Understanding the handling of JCT (such as payment of import JCT, collection of sales JCT from customers, and JCT returns) is crucial to avoid significant cost burdens. This is a vital aspect, so please ensure a thorough understanding to determine the most optimal business model.
For non-resident entities (Company-A) that import and sell goods to customers in Japan, the standard procedure involves three steps:
- Pay import JCT to a customs office, 10% of the import customs value when Company-A imports goods. <PAY TO CUSTOMS OFFICE>
- Obtain JCT from customers in Japan, 10% of the sales price when Company-A sells goods.
- Submit JCT tax return and pay the difference amount (2) – (1) to a tax office periodically <PAY TO TAX OFFICE (different authority from Customs Office)>
Note: Using ACP to become the importer (IOR) is essential for JCT deductions and refunds. If another company acts as the IOR, you cannot deduct the input tax (step 1), and must pay the entire VAT collected (step 2) to the national tax authorities, leading to significant costs.
If you are a JCT-exempt business, the process ends at steps 1 and 2. For taxable businesses or invoice-registered businesses, step 3 (Final Tax Return) is obligatory.
In the Final Tax Return (step 3), if the JCT paid (step 1) exceeds the provisional JCT received (step 2), the difference is refunded. Conversely, if the provisional JCT received (step 2) exceeds the JCT paid (step 1), the difference must be paid to the tax office.
Why IMPORTER is important?
It is crucial to note that only the IMPORTER can deduct the import consumption tax at the time of tax filing. (= Deduct above (1) from (2) )
If Company-A uses another company to act IMPORTER, then Company-A can’t do above (3). Company-A has to pay all the amount of (2) to a tax office.
However, if Company-A imports goods using the Attorney for Customs Procedure (ACP), it becomes the Importer and can deduct the import consumption tax when filing the JCT tax return. In this case, Company-A only needs to pay the difference between the JCT collected from customers and the import JCT (2) – (1) paid to the Tax Office.
Appoint a tax accounting firm as Tax Representative / Tax Agent
Apart from utilizing ACP, when filing taxes in Japan (3), Company-A must appoint a Tax Representative. The Tax Representative will handle JCT tax registration and JCT filings with the tax office on behalf of the non-resident entity. SK Advisory can introduce our partner tax accounting company that can act as the Tax Representative.
Determination of JCT obligation (Taxable / Exempt)
Japan has an exempt system for new business entities.
In principle, whether a company is considered a JCT-Taxable company is determined based on the amount of JCT taxable sales during the base period, which typically refers to the fiscal year two years prior to the current fiscal year.
|JCT taxable sales in the Base Period||JCT taxable sales in the Specified Period||Taxable Entity or Exempt Entity|
|Qualified JCT Invoice Issuer (Registered JCT Invoice System)
|Over 10 million JPY||–||Taxable Entity|
|Equivalent or less than 10 million JPY||Over 10 million JPY||Taxable Entity|
|Equivalent or less than 10 million JPY||Exempt Entity|
(*1) The base period generally means the fiscal year 2 years prior to the current fiscal year.
(*2) The specified period generally means the first 6 months of the previous fiscal year.
(Note) Regardless of whether or not a company is a JCT-Taxable company, the company (Importer of products) has to pay import JCT to Japan Customs office when the company imports a product.
Please refer to the Tax Authority’s guideline (page3), you can see what is “BASE PERIOD”. general_00.pdf (nta.go.jp)
Also check this website (No.6 Taxable Person): Basic knowledge｜National Tax Agency (nta.go.jp)
If you’re an Exempted entity
During the exempt term, a new entity is not required to file tax returns. As long as your entity has exempt status, you are only required to:
(1) Pay 10% tax of the import customs value when you import goods.
(2) Collect 10% of the sales price when you sell goods.
That’s all. You can enjoy the difference amount 2) – 1).
Can Tax-Exempt Businesses Receive Refunds?
Yes, it’s possible, but a final tax return (step 3) is necessary. Even if you’re an exempt business, you are still able to opt to submit a “Taxable Business Selection Notification” to the tax office, intentionally becoming a taxable business to file a final tax return and receive a refund for the paid import JCT. This is applicable only if the JCT paid at import (step 1) exceeds the provisional JCT collected (step 2). Note that using an ACP (Attorney for Customs Procedures) to act as the importer is essential for input tax deduction and refunds.
Japanese New Invoice System
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.
Is It Better to Become a Registered Invoice Issuer?
This depends on individual circumstances, but generally speaking, for B2B where customers are corporations, it’s better to be a Registered Invoice Issuer (as corporations file JCT returns and need qualified invoices for input tax deductions). For B2C where customers are primarily consumers, the necessity is somewhat reduced (as most consumers do not file JCT returns).
