Japan Consumption Tax, 1 October 2026: What Changes and What to Do

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On 1 October 2026 the Japanese consumption tax system changes in a way that costs money to a specific group: small businesses that registered as qualified invoice issuers, have been paying a reduced amount ever since, and have not looked at the calendar recently. If that is you, you have about six weeks. This was written on 21 August 2026.

What follows comes from the National Tax Agency's material on the invoice system and its revision. Where the source does not settle something, this article says so rather than guessing. Era years are given with the western year alongside, because the official material uses them.

What changes on 1 October 2026

Four things move at once, in different directions, which is why the change is easy to misread.

The last two rows are the trap. Guidance published in 2023 quotes 1 billion yen and was correct when written. Repeat that figure about the position after October 2026 and you are a factor of ten out.

The two-tenths rule ends, and 2029 has nothing to do with it

The measure most small registered businesses have been living under covers taxable periods containing a day in the window that opened on 1 October 2023 (Reiwa 5) and closes on 30 September 2026 (Reiwa 8). That is all of it.

The commonest error in circulation attaches 30 September 2029 (Reiwa 11) to this measure. That date is real but belongs elsewhere. It is the end of the small-amount rule, under which purchases below 10,000 yen including tax can be deducted on the books alone, and the end of the concession that lets a tax-exempt business register as an invoice issuer part-way through a taxable period. Both run to 2029. This one does not. If you have built a plan on having three more years of it, the plan is wrong by three years.

One feature changes what your six weeks look like: the measure needs no advance filing. You elect it when you file the return. Convenient while it lasts, awkward at the end, because there is no form in your records with an expiry date on it. Nothing arrives to tell you. It simply stops.

The three-tenths rule, and who does not get it

The successor excludes companies. It is for sole proprietors, covering the 2027 and 2028 income years — Reiwa 9 and Reiwa 10 nenbun in the official material — and under it the amount payable becomes three-tenths of the consumption tax calculated on the taxable base amount.

That asymmetry decides what your six weeks contain. A sole proprietor has a soft landing. A company director has a hard stop, and must work out now whether general or simplified taxation is where the business lands from the next taxable period. Which is better depends on your actual margin structure, which is where the last section of this article becomes the operative part of the page.

Suppliers who never registered

If some of your suppliers are not qualified invoice issuers, you have been deducting 80 per cent of what the input tax would otherwise have been. From 1 October 2026 that becomes 70 per cent, then 50 per cent for purchases up to 30 September 2030, then 30 per cent to 30 September 2031, then nothing. It is a cost increase that arrives without any action on your part and without notification, proportional to how much of your purchasing sits with unregistered suppliers. If you have never measured that proportion, do it now.

Then there is the ceiling. The transitional deduction does not apply above an annual amount, and that amount drops from 1 billion yen to 100 million yen. For most readers that is theoretical, but a ten-fold reduction turns a rule you had correctly ignored into one you have to model.

The route into the simplified system

The simplified method is available where taxable sales in the base period are 50 million yen or less. Ordinarily the election must be filed by the day before the first day of the taxable period it is to apply to, except for the period in which you start the business, where you may file during that period. Once elected it binds you for two years.

Alongside the revision there is a transitional route in. Where you have applied the two-tenths or three-tenths rule to a taxable period, you may file the simplified taxation election by the filing deadline of the return for the following taxable period, and it applies from that following period. This runs from 30 September 2026 onwards. So the decision need not be made blind before the period starts; you can make it with the period's numbers in front of you. It also means your own filing deadline decides whether you still have the option.

The method replaces your actual input tax with a deemed proportion of your output tax, set by business category. The loose version of these categories that circulates in English is wrong in ways that cost money.

Note where services sit. A freelance translator, developer, designer or consultant is in the fifth category at 50 per cent, not the sixth at 40. Restaurants are fourth at 60. Forty per cent is real estate.

If you are an overseas business operator

This section does not appear in Japanese-language guidance written for Japanese owners, because it does not apply to them. Four rules single out overseas business operators, and all four make the position harder.

