Not very likely. While SaaS and software are taxable in Japan, it has a higher threshold compared with other jurisdictions, making it less likely you’ll become liable.
The current threshold for Consumption Tax in Japan is JPY10,000,000 (~$95,000).
Yes. You owe tax for the sale of cloud software subscriptions to customers in Japan.
Yes. You owe tax for the sale of software downloads to customers in Japan.
Yes. You owe tax for the sale of eBooks to customers in Japan.
Yes. You owe tax for the sale of digital downloads to customers in Japan.
The tax authority in Japan requires you to have a local tax agent in order to register for sales tax. This means it’s on your company to find (and pay for) a reputable representative.
The registration requirements in Japan are also very strict. You have to provide a lot of evidence to prove who you are and how your business runs – some businesses have even had to provide sales demos.
For this reason, it’s even more important to find the right tax representative. One who can really understand your business model and act as an effective liaison between you and the tax authority.
😐🌶️ It's not that complicated
The filing process in Japan is done annually, however, you need to submit payments quarterly.
Over a year, you will submit three flat rate payments, determined by your sales in the previous year. You will then do your filing for the whole year and submit your final payment.
As you can imagine, this makes reconciliation difficult because the payments you’re making aren’t based on current sales.
You may also find that the tax authority charges a fee on the payment. The payment isn’t a flat rate so usually your tax agent will invoice for the fee once the payment has gone through.
😐🌶️ It stacks up
The penalties for non-compliance in Japan can soon add up, especially if you sell there in volume. For not filing you will pay a penalty equal to a percentage of the tax owed, plus interest.
For any company whose failure to file is deemed tax evasion, the penalty is 40% of the amount owed and 35% for underreporting or withholding tax payments. Yet another reason to make sure you’re working with a reputable and reliable local tax agent!
Registering for Consumption Tax in Japan
😩🌶️🌶️🌶️ It's *painfully* complicated