**Newsletter #001** 2026 Tax Reform Series – Part 3: Consumption Tax

Simple tax updates for foreign business owners and residents in Japan.

This week, we look at important consumption tax changes included in Japan's 2026 Tax Reform proposals.

Some measures are already scheduled, while others are still under discussion.

1. Changes to the Transitional Input Tax Credit

Japan plans to gradually reduce the percentage of the input tax credit available for purchases from suppliers who are not registered as invoice issuers.

Businesses should review their suppliers and prepare for these scheduled reductions.

2. Changes to the Special Tax Payment Rule

The current 20% special tax payment rule for eligible small businesses is expected to change.

The proposed revision mainly affects sole proprietors, while the current temporary measure for corporations is scheduled to end.

Business owners should confirm which rules will apply to their business in future tax years.

3. Why This Matters

Consumption tax is one of the most complicated parts of Japan's tax system.

Foreign business owners should regularly review:

• whether they need to register for the invoice system,

• which consumption tax method is most beneficial,

• and whether recent tax law changes affect their business.

Professional advice can help avoid unexpected tax costs.

Key Takeaway

The 2026 Consumption Tax proposals continue Japan's transition to the full invoice system.

Understanding these changes early will help businesses prepare and avoid future compliance issues.