Do I have to pay sales tax when I sell goods or services through cross-border e-commerce?”
What are the requirements to receive a sales tax refund?”
Some of you must have these questions about cross-border EC. If you provide goods or services through cross-border EC, you are exempt from consumption tax. In addition, it is possible to receive a “consumption tax refund” if certain conditions are met.
If you are planning to offer products or services through cross-border EC, please check the conditions for receiving consumption tax refunds explained in this article, as well as the precautions to take when receiving such refunds.
目次
No sales tax in cross-border EC
When providing goods or services through cross-border e-commerce, no consumption tax will be imposed because the recipient is an overseas consumer. To begin with, consumption tax is levied on goods and services consumed in Japan.
If selling in Japan, the consumer first bears the tax burden, and then the business pays the tax to the government. However, in the case of cross-border e-commerce, the consumer lives overseas and is exempt from taxation, and neither party bears or pays consumption tax.
Advantages of Cross-border EC “Sales Tax Refund
If the final sales destination in cross-border e-commerce resides overseas, the business can receive a refund for the consumption tax incurred when purchasing the goods. Paying consumption tax that was originally not required to be paid and receiving a refund of that amount is called a “consumption tax refund. Since this is allowed by law, it is an advantage when selling in cross-border EC.
However, in order to receive this consumption tax refund, certain conditions must be met and the necessary documents must be submitted. Please check the conditions for receiving a consumption tax refund in advance.
Conditions for receiving a sales tax refund for cross-border EC
In order to receive a sales tax refund for cross-border EC, the following three conditions must be met. If you are considering receiving a consumption tax refund, be sure to check each of them.
Condition 1: The company is a sales taxable enterprise.
The first condition is that the business must be a sales taxable business. A sales taxable business entity is one that is ultimately obligated to pay sales tax.
The definition of a consumption taxable business entity is one whose taxable sales exceed 10 million yen. Taxable sales are sales that are subject to taxation and exclude non-taxable transactions.
For a corporation, sales for the two fiscal years preceding the fiscal year are subject to the tax, and for a sole proprietorship, sales from January to December of the two preceding years are subject to the tax. In addition, a newly established corporation is basically a “consumption tax-exempt business” with no tax liability, since it has no base sales.
Note, however, that businesses with capital of 10 million yen or more and newly established corporations that meet certain requirements are subject to consumption tax.
Condition 2: Submit refund application documents on time.
The conditions also include submitting the refund application documents on time. In order to receive a consumption tax refund, the application documents must be submitted to the competent tax office director. The specific documents required are as follows
- Tax return corresponding to the taxable period
- Statement regarding the amount of tax credit for purchases
- Statement of Taxable Sales Ratio, Deductible Purchases, etc.
- export license
- Purchase invoices and receipts
These must be submitted appropriately. The timing of application differs between corporations and sole proprietorships. Corporations are required to file within two months from the day following the last day of the taxable period, while sole proprietorships are required to file by the last day of March of the year following the taxable period.
Condition 3: The taxpayer has elected the principle tax method.
The third condition is that the company has chosen the principle tax ation method. There are two types of consumption tax calculation methods: the “principle taxation method” and the “simplified taxation method.
The principle taxation method is to deduct the consumption tax actually paid from the consumption tax received, and pay that amount as consumption tax. If you have not selected this principle taxation method, you will not be able to receive a consumption tax refund for cross-border EC.
Businesses exempt from consumption tax are not eligible for consumption tax refunds.
As explained in the conditions for receiving a consumption tax refund, only “businesses subject to consumption tax” can receive a consumption tax refund. In addition, since the consumption tax must be levied in principle, it does not apply to businesses that are “consumption tax exempt”.
If you are considering receiving a consumption tax refund, first check whether your business is a “consumption taxable business.
In order to become a consumption taxable enterprise, a “Consumption Taxable Enterprise Notification Form” must be submitted to the tax office with jurisdiction over the place of tax payment. If the company is a newly established company, it will submit a “Consumption Tax Business Operator Election Notification” in its first fiscal year.
Steps to receive a consumption tax refund for cross-border EC
In order to receive a sales tax refund for cross-border EC, it is necessary to submit the necessary documents and follow a set procedure. The following is a three-step explanation of the process to receive a tax refund.
