Introduction
Since the introduction of Japan’s Qualified Invoice System (適格請求書等保存方式), the management of consumption tax (Japanese VAT) has become increasingly complex.
However, not all companies in Japan are subject to consumption tax. If a business’s taxable sales are below JPY 10 million per year, or certain exemption criteria are met, it can qualify as a tax-exempt enterprise (免税事業者).
Unlike taxable entities, exempt businesses are not required to file or remit consumption tax to the Japanese tax authorities. Therefore, when using an ERP system such as Odoo, special configuration is necessary to ensure that tax is neither calculated nor applied automatically.
This article provides a practical guide—specifically for foreign-affiliated companies operating in Japan—on how to configure Odoo 18 for consumption tax–exempt status, from the perspective of a DX-oriented international tax professional.
1. Basic Concept of Tax-Exempt Configuration in Odoo
Odoo, as a globally standardized ERP system, is designed primarily for taxable businesses.
In its default configuration, Odoo automatically applies VAT to transactions, invoices, and accounting entries.
For Japanese tax-exempt enterprises, while it is permissible to issue invoices including consumption tax as part of the total sales price, there is no legal obligation to remit that tax amount. In accounting terms—whether managed on a tax-inclusive or tax-exclusive basis—tax codes should not be applied in Odoo.
The key principle is simple: for exempt entities, all “Default Taxes” settings across accounts and transaction templates should be left blank.
Doing so prevents Odoo from automatically adding or calculating tax on any transaction.
Because Odoo’s tax logic operates on multiple levels (product, account, and transaction type), if any tax configuration remains active, it may override other settings.
To ensure accurate bookkeeping under Japanese rules, all related tax fields must be reviewed and cleared systematically.
2. Step-by-Step Configuration in Odoo 18
Below is the step-by-step method to configure Odoo 18 for tax-exempt use. (Administrator or Accounting Manager access is required for these changes.)
(Administrator or Accounting Manager access is required for these changes.)
① Review and update the Chart of Accounts
Navigate to Accounting → Chart of Accounts, and review each account entry.
For accounts such as Sales Revenue, Purchases, and Expenses, check the field labeled Default Taxes and set it to blank.
This prevents automatic VAT application when posting journal entries or creating invoices.
② Remove tax settings at the product level
If your company uses Sales or Purchase modules, each product may have assigned taxes under Customer Taxes and Vendor Taxes.
Go to Products → Product Information, open each record, and clear both tax fields.
This ensures no automatic tax calculation when products are selected in transactions.
③ Review and adjust invoice and bill templates
Check invoice and vendor bill templates for any preset tax entries.
If taxes appear automatically during new document creation, remove these defaults at the template level to avoid confusion.
④ Disable VAT reports and tax submission features (optional)
Odoo includes built-in VAT reporting functions designed for taxable entities. Since exempt entities do not need these, you can hide or deactivate the VAT Reports section in reporting settings.
This helps prevent users from accidentally generating unnecessary tax filings.
3. Operational Considerations and Best Practices
Even though tax-exempt businesses are not required to remit consumption tax, communication with Japanese customers and vendors still requires care.
When issuing invoices through Odoo, leave the tax fields blank, but clearly state in the notes section: “This company is a consumption tax–exempt entity and is not obligated to remit Japanese consumption tax.” This avoids misunderstandings, especially with taxable Japanese counterparties who may expect qualified invoices under the new system.
If your business may become a taxable entity in the future—for instance, after registration under the Qualified Invoice System—it is advisable not to delete the tax codes entirely. Instead, archive or deactivate them.
This ensures that tax functionality can be easily reactivated if your company transitions to taxable status.
It is also important to recognize that Japan’s consumption tax framework is distinct from the European-style VAT model on which Odoo’s standard configuration is based.
For this reason, proper customization and accounting policy alignment are essential for accurate financial reporting. Adapting Odoo to Japan’s unique tax structure is not merely a technical task—it is a key part of a company’s DX (digital transformation) compliance strategy.
Conclusion
For tax-exempt enterprises in Japan, the most crucial step in Odoo configuration is to clear all Default Tax settings.
This ensures that no automatic VAT calculations occur in sales, purchases, or expenses, maintaining compliance with Japanese consumption tax regulations.
By cleaning up tax codes and standardizing invoice templates, businesses can maintain clarity and consistency in their transactions while preserving flexibility for future tax status changes.
In the age of digital transformation, success in tax and finance automation depends on understanding both the legal framework and the system architecture.
Foreign companies operating in Japan can achieve smoother, more compliant operations by using Odoo efficiently—keeping it simple, accurate, and aligned with Japan’s unique consumption tax system.