Input Tax Credit Rule for Non-Invoice Suppliers Will Change

Japan will gradually reduce the temporary consumption tax credit for purchases from:

• non-invoice businesses, or

• tax-exempt suppliers.

This is part of the transition rules under the Invoice System.

What will change?

Currently, businesses can still claim:

• 80% of the input tax credit for these purchases.

However:

• From October 2026 → reduced to 70%

• Later, it will decrease further:

  • 50%

  • then 30%

  • finally 0%

Why this matters

If your company buys goods or services from:

• freelancers,

• small businesses,

• or suppliers without invoices,

your available tax credit will gradually decrease.

👉 This may increase your actual consumption tax cost.

Important point for companies

Even after the reform:

• the corporate tax accounting treatment will generally remain the same.

However, companies using the tax-exclusive accounting method should prepare early for:

• lower deductible amounts,

• and accounting system adjustments.

For foreign business owners

If you run a business in Japan:

• check whether your suppliers issue invoices,

• review future tax costs,

• and prepare before October 2026.

This issue may become more important as the credit percentage decreases over time.

Key takeaway

The temporary tax credit for purchases from non-invoice suppliers will gradually shrink.

Businesses should review:

• suppliers,

• accounting methods,

• and future tax planning early.