Simplified Consumption Tax Scheme: Filing Deadline Is Approaching

This week’s topic is important for sole proprietors in Japan, and it is also relevant for small corporations.

If you plan to apply the Simplified Consumption Tax Scheme starting January next year, you must submit the required notification by December 31 of this year.　Missing this deadline may result in a higher consumption tax burden.

What is the Simplified Consumption Tax Scheme?

The Simplified Consumption Tax Scheme is available to businesses whose taxable sales in the base period are JPY 50 million or less.

Instead of calculating actual input consumption tax, businesses apply a deemed purchase ratio (40%–90%) based on their business category. This method can significantly reduce administrative work and, in some cases, overall tax payable.

Why the deadline matters

To use the simplified scheme, the Notification of Election for the Simplified Consumption Tax Scheme must be filed no later than the day before the first day of the applicable tax year.

For sole proprietors, this means December 31 for application starting the following January.

If the filing is missed, the business must use the general taxation method, which may result in a higher tax payment. In practice, such oversights have caused serious tax cost issues.

Special transitional rules

Due to the introduction of the Invoice System, limited transitional rules apply.

For example, businesses switching from the 20% special measure, or businesses registering as invoice issuers during a tax year, may still apply the simplified scheme within the same tax period if the notification is properly filed.

These are exceptional cases and require careful confirmation.

Once elected, it continues

Once the Simplified Consumption Tax Scheme is chosen, it remains in effect until a Notice of Discontinuation is filed.

In addition, there is a mandatory two-year minimum application period, meaning businesses generally cannot cancel the scheme for at least two years.

Key takeaway: If you are a sole proprietor — or a small business owner — considering the Simplified Consumption Tax Scheme for next year, review your situation now and file by December 31.

For detailed rules and classifications, please refer to guidance from the National Tax Agency of Japan or consult your tax advisor.