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Software Sales Tax in Japan 🇯🇵

How do I solve my tax liability?
Agony Rating
Sales Tax Rate
Taxable Goods
Highest Penalty

How likely am I to get caught for owing sales tax in Japan?

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.

What is the sales tax threshold in Japan?

The current threshold for Consumption Tax in Japan is JPY10,000,000 (~$95,000).

Is SaaS taxable in Japan?

Yes. You owe tax for the sale of cloud software subscriptions to customers in Japan.

Are software downloads taxable in Japan?

Yes. You owe tax for the sale of software downloads to customers in Japan.

Are eBooks taxable in Japan?

Yes. You owe tax for the sale of eBooks to customers in Japan.

Are digital downloads taxable in Japan?

Yes. You owe tax for the sale of digital downloads to customers in Japan.

Registering for Consumption Tax in Japan

😩🌶️🌶️🌶️ It's *painfully* complicated

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.

Filing & Remittance of Consumption Tax in Japan

😐🌶️ 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.

Penalties for Consumption Tax non-compliance in Japan

😐🌶️ 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!

Had enough yet? There's more…

How to become sales tax compliant globally 🗺

Three Routes to Compliance for SaaS Executives

SaaS executives have a choice of three routes to global tax compliance. Get the guide to walk through the options for your team.

Download the guide »

Don't Worry, Ask Hugo

As CFO of Paddle, Hugo's finance team manages global tax compliance for $100M's of ARR from over 2,000 software businesses. Ask your questions in our live webinar.

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How can Paddle help?

Paddle can take all your responsibility & liability for sales tax off-your hands. Our global entities, finance team, and $160k+ year spend on agents, tooling, and accountants is ready for you.

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