues an invoice showing only the value of services rendered (100,000 yen) and the obligatory CT (10,000 yen). The grand total still comes out to 110,000 yen.
- Client still pays 110,000 yen to the translator, but doesn’t get to write off the 10,000 yen CT because the translator isn’t registered. Consequently, the client pays 10,000 yen worth of CT to the NTA the following March.
- Thus, the client pays 10,000 yen twice, once to the translator and then to the NTA. Understandably, clients are going to balk at this and seek out translators who have a T number so they don’t have to pay twice. Or, they may ask said translator to stop charging the obligatory CT since they aren’t paying it to the government coffers.
The latter request may be guised as a request for a discount. Technically, this goes against codes designed to protect small businesses, but we may see this manifest through other ruses. The easiest thing for a client to do is simply stop sending work to non-T-numbered translators, and deal only with T-numbered translators.
So what’s a qualifying invoice? An invoice issued by a business operator who has been qualified by the National Tax Agency.
Qualified implies that you’ve registered your tax filing details (name, address, and type of business) with the NTA. In exchange for registering, you get not only your very own 13-digit number, but also the obligation to pay CT every year in March.
For more info, see this flier:
https://www.nta.go.jp/english/taxes/consumption_tax/pdf/2021/simplified_15.pdf