This is an English translation of our Japanese article. The Japanese version and Japan's National Tax Agency materials are authoritative. For decisions about your own filings, consult a tax office or a licensed tax accountant.
Last updated: 19 September 2026. Based on the National Tax Agency leaflet "Reiwa 8 Tax Reform and the Invoice System" (April 2026, revised May 2026) and the agency's Reiwa 8 tax reform pages. The amending law has already passed and applies from 1 October 2026.
Consumption tax paid to tax-exempt suppliers will be deductible at 70%, not 80%. That is milder than the 50% originally scheduled, but it is still an increase in what buyers owe. At the same time a new ceiling was introduced: where payments to a single non-registered supplier exceed 100 million yen in a year, the excess cannot use the transitional measure at all (the previous threshold was 1 billion yen). The people affected are those who purchase from tax-exempt or unregistered suppliers.
What changes: 80% deduction becomes 70%
Under Japan's invoice system, purchases from anyone who is not a registered invoice issuer — tax-exempt businesses, unregistered businesses, private individuals — are in principle not deductible as input tax. To soften the shift, a transitional measure lets buyers deduct a fixed share of the consumption tax they paid. From the start of the system until 30 September 2026 that share was 80%.
The Reiwa 8 (2026) tax reform extended the measure by two years and restructured the share into three steps: 70%, 50% and 30%. Under the previous rules the share would have dropped straight to 50% in October 2026 and ended in September 2029. The decline is now gentler, and the end date moves back two years.
| Period | Deductible share |
|---|---|
| 1 Oct 2023 – 30 Sep 2026 | 80% of the input tax equivalent |
| 1 Oct 2026 – 30 Sep 2028 | 70% of the input tax equivalent |
| 1 Oct 2028 – 30 Sep 2030 | 50% of the input tax equivalent |
| 1 Oct 2030 – 30 Sep 2031 | 30% of the input tax equivalent |
| From 1 Oct 2031 | No deduction |
The cut-off is the date the purchase was made. Because the rate changes mid-period, sole proprietors and December-closing companies will have both 80% and 70% purchases in the same year. Transactions up to 30 September use 80%; those from 1 October use 70%. Judge by the date goods were delivered or services received, not by the invoice date.
How much more you will pay
The burden falls on the buyer. What you pay the supplier does not change; what you owe the tax office does.
Example 1: outsourcing 110,000 yen a month (tax included) to a tax-exempt freelancer
Annual payment 1,320,000 yen → consumption tax equivalent 120,000 yen
At 80%: deductible 96,000 yen
At 70%: deductible 84,000 yen
Difference: 12,000 yen more tax per year
Example 2: a company paying 33 million yen a year (tax included) to tax-exempt suppliers
Consumption tax equivalent 3,000,000 yen
At 80% → 2,400,000 yen / At 70% → 2,100,000 yen
Difference: 300,000 yen more tax per year
(80% → 70%)
above which the measure stops
ends (after the two-year extension)
Purchases under 10,000 yen have their own exemption. Businesses with taxable sales of 100 million yen or less in the base period (or 50 million yen or less in the specified period) may deduct the full amount of any purchase under 10,000 yen including tax, with only a bookkeeping record and no invoice. The test applies per transaction, not per item. That exemption runs to 30 September 2029 and is unaffected by the change to 70%. Small businesses whose spending is mostly small items are therefore only lightly affected.
The new 100-million-yen ceiling
Where total purchases from a single non-registered supplier exceed 100 million yen in a year or fiscal year, the excess cannot use the transitional measure. The previous threshold was 1 billion yen, so the line has been lowered tenfold. It applies to taxable periods beginning on or after 1 October 2026 — for sole proprietors, from the 2027 calendar year.
The key word is "a single" supplier: the test is per counterparty. Companies that pay small sums to many tax-exempt suppliers will not reach it. These situations can:
- Rent paid to an individual landlord. Reaching 100 million yen takes a large property, but renting several sites from the same owner is aggregated.
- Large volumes of work concentrated on one sole trader. In construction, logistics or software development, a single contractor can exceed 100 million yen a year.
- Bulk purchases from unregistered companies. The measure covers anyone who is not a registered invoice issuer, not only tax-exempt businesses.
If you cross the line mid-year, only the excess falls outside the measure. Without a running total per supplier, you will be recalculating at the year-end close.
Bookkeeping: what changes in practice
To use the measure you must note it in your books and keep an invoice containing the items required under the old classified-invoice rules. Where you have been writing "subject to 80% deduction", entries from 1 October become "subject to 70% deduction".
1Check your accounting software
Major packages have a dedicated tax category for the transitional measure. Confirm with your vendor that it switches to 70% automatically by transaction date. If it does not and you keep posting as before, you will file having over-deducted.
2Review your suppliers' registration status
The National Tax Agency runs a public lookup for registration numbers. List the unregistered suppliers, sort by annual spend, and you have both your cost estimate and your 100-million-yen check in one table.
3Split invoices that straddle 30 September
Month-end invoices can mix September and October work. Post them at 80% and 70% by the date the purchase was made.
If you are the tax-exempt supplier being asked for a discount
A buyer in a superior bargaining position who unilaterally notifies a tax-exempt supplier of a price cut risks breaching the Antimonopoly Act (Japan Fair Trade Commission Q&A on the invoice system). Moreover, from 1 January 2026 the Subcontract Act was amended and renamed the Act on Optimising Transactions with Small and Medium-sized Subcontractors, making it a violation to set prices unilaterally without responding to a request to negotiate. Ignoring the request or repeatedly postponing talks counts as well as refusing outright.
In other words, a blanket "rates are down because it is now 70%" does not hold up. The buyer has to offer a discussion, and the supplier is entitled to ask for one. In practice the extra cost is about 10,000 yen per 1.1 million yen paid — roughly 0.9% — so demands beyond that have no basis. Background for tax-exempt businesses is in the invoice system and tax-exempt businesses