What Are Japan’s VAT and Consumption Tax Rates?

Japan’s value-added tax, known officially as the Japanese Consumption Tax (JCT), is a broad tax applied to the majority of goods and services. It functions as an indirect tax, meaning businesses collect the tax from consumers at the point of sale and then remit it to the government. The JCT is levied on business transactions, including the transfer of goods, leasing of assets, and the provision of services within Japan. It also applies to goods imported into the country.

Japan’s Consumption Tax Rates

The Japanese Consumption Tax system operates with a dual-rate structure. The standard tax rate is 10 percent, which applies to most goods and services. This rate is a composite, including a 7.8 percent national tax and a 2.2 percent local consumption tax.

A reduced tax rate of 8 percent is applied to specific categories of essential goods. The primary items eligible for the 8 percent rate are food and beverages. However, this exclusion does not apply to alcoholic drinks or to food and drinks consumed on the premises of a restaurant or similar establishment, which are taxed at the standard 10 percent.

The distinction between the two rates creates specific scenarios. For instance, a meal purchased for takeaway from a restaurant is taxed at 8 percent, but if that same meal is eaten in the restaurant’s dining area, it is subject to the 10 percent rate. Another category subject to the reduced 8 percent rate is newspapers sold via subscription, provided they are published more than twice a week.

Exempt and Non-Taxable Transactions

Beyond the standard and reduced rates, certain transactions fall outside the scope of the Japanese Consumption Tax entirely. These are categorized as either “exempt” (hizei) or “non-taxable” (fukazei).

Exempt transactions are items that would normally be taxable but are excluded for specific policy reasons, often related to social welfare or the nature of the transaction. Common examples of exempt transactions include the sale or lease of land, the sale of securities and similar financial instruments, and certain services related to medical care, social welfare, and education.

Non-taxable transactions are fundamentally different as they do not involve the consumption of goods or services in a business context. Key examples include salaries and wages paid to employees. Other transactions in this category include donations, gifts, and certain insurance payments.

Tax-Free System for Visitors

Japan’s tax-free shopping program for international visitors is undergoing a reform. While visitors can currently receive an upfront exemption from consumption tax at the point of sale, this system is set to be replaced. To be eligible for tax-free shopping, a person must be a non-resident staying in Japan for less than six months on a “Temporary Visitor” visa. As of April 1, 2025, items shipped internationally from the store are not eligible for the tax exemption.

Effective November 1, 2026, Japan will transition to a post-purchase refund system. Under the new rules, visitors will pay the full price, including consumption tax, for their goods at the time of purchase. They can then claim a refund at the airport or other designated locations before their departure, after the goods have been verified by customs.

The new system will also simplify the rules for tax-free purchases. The current distinction between “general goods” and “consumables” is expected to be eliminated, along with the 500,000 JPY spending cap and special packaging requirements for consumable items.

Business Obligations and the Qualified Invoice System

Businesses operating in Japan face specific obligations regarding the collection and remittance of consumption tax. A domestic business is required to register as a consumption taxpayer if its taxable sales in the “base period,” which is the fiscal year two years prior, exceed ¥10 million. Once this threshold is met, the business must charge JCT on its sales and file periodic tax returns.

A development for businesses is the Japan Qualified Invoice System (JCT-QIS), which became effective in October 2023. Under this system, for a business to claim an input tax credit for the JCT it paid on its purchases, it must retain a “qualified invoice” from its supplier.

To issue a qualified invoice, a business must register with the tax office and receive a unique registration number. The qualified invoice itself has strict content requirements. It must include the supplier’s name and registration number, the date of the transaction, a description of the items sold, the price broken down by tax rate (8% and 10%), and the calculated consumption tax amount for each rate.