Tax Exemption for Export Transactions

(Uploaded on: 2024/5/23)

When a business sells goods domestically, a 10% consumption tax is generally applied. However, if the sale qualifies as an export transaction, the consumption tax is exempt. This exemption is based on the principle that Japanese consumption tax should not be levied on goods consumed abroad. The term “export” is not limited to the physical export of goods but also includes the provision of services to non-residents, etc.

Scope of Tax-Exempt Export Transactions

When a taxable business conducts the following types of export transactions, the consumption tax is exempt:

(A) Transfer or lease of assets conducted as an export from Japan

(B) Communication or postal services between Japan and overseas

(C) Transfer or lease of intangible property rights such as mining rights, industrial property rights, copyrights, and goodwill to non-residents

(D) Provision of services to non-residents (see below)

Even if services are provided to non-residents, if the services involve the transportation or storage of assets located in Japan, dining or accommodation in Japan, or similar benefits that the non-resident directly enjoys within Japan, these services are not considered tax-exempt export transactions and are subject to a 10% consumption tax.

Proof Required for Tax Exemption on Exports

To qualify for tax exemption on exports, proof that the transaction is an export transaction is necessary. Depending on the type of export transaction, relevant documents such as export permits, certificates from the customs director, or records and documents indicating the fact of export must be kept for seven years.

1. For goods requiring an export permit under category (A): Export permit (document certified by the customs director)

2. For goods exported by mail under category (A) where the value of the assets* exceeds JPY 200,000: Export permit (document certified by the customs director)

3. For goods exported by mail under category (A) where the value of the assets* is JPY 200,000 or less and is a parcel or EMS mail**:

Document issued by Japan Post certifying the acceptance of the mail, and a copy of the dispatch slip, with the following details:

     (a) Name and address of the exporting business

     (b) Description, quantity, and value of each item

     (c) Name and address of the recipient

     (d) Date of acceptance of the mail

4. For goods exported by mail under category (A) where the value of the assets* is JPY 200,000 or less and is regular mail**:

Document issued by Japan Post certifying the acceptance of the mail, with an additional note of the description, quantity, and value of each item (usually registered/kakitome mail)

5. For transactions under category (B):

Records or documents with specific required details (date, description, etc.)

6. For transactions under category (C) or (D):

Contracts or other documents with specific required details (date, description, etc.)

*The value of the assets refers to the FOB price (one of the Incoterms, indicating the value of goods loaded on board), which is generally the actual settlement amount (e.g., the sales price of exported goods). Whether the asset value at the time of export exceeds JPY 200,000 is determined based on the value per mail item. For example, if more than one mail item is sent to the same recipient, the total value of those items is used for the determination.

**”Parcel Post,” “EMS Mail,” and “Regular Mail” are defined in Article 1 of the Universal Postal Convention.

Additionally, the necessary export permit documents include electronic records related to these documents.

While exports are exempt from consumption tax, the corresponding taxable purchases within Japan include consumption tax. The taxable purchase amount includes the cost of goods inventory, office supplies, entertainment expenses, advertising expenses, and other expenses necessary for the export transaction. Therefore, the amount of consumption tax included in taxable purchases can be deducted as input tax in the final tax return. Businesses with a high proportion of export transactions in their sales may be eligible for a tax refund upon filing their final tax return.

Please note that consumption tax rules change frequently and should be applied with caution in practice.