Many companies seem to become Registered Invoice Issuer without fully understanding the system. Being a registered business mandates the filing of a final tax return (step 3). Please seek advice from appropriate experts.
Is Support from a Certified Tax Accountant Necessary?
For non-residents conducting tax office procedures (step 3) in Japan, appointing a Tax Representative is required. The ACP handles customs procedures, while the Tax Representative deals with national tax (tax office) matters. Under the Certified Tax Accountant Act, the following tasks are exclusively performed by the Certified Tax Accountants, making their support essential:
- Preparation of tax documents
- Tax representation
- Tax consultation
Our company, in partnership with Certified Tax Accountants skilled in international taxation, will provide support in these areas.
Japanese Customs System Reform (Obligatory Use of ACP for Foreign Sellers)
Effective from October 1, 2023, the Japanese Customs authorities have implemented a significant reform in response to increasing instances where foreign sellers incorrectly designate third parties (like forwarders or customs agents) as importers.
This revision mandates foreign entities to comply with new regulations, which include the compulsory utilization of an Attorney for Customs Procedures (ACP). Under this new framework, it is expressly forbidden for foreign sellers to appoint another Japanese service provider in the role of Importer of Record (IOR).
For additional information, please refer to the following resources:
- Japan Customs: Leaflet(English) Revision of Import Declaration Items and Attorney for Customs Procedure (ACP) System
- English: Announcement from Japan Customs | Directive to use ACP – Attorney for Customs Procedure
*We are pleased to announce that our ACP/IOR services can support the importation of various regulated items, including those under the Food Sanitation Act (such as food products, tableware, cooking utensils and kitchen tools).
Our ACP Service: The Best Solution for the Japan Importer of Record (IOR)
Attorney for Customs Procedures (ACP) is the best solution for addressing the issue of Japan IOR – Importer of Record. Below is an outline of our primary services and a diagram illustrating the operational structure of the ACP service. Upon successful ACP registration, a foreign entity can become the Japan IOR – Importer of Record.
Basic Scope of Services:
- Consultation with the Japan Customs Office for successful ACP registration.
- Liaising with stakeholders, including Logistics Forwarding Companies and the Customs Offices, on behalf of non-resident clients (i.e., non-resident Japan IOR) to ensure the secure importation of goods.
- Assistance in preparing the necessary documentation for import clearance.
- Support of calculation of Customs Value (Customs Valuation Formula), in accordance with appropriate compliance under the Japan Tariff Customs Law.
- Documents keeping, required under article 95 – Japan Customs Law
**Both import and export activities can benefit from the use of an ACP (Attorney for Customs Procedures). This support is applicable in scenarios where a non-resident acts as the Importer of Record (IOR) for imports and as the Exporter of Record (EOR) for exports.
Three Steps to Initiate Shipments Under the ACP Program: :
- Quotation Review to Contract Conclusion: Upon receiving your contact details, we will promptly provide a quotation for your review.
- Commencing the Registration of ACP (Attorney for Customs Procedure) to Japan Customs: This process is generally completed in about two weeks.
- Initiation of First Shipment, Import/Export
Our Customers – Japan IOR / Attorney for Customs Procedures (ACP) Service
All our clients have successfully become Japan Importer of Record (IOR) and imported goods into Japan under our guidance.
Logistics Companies with Collaboration Experience
Here is a list of our partner logistics and forwarding companies with whom we have had successful collaborations. Please note that this list is not exhaustive, as we are open to working with any logistics or forwarding companies. As Attorneys for Customs Procedures (ACP), we represent non-resident clients (IOR) and coordinate with these logistics companies, who manage the transportation of goods to and from Japan.
Why choose us?
- Customs and International Trade Professionals – Our CEO, Mr. Sawada, is a Certified Customs Specialist in Japan. With years of experience providing services in the Trade & Customs field, his leadership at KPMG and the establishment of his own company, SK Advisory, ensures our commitment to excellence and high-quality service.
- Full Adherence to Japanese Customs Law – Our top priority is to maintain full compliance with Japanese Customs Law and safely import / export our clients’ goods into / from Japan. We meticulously manage all import compliance aspects, including Japan Importer of Record (IOR) matter, HS code classification and the correct Customs Valuation of goods entering Japan. We support to complete all the necessary shipping documents, such as Invoice, Packing List and BL, on behald of non-resident / foreign Japan IOR.