To ensure trouble-free and smooth receipt, please confirm the following process in advance.
Step 1: Prepare the necessary documents
First, prepare the necessary documents.Check the required documents and prepare them in advance to facilitate the process.
The main important documents are the “Final Return for Consumption Tax and Local Consumption Tax” for the taxable period and “Appendix 2: Statement of Taxable Sales Ratio, Deductible Purchases, etc.”.
You can download these documents from the IRS website without going to the trouble of picking them up. In addition, do not forget to prepare a “statement regarding the amount of tax credit for purchases,” an “export permit,” and “delivery slips and receipts for purchases.
If you are not comfortable with the necessary paperwork, one option is to ask a tax accountant to prepare the necessary documents for you.
Step 2: Submit the required documents
Once you have prepared the necessary documents, submit them to the head of the tax office. The basic method of submission is either over the counter application or e-Tax (National Tax Electronic Filing and Payment System).
When notifying the tax office where your business is located, you must apply directly to the office, but you can resolve any uncertainties on the spot.
On the other hand, with e-Tax applications, you can smoothly submit the necessary documents using a computer. In addition, it is recommended for those who wish to receive their refunds as soon as possible, as it is easier to receive refunds more quickly than with paper applications.
Step 3: Receive the refund
After submitting the required documents to the Tax Collector, you will receive your refund. There are two options for receiving the refund
- Transfer to savings account
- Nearest Japan Post Bank branch or post office
The savings account is designated by filling in the “Place to Receive Tax Refund” field on the tax return. Note that if you wish to receive the money at a Japan Post Bank or a post office, you must go there in person.
The refund will be paid approximately one to one and a half months after the tax return is filed. e-Tax will take approximately three weeks.
Points to note when receiving a consumption tax refund for cross-border EC
There are several points to note when receiving a sales tax refund for cross-border EC. Be sure to check the details below in advance.
Note 1: Confirmation of taxable business and principle taxation
The first point to note is to confirm whether you are a taxable business or a principle taxable business. In order to receive a consumption tax refund, a company must be a taxable business.
The main condition is that taxable sales during the designated period must exceed 10 million yen. In addition, if the company is a consumption tax-exempt business, it is required to submit a “Notification of Business Operator Subject to Consumption Tax”.
In addition, you must select the “principle taxation method” for calculating consumption tax. If you have selected the “simplified taxation method,” do not forget to switch to the “principle taxation method” by submitting a “Notification of Non-application of Simplified Consumption Taxation System Selection.
However, if a company switches to a consumption taxable business or a principle taxable method, it cannot be restored for two years, respectively.
If you do a lot of exporting using cross-border EC, there are cases where you can reduce your tax burden by daring to become a consumption taxable business operator.
Note 2: Strict control of required documents
Care must also be taken in managing the documents required for the application. Multiple documents are required to receive a sales tax refund and must be submitted in a certain manner.
It is important to strictly manage required documents in order to avoid situations where “necessary documents are missing” or “lost by mistake. We recommend that you categorize your documents by type so that you can manage them in an easy-to-understand manner.
In addition, a detailed list of required documents includes receipts, delivery slips, invoices, etc. These documents are necessary to obtain a consumption tax refund and are also required in the event of a tax audit. These documents are required for consumption tax refunds, and are also required in the event of a tax audit, so be sure to keep them in a safe place so that they are not accidentally lost.
Note 3: Timing of refund payment
The refund will not be paid immediately, so please check the timing in advance. If you apply by paper, you should expect to receive payment in one to one and a half months; if you apply by e-Tax, you should receive payment in about three weeks.
If you are considering applying the funds to working capital, apply as soon as possible, recognizing that the refund will not be paid immediately.
summary
This article explains the conditions for receiving consumption tax refunds for cross-border EC and the points to note when receiving them.
When selling goods or services through cross-border e-commerce, no consumption tax is incurred because the recipient is an overseas consumer. In addition, if you meet some conditions, you can receive a refund for the consumption tax incurred when purchasing goods.
In addition, there are other points to note when receiving a tax refund, so those who plan to receive a consumption tax refund in the future should review the contents of this article in advance.
