Japan – Update on proposed legislation for Japanese consumption tax (JCT) on cross-border services

As previously reported, the Japanese government plans to tax the supply of electronic services by non-established service providers, as of 1 October 2015. The proposal is expected to pass through the legislation this spring.

According to the draft legislation the place of supply of electronic services will change from the origin principle (i.e. where the supplier is established) to the destination principle (i.e. to the place where the recipient is located).

The proposed services in scope are defined as “telecommunication online services”, which include the provision of digital online services performed via telecommunications and in particular: the distribution of e-books, music or advertisements. However the interpretation of the exact scope of services which will be subject to JCT is yet to be further defined in the implementing regulation and guidelines of the Japanese tax authorities. The draft of these documents are being prepared, but have not yet been published.

The B2B supplies of these services by a non-established service provider are proposed to be subject to JCT under the reverse charge mechanism by the recipient of the services. However, if the services are provided B2C, non-established service providers will become liable to register and account for JCT on their supplies, according to the proposal.

If the legislation is accepted the JCT registration will be open as of 1 July 2015 for non-established B2C e-services providers.

What does it mean for you?

Japan will likely become yet another country where non-established B2C e-services providers must take care of indirect taxes. It is therefore recommended to keep an eye out for the developments in this regard.