- Communication in English, Chinese, and Japanese – Our team, with extensive international experience, excels in communication in English, including facilitating English-language meetings, and has earned considerable trust from clients. We also have staff capable of communicating in Chinese, making us equipped to handle Chinese-language support as well. Naturally, as a Japan-based team, we’re totally fluent in Japanese, ensuring seamless communication across these three key languages.
- Reputable and Reliable Partner -The growing demand for our Attorney for Customs Procedures (ACP) services is testament to our quality. We proudly serve clients globally, registering over 50 ACP customers annually. Our consistent track record underscores our reliability and credibility. For a detailed list of our clientele, please visit our “Experiences” section. Our unwavering commitment ensures all our clients successfully acquire Japan IOR status and import goods seamlessly into Japan.
- Recognized ACP Service Provider on Amazon SPN SPN (Service Provider Network) – We are a certified ACP service provider within Amazon’s Service Provider Network (SPN), listed under the Trade Compliance category. Many international Amazon Sellers have successfully become Japan Importers of Record (IOR) through our ACP services.
Limitations of Using ACP for Specific Goods by Foreign Japan IOR
It’s important to note that ACP may not be suitable for handling certain types of goods. Goods subject to specific regulations, such as the Act on Pharmaceuticals and Medical Devices (including cosmetic items), or PSE/PSC regulations, cannot be imported by appointing ACP. These regulations require importers to be Japanese resident entities.
When a non-resident entity utilizes ACP for their imports, they essentially become the importer. Therefore, for products that fall under the aforementioned regulations, ACP cannot be appointed for importation. To ensure compliance and avoid any restrictions on importing goods, we prioritize checking the eligibility of goods in the first step.
***With our Japanese ACP (Attorney for Customs Procedures) / IOR (Importer of Record) service, we can also support the importation of some other regulated items into Japan (e.g., Food Sanitation Law (food products, tableware, kitchenware, cooking utensils, etc.)).
How to determine the Import Declaration Value?
Primary determination method
The process of determining the Import Declaration Value of imported goods is known as “Customs Valuation.” In most cases, when an import is based on an “Import Transaction”※1 between an overseas seller and a buyer in Japan, the primary determination method can be utilized.
※1：An “Import transaction” refers to a transaction where a buyer in Japan engages in a sales transaction with an overseas seller for the purpose of shipping goods to Japan, and the goods subsequently arrive in Japan.
Under the primary determination method, the Customs value of the imported goods is determined as the transaction price paid by the buyer (CIF basis).
Customs Duty is calculated by multiplying the Customs Value (Transaction Value) by the Duty Rate, which varies depending on the HS code of the goods.
Consumption Tax, on the other hand, is calculated by multiplying the Customs Value plus Customs Duty by the Consumption Tax rate (currently 10%).
Exceptional determination method (e.g. when to use ACP)
In cases where a non-resident company imports goods into Japan without engaging in a sales transaction, the primary method cannot be utilized. Simply using an Invoice Value is not appropriate.
To calculate the Customs Value in such situations, it is necessary to apply the Exceptional Determination Method.
Within the exceptional determination method, several methods can be considered:
- Transaction Value of Identical or Similar Goods Method: If you have previously imported goods that possess identical or similar conditions to the goods in question, the transaction value of those goods can be used.
- Domestic Selling Price Method (Deductive Method): If you can identify the sales price (can be an estimated sales price), the domestic selling price method can be employed.
- Cost of Production Method (Cost plus Method): If the exporter is a manufacturer and can provide production costs, the production cost method may be applicable.
If none of the above methods are suitable, “Other methods” are utilized as a flexible determination method, taking into account the calculation methods mentioned earlier.
In the practical scene, most of the cases we use this “Other methods” which is a determination method in a flexible way through considering the previously mentioned calculation methods.
Avoiding Customs Valuation Problems
In recent times, there have been numerous instances of trouble arising from incorrect Customs Value settings.
In the worst-case scenario, goods may fail to clear customs, resulting in significant detention fees and eventual return shipment.
At SK Advisory, we specialize in establishing appropriate Customs Values. We can assist in conducting consultations with Japan Customs on behalf of our clients, effectively avoiding any potential issues down the line.
For Amazon’s FBA business, there is a recommended calculation formula for the declaration value. If you would like to learn more about it, please don’t hesitate to contact us!
We’re a reliable ACP service provider for Amazon FBA’s seller
In recent, we’ve been supporting many import projects of goods related to the Amazon-FBA program. If you are looking for a reliable ACP service provider, please let us know.
Guidance by Amazon
According to the seller central website in Amazon, there is guidance by Amazon that a non-resident entity needs to appoint an ACP or IOR. You may check on this “Non-resident requirements”. Also, you can check the document developed by Amazon “Understand ACP and IOR guidance”. —–