How to Calculate Japan Consumption Tax (Shouhizei)

Japan's consumption tax, known as "shouhizei" (消費税), is a value-added tax (VAT) applied to most goods, services, and imports. The standard rate is 10%, with a reduced rate of 8% for certain essential items like food and newspapers. The tax was introduced in 1989 and has been gradually increased to support social security funding.

Adding Consumption Tax to a Price

When you need to add consumption tax to a pre-tax price, use these formulas:

Example for 10% standard rate: If the base price is ¥1,000 (excluding tax):

Consumption Tax = ¥1,000 × 0.10 = ¥100

Total Price = ¥1,000 + ¥100 = ¥1,100

Example for 8% reduced rate: If the base price is ¥1,000 (excluding tax):

Consumption Tax = ¥1,000 × 0.08 = ¥80

Total Price = ¥1,000 + ¥80 = ¥1,080

Removing Consumption Tax from a Price

When you need to calculate the pre-tax price from a tax-inclusive price, use these formulas:

Example for 10% standard rate: If the total price is ¥1,100 (including tax):

Base Price = ¥1,100 ÷ 1.10 = ¥1,000.00

Consumption Tax = ¥1,100 - ¥1,000 = ¥100

Example for 8% reduced rate: If the total price is ¥1,080 (including tax):

Base Price = ¥1,080 ÷ 1.08 = ¥1,000.00

Consumption Tax = ¥1,080 - ¥1,000 = ¥80

Understanding Japan's Consumption Tax System

What is Shouhizei (Consumption Tax)?

Shouhizei (消費税), or consumption tax, is Japan's indirect tax on goods and services. It's a value-added tax system where tax is collected at each stage of distribution, but businesses can claim credits for tax paid on inputs. The ultimate burden falls on the final consumer. The tax was introduced on April 1, 1989, at a rate of 3% to help fund Japan's social security system as the population ages.

Tax Rate History in Japan

• April 1, 1989: Consumption tax introduced at 3%
• April 1, 1997: Rate increased to 5%
• April 1, 2014: Rate increased to 8%
• October 1, 2019: Rate increased to 10% (reduced rate of 8% introduced for essential items)
• 2025: Current rates remain at 10% standard and 8% reduced

Current Tax Rates and Structure

Standard Rate (10%): Applies to most goods and services, comprising 7.8% national tax and 2.2% local tax.

Reduced Rate (8%): Applies to certain essential items, comprising 6.24% national tax and 1.76% local tax. Eligible items include:

• Food and non-alcoholic beverages (including frozen, packaged, and dried foods)
• Restaurant and takeout food (since October 1, 2019, restaurant meals are subject to 10% tax)
• Newspaper subscriptions (published more than twice a week)

Business Registration Requirements

Businesses in Japan must register for consumption tax if their annual sales exceed ¥10 million (based on the average of the two preceding years). Once registered, businesses must:

• Charge consumption tax on taxable supplies
• File consumption tax returns with the tax authority (National Tax Agency)
• Claim input tax credits for consumption tax paid on business purchases
• Remit the difference (output tax minus input tax) to the tax authority

Businesses with annual sales below ¥10 million are not required to register but can voluntarily do so to claim input tax credits.

Qualified Invoice System (QIS)

As of October 1, 2023, Japan introduced the Qualified Invoice System (QIS). Under this system, to claim input tax credits, a business must receive invoices from sellers who are registered as qualified issuers. The invoice must include:

• Seller's qualified issuer registration number
• Date of supply
• Description of goods/services
• Tax rate and tax amount (segregated for 10% and 8%)
• Total sales amount
• Purchaser's name

Consumption Tax Treatment of Different Goods and Services

Items Subject to 10% Standard Rate

The following are subject to the standard 10% consumption tax rate:

• General foods prepared for immediate consumption (restaurant meals, fast food, takeout)
• Alcoholic beverages (beer, wine, spirits, sake)
• Electronics and appliances
• Clothing and accessories
• Furniture and home goods
• Motor vehicles and parts
• Entertainment and recreational services
• Hotels and overnight accommodation
• Restaurants and food service
• Professional services (consulting, legal, accounting)
• Healthcare services (non-covered by insurance)

Items Subject to 8% Reduced Rate

The following are subject to the reduced 8% consumption tax rate:

• Fresh and frozen food items (meat, fish, vegetables, fruits)
• Processed food (bread, pasta, canned goods, dairy)
• Non-alcoholic beverages (milk, juice, water, coffee, tea)
• Newspapers (published more than twice a week under subscription)

Exempt Supplies (No Tax)

These supplies are exempt from consumption tax, and businesses cannot claim input tax credits:

• Financial services (banking, insurance, investment services)
• Certain healthcare services (provided under national insurance)
• Educational services (provided by certain institutions)
• Social welfare services
• Sales and leases of land
• Sales of used residential property (in certain cases)

Zero-Rated Supplies (Tax-Free with Credit)

These supplies are taxed at 0% but businesses can claim input tax credits:

• Exports of goods and services
• International transportation of passengers and cargo
• Supplies to foreign embassies and legations
• Duty-free sales to foreign travelers (tax-free shopping)

Japan Consumption Tax Quick Reference

Frequently Asked Questions (FAQ)