The first concerns the specified period test. If taxable sales in the specified period exceed 10 million yen you become a taxable person, and ordinarily you may substitute the amount of salaries and wages paid for the taxable sales figure in making that judgment. From 1 October 2024 (Reiwa 6), an overseas business operator may not use that substitution. Any statement that the specified period test can always be run on salaries instead is unqualified, and untrue of you.

The second bites hardest right now. An overseas business operator without a permanent establishment cannot use the two-tenths rule at all, for taxable periods beginning on or after 1 October 2024. Not a reduced version. None of it.

The third concerns newly established companies. A company with share capital of 10 million yen or more at the start of a fiscal year with no base period is a taxable person from its first period. Below that threshold, the specified newly established company rules can still catch you: they apply where more than 50 per cent of the issued shares or equivalent are held, directly or indirectly, by another person, and the relevant party's taxable sales for the period corresponding to the base period exceed 500 million yen. From 1 October 2024 a second limb was added, and it is the one that matters to a Japanese subsidiary of a foreign group: total revenue exceeding 5 billion yen, including revenue arising outside Japan.

The fourth is administrative. Registration as a qualified invoice issuer follows a separate application procedure for overseas business operators, under form number D1-65, so working through the ordinary domestic procedure loses weeks you do not have.

Whether you are a taxable person at all

The threshold test has two limbs and people remember only the first. The base period is the year before last for a sole proprietor and, as a general rule, the fiscal year before last for a company; taxable sales of 10 million yen or less there mean you are in principle exempt. The specified period is the first half of the previous year for a sole proprietor, and generally the six months from the start of the previous fiscal year for a company; taxable sales above 10 million yen there make you a taxable person whatever the base period said.

So the widely repeated idea that a company capitalised below 10 million yen is necessarily exempt for its first two periods is not safe. The specified period can catch you, the specified newly established company rules can catch you, and an overseas business operator without a permanent establishment loses the mitigation a domestic business would have. These capital decisions are made once and are painful to unwind; the sequence is in the article on setting up a company in Japan.

Electing to be a taxable person when you need not be is a separate matter. The election is filed by the day before the first day of the taxable period, or, for a newly started business, by the last day of that period. It locks you in: you cannot return to exempt status for two years.

Registration, and the number itself

A registration number is the letter T followed by your 13-digit corporate number if you have one, and T followed by a 13-digit number if you do not. Registration takes effect from the registration date, not the date you are notified. For a tax-exempt business there is a timing concession running from 1 October 2023 to 30 September 2029 (Reiwa 11): during a taxable period containing a day in that window you may state a desired registration date 15 days or more after the day you file, and you become registered, and a taxable person, from that date, with no separate election required. That is the second of the two things the 2029 date actually refers to. A newly started business files by the last day of the taxable period in which it began, stating that it wishes to be registered from the first day of that period.

What a qualified invoice has to contain

Six items. The name of the issuing business together with its registration number; the date of the transaction; the content of the transaction, including a statement where the item is subject to the reduced tax rate; the consideration separated by tax rate together with the applicable rate; the consumption tax amount separated by tax rate; and the name of the business receiving the document.

A simplified qualified invoice, the kind a shop or restaurant issues across a counter, has five: the recipient's name is not required, and the fifth item may be either the consumption tax amount or the applicable rate rather than both. On the receiving side, your books must record four things for a purchase: the counterparty's name, the date, the content of the goods or services, and the amount paid.

The small-amount rule, which survives to 2029

If taxable sales in your base period were 100 million yen or less, or taxable sales in your specified period were 50 million yen or less, then for purchases made between 1 October 2023 and 30 September 2029 you may take the input tax deduction on the books alone where the purchase is under 10,000 yen including tax. No qualified invoice needed. The revision does not touch this.

The judgment is made on a single transaction, tax included — not per item within a transaction, and not per monthly consolidated invoice. Three 9,000 yen purchases billed together on a 27,000 yen monthly statement are three transactions each under the threshold, not one over it.

The records themselves

Electronic transaction data must be kept electronically. When an invoice arrives as a PDF by email, printing it and filing the paper is not by itself compliance.

The requirements come in three parts: a measure against alteration, which may be a timestamp, a system retaining a record of corrections and deletions, or a written internal handling procedure; display and printing equipment available; and search functionality by date, amount and counterparty, by range, and by combinations of two or more of those. The search requirement falls away where sales in the base period relating to the assessment period were 50 million yen or less — the year before last for a sole proprietor, the fiscal year before last for a company — and you can comply with a request to download the data, or where you can produce printed output organised by transaction date and by counterparty.

There is also a relief measure, and its status is worth stating plainly because persistent misinformation says otherwise: it is permanent, not temporary. It applies to electronic transactions from 1 January 2024 onwards, requires that the district director of the tax office accepts there is a reasonable ground, and requires that you can comply with both a request to download the data and a request to present or submit printed documents. No advance notification is needed. It is a different measure from the time-limited forbearance that ran in 2022 and 2023.

A deadline that is widely misquoted

One correction matters to sole proprietors doing paperwork in the same six weeks. The notification of commencement of business must be submitted by the filing deadline for the income tax return for the year in which the relevant fact occurred; that is what the Income Tax Act provides and what the National Tax Agency says. The widely repeated "within one month of starting" does not match the current provision. The blue return approval application, though, is set separately and is much tighter: as a general rule 15 March of the year in question, or within two months of starting where the business began on or after 16 January. Note that drafting, because a business started between 1 and 15 January falls outside the two-month rule and back onto 15 March. Since that application is the one with teeth, filing both when you start remains sensible practice.

What to do with the six weeks

Establish first whether you have been using the two-tenths rule at all. Because it requires no advance filing, some people use it without having consciously chosen it and others believe they are using it when they are not, so look at how the last return was computed. Then work out which side of the sole proprietor and company line you are on, because that decides whether a successor exists for you. Then measure what proportion of your purchasing comes from unregistered suppliers, because that number decides whether the step from 80 to 70 per cent is a rounding error or a budget item.

Then write down two dates rather than remembering them: the filing deadline of the return for your next taxable period, which is the outside limit of the transitional route into the simplified method, and 30 September 2029, when the small-amount rule and the registration concession end.

And if your residence status is business manager, the immigration timetable is now running in parallel with its own dates and its own transitional period, set out in the article on the business manager status and the 2028 transitional measure. The two systems do not talk to each other, but the immigration side does look at whether tax obligations have been properly discharged.

Where an article stops and a tax accountant starts

Some of this is settled information a careful reader can act on: the names and deadlines of filings, the six invoice items, the deemed purchase rates. The following are not that kind of question, and if any describes your situation, the six weeks should include an appointment rather than more reading.

Capital structure at incorporation: the 10 million yen threshold, and being set up in a way where more than half the shares are held by someone else. Whether you have a permanent establishment and whether you are an overseas business operator — the most frequent point of difficulty for foreign-owned businesses here, and the one governing whether half the measures above are available to you at all. The choice of treatment across the October 2026 boundary: the sequence from two-tenths to three-tenths to simplified to general taxation, the timing of each filing, and the two-year lock-in. The selection and notification of the year-end translation method for foreign-currency assets, where the deadline is the filing deadline of the return for the fiscal year in which the asset was acquired, which for a new company means the first period and nothing later. Adjustment-target fixed assets and high-value specified assets after electing taxable status or the simplified method. Director remuneration design, including the two-month deadline attached to the notification of predetermined remuneration. Tax treaties, foreign tax credits, transfer pricing and the anti-tax-haven rules. The defence special corporation tax, a new levy. And whether a reasonable ground exists for the Electronic Books Preservation Act relief, which the district director determines rather than you.

Nine items, and the second and third of them apply to most people reading this page.

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