Sole traders must compulsorily become a taxable enterprise if their turnover exceeds JPY 10 million in the base period two years earlier.
Once a taxable business, it is required to pay consumption tax regardless of the invoice system.
Of course, the special 20% rate is also not applicable.
We asked the tax office and the National Tax Agency what we need to submit.
Consumption taxation business operator notification procedure (for base period).
First, if your sales exceeded JPY 10 million in the base period two years ago, you need to submit a Consumption Taxation Business Entity Notification Form (for the base period).
Download the form from the National Tax Agency’s website, fill it in and send it to the tax office to become a taxable business operator.
https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/shohi/annai/1461_03.htm
There is a ‘Signature of tax accountant’ column, which should be filled in if you employ a tax accountant.
The second page of the downloaded document contains ‘Guidelines for the entry of information’, which you can read to find out how to fill in the form.
When will it be submitted?
After checking with the tax office and the National Tax Agency, we were told that the taxpayer should submit the form as soon as possible after realising that the sales exceeded the base period and the company became a taxable enterprise.
However, the tax office and the National Tax Agency were similarly of the opinion that since it is not specified when, even if it is late, it is OK as long as there is no delay in paying consumption tax.
Please check with the tax office where you pay your taxes.
Notification of ceasing to be a taxpayer of consumption tax.
This is the procedure to follow if you become a tax-exempt enterprise because your taxable turnover in the reference period is less than or equal to JPY 10 million.
Note that this is a different document if you have chosen to become a taxable enterprise yourself.
Download the form from the National Tax Agency’s website, fill in the form and send it to the tax office to become a tax-exempt business operator.
https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/shohi/annai/1461_05.htm
When will it be submitted?
This should also be submitted as soon as you find out that you will become a tax-exempt business.
Summary
I thought it was easy to complete the procedure with two documents for tax purposes. I wish it could be completed online.
The good thing is that if you go to the tax office, you can have a question and answer session on the phone with a person from the IRS, which I would encourage you to use. (Sometimes you need to make an appointment.)
In addition, “you will be a consumption tax business beyond the base period, and you will be a tax-exempt business in the following year and the year after that”
If you are a tax-exempt business operator, you should submit the consumption tax business operator notification procedure (for the base period) and the notification procedure to the effect that you are no longer a taxpayer for consumption tax at the same time when you file your tax return for the relevant business year.
By doing so, you can pay consumption tax for the relevant fiscal year and become a tax-exempt enterprise from the following year.
