Basic Framework of Japan’s VAT System and Refund Mechanism
Japan’s VAT system, known as Japanese Consumption Tax (JCT), does not distinguish between domestic and foreign businesses based on the taxpayer’s place of incorporation. Whether VAT applies is determined solely by the nature of the transaction and whether it qualifies as a taxable domestic transaction under Japanese VAT law. Accordingly, even foreign companies without a physical presence in Japan may fall within the scope of Japanese VAT if they conduct taxable transactions in Japan or incur taxable purchases within Japan.
Japan’s VAT operates on a credit mechanism, whereby VAT charged on sales is offset against VAT paid on purchases and business expenses. Where deductible input VAT exceeds output VAT, a VAT refund may be available. This fundamental structure applies equally to Japanese and foreign companies.
Related Content：
- Can Foreign Companies Claim a Japanese VAT Refund?
- Japanese Consumption Tax Compliance for Overseas Businesses [Practical Guide]
MOCHIZUKI & Associates provides end-to-end VAT refund support tailored to the transaction structures and compliance requirements applicable to foreign companies under Japan’s VAT regime.
Practical Considerations for Foreign Companies without a Presence in Japan
Foreign companies without a permanent establishment (PE) or office in Japan are generally not subject to Japanese corporate income tax or withholding tax. VAT, however, follows a different analytical framework. To claim a VAT refund, filing a Japanese VAT return is required. As a general rule, this necessitates the appointment of a tax agent in Japan. In addition, foreign companies must carefully assess whether they qualify as taxable enterprises, whether an election to become a taxable enterprise is required, and how Japan’s Qualified Invoice System (invoice regime) applies to their transactions.
VAT refunds in Japan are highly sensitive to documentation and procedural accuracy. Minor differences in invoice descriptions, contractual terms, transaction classification, or the availability of customs documentation for import transactions can directly affect refund eligibility. Moreover, VAT refund claims are more likely to be reviewed by the tax authorities. Filing a return on a purely formal basis may result in denial of the refund or significant delays. For this reason, VAT refunds for foreign companies require a careful approach that combines technical knowledge of the VAT system with practical experience in tax administration.
Common Misconception: “Tax Registration” in Japan
Foreign companies frequently ask whether a comprehensive “tax registration” is required in Japan in order to obtain a VAT refund. Under Japanese tax law, however, there is no unified or overarching tax registration system comparable to those found in some other jurisdictions.
- Notification of appointment of a tax agent
- Notifications relating to taxable enterprise status for VAT
- Registration as a Qualified Invoice Issuer (where applicable)
- Application for an e-Tax user identification number
For VAT refund purposes, the key issue is not corporate registration in Japan, but whether the appropriate VAT-related procedures have been correctly selected and filed in advance of submitting a VAT return.
Suitable Cases for Foreign Companies
Foreign companies may be eligible for a Japanese VAT refund in a variety of situations, including participation in trade fairs, exhibitions, or events in Japan; provision of services to Japanese customers; importation of goods into Japan; or any other scenario in which Japanese VAT-bearing business expenses are incurred.
Even where VAT has already been charged by Japanese counterparties, refund eligibility may still be assessed through a proper review of the transaction structure and supporting documentation.
VAT Refund Support for Foreign Companies
At MOCHIZUKI & Associates, VAT refunds for foreign companies are treated not merely as a filing exercise, but as part of broader cross-border tax risk management. We clearly distinguish between tax agent services and licensed tax representation, while addressing both within an integrated engagement framework. Our support is tailored to the foreign company’s business model, contractual arrangements, and transaction flows, and includes the selection of required notifications, analysis of VAT treatment, preparation of VAT returns, and communication with the Japanese tax authorities.
We also provide practical guidance on post–invoice-system compliance, B2C transactions, exhibition and event-related costs, and import-related VAT issues, drawing on our experience with VAT matters specific to foreign businesses operating in or with Japan.
Should you need any assistance from us, please feel free to contact us.