Japan

2025 Tax Reform

On 31 March 2025, the 2025 Tax Reform Act was approved by the Diet, and, the 2025 Tax Reform Act, related Enforcement Orders and Regulations were promulgated. In principle, these are effective for corporate tax years beginning on or after 1 April 2025.

For multinational enterprises, the areas of most interest are likely to be: (i) introduction of the special taxation measures to strengthen defence capabilities that was previously mentioned under the 2024 Tax Reform Act, and (ii) the further enactment of provisions covering the Global Minimum Tax (Pillar 2), as Japan aligns its domestic law with the OECD. In relation to (ii), with the 2025 Tax Reform Act Japan has introduced the undertaxed profits rule and a qualified domestic minimum top-up tax.

Consumption tax

A new Qualified Invoice System (‘QIS’) was introduced as part of Japan’s 2016 Tax Reform Act, which is effective from 1 October 2023. Under the QIS, a consumption taxpayer (a ‘taxpayer’, who files consumption tax returns and pays or receives a refund of consumption tax), can in principle only take an input tax credit if such taxpayer receives a ‘qualified invoice’ from a seller that is registered as both (i) a consumption taxpayer and (ii) a qualified issuer (‘QII’). Effectively, the new system will require sellers to include their QII number in invoices so that the purchaser receiving such invoice will be able to take the input credit for the consumption tax included in the invoice. The requirement is similar to that of a seller to include its VAT number on an invoice in the European context.

Businesses (other than exempt entities) must file an application with their tax office to become a QII in order to be able to issue qualified invoices.

A new platform taxation system (“the platform taxation system”) was introduced as part of Japan’s 2024 Tax Reform Act and is effective from 1 April 2025. Under the platform taxation system, platform operators, as designated by the Japanese National Tax Agency (NTA), will be obligated to report and remit consumption tax on the cross border provision of digital services on behalf of foreign operators providing such services to Japanese customers (“qualified platform operators”). Please refer to “Other Taxation” for more details.