We have been receiving an increasing number of requests from new customers (parts/materials manufacturers outside Japan) in the automotive and machinery parts industries.
The background of the increase in needs is that the Japanese end-customer, a manufacturer of finished goods, has requested to switch to VMI (Vendor Managed Inventory), which means that the inventory management is done by the vendor (supplier) side.
Before using the VMI scheme, when trading between an overseas parts/materials manufacturer (seller) and a Japanese finished goods manufacturer (buyer), the buyer would act as the importer and import the goods, and the buyer would manage the goods as its own inventory.
After switching to the VMI scheme, the parts/materials manufacturer (seller) outside Japan imports the goods themselves, manage the inventory near the customer in Japan, and deliver the goods to the buyer’s factory just in time (JIT) when the finished goods manufacturer (buyer) wants the goods.
In this way, the buyer avoids the cumbersome of managing inventory but still can have the seller deliver the required quantity at the required time. Furthermore, since the buyer is not the importer, it is relieved of various responsibilities required of importers (for example, it is no longer necessary to keep import-related documents and books, or to respond to customs post-clearance audits as required by law).
On the other hand, the foreign parts/materials manufacturer (seller) has to use an Attorney for Customs Procedures (ACP) for the seller to act as the importer. In addition, as a response to national taxation, since sales in Japan (taxable sales under the Consumption Tax Law) will occur, it is necessary to appoint a Tax Representative (of JCT – Japan Consumption Tax) to register as a taxable business operator for consumption tax and to perform periodic tax filing duties.
Considering the invoice system for consumption tax, the use of a tax representative is also essential for B2B transactions, as the seller must become a registered business in order to be able to deduct purchases when filing consumption tax returns on the buyer’s side.
Switching to the VMI method (example)
Before introducing of VMI program
Foreign parts/materials manufacturer (seller) → Sales → Japanese finished goods manufacturer (buyer)
- Inventory control on the Japanese side: Buyer
- Importer: Buyer
- Seller’s sales subject to consumption tax in Japan: No
After introducing of VMI program
Foreign parts/materials manufacturer (Seller) → Sales → Japanese finished goods manufacturer (Buyer)
- Inventory control in Japan: Seller
- Importer: Seller … ACP – Attorney for Customs Procedure is required (for Customs purpose)
- Sales subject to consumption tax in Japan on the seller’s side: Yes … JCT Tax Representative is required (for National Taxation purpose)
- Professional of Customs and International Trade – The CEO, as a Certified Customs Specialist in Japan – Mr. Sawada has been providing consulting services in the Trade & Customs area for many years. He was in a management position at KPMG, then started with his own company – SK Advisory to continue the customs-related services to the international clients.
- Fully compliance in accordance with Japanese Customs Law – Maintaining the service quality with full compliance with Japanese Customs Law. ACP Japan is capable to manage all the necessary import compliance issues, including the classification of HS code, and setting of the appropriate Customs Valuation of the import goods to Japan.
- Experienced and credible partner – As ACP Japan has been providing ACP services to many clients as demand has increased, you can totally rely on us as a credible partner. We registers 40+ ACP customers every year, the customers from around the world. In this way, all customers successfully became non-resident IOR – Importer of Record in Japan. You can see a list of our customers in here “Experiences”.
- Qualified ACP service provider in Amazon SPN (Service Provider Network) – ACP Japan has officially become a qualified ACP service provider in Amazon’s Service Provider Network (SPN) under the Compliance category.
How does the Japanese New Invoice System affect? – Advantage of using ACP –
Recently, many companies register JCT (Japanese Consumption Tax) because the new invoice system for JCT will start in October 2023. The concept of the new invoice system is very similar to the EU’s VAT invoice system.
Your Japanese customer can’t claim input tax credits unless the sellers(suppliers) issue a qualified invoice that is written a JCT number. To issue a qualified invoice, sellers(suppliers) need to be a taxable entity and get a JCT number.
Before the Invoice system is introduced (before Oct 2023):
- A company that paid consideration of goods or services (=Company-B) is able to deduct Input JCT of the consideration regardless of whether the vendor (issuer of invoice, =Company-A) is a JCT-taxable or Non JCT-taxable company.
- There is no way to confirm whether the vendor (=Company-A) is JCT-taxable or Non JCT-taxable company.
After the Invoice system is introduced (after Oct 2023):
- A company that paid consideration of goods or services (=Company-B) is able to deduct Input JCT of the consideration only if the vendor (Company-A) has its invoice registration number.
- Company-B requests Company-A to issue the qualified invoice. If Company-A cannot submit qualified invoice, Company-B will no longer want to buy from Company-A.
**If Company-A only sells to consumers (not business entities), it may not require for Company-A to issuethe qualified invoice since normally consumers would not tend to do tax return.
Once the Comapny-A (Seller/Supplier) obtains the JCT invoice registration number, which means this company becomes a taxable entity that is obligated to file JCT tax returns on a regular basis.
For the case of a non-resident entity (Company-A), when Company-A imports and sells to customers in Japan, following 3 steps are the standard procedure.
(1) Pay import JCT to a customs office, 10% of the import customs value when Company-A imports.
<PAY TO CUSTOMS OFFICE>
(2) Obtain JCT from a customer in Japan, 10% of the sales price when Company-A sells
(3) Submit JCT tax return
(3-1) If you paid (1) as IOR = Importer, which means you appoint ACP, then you’re required to pay only the difference amount (2) – (1)
(3-2) If you paid (1) but you were not IOR = Importer, then you’re required to pay all the amount of (2). You can’t deduct (1).
Please be careful that only the IMPORTER can deduct the input JCT (import consumption tax) at the time of tax filing mentioned above (3). In other words, if another IOR service provider became the IMPORTER when you import, basically it would not be possible for the non-resident entity to deduct the input JCT (import consumption tax). Therefore, you have to pay all the amount of (2) to a tax office (mentioned above (3-2).
On the other hand, if you import with ACP, means that you became an IMPORTER thus you can deduct the input JCT (import consumption tax), when you do JCT tax return mentioned above (3). Therefore, you only need to pay the difference amount (2) – (1) to a tax office (mentioned above (3-1).
This is one of the significant advantages to use ACP service, not IOR service.
For this reason, we strongly recommend using ACP so that you can become IOR.
What is ACP? – Attorney for Customs Procedures
Steps of using ACP, how foreign entity can import into Japan by ACP
What is IOR? – Importer of Record
Customs Valuation System in Japan
Customs Valuation When You Import By ACP
ACP Japan Became Amazon’s SPN Provider as Qualified ACP Service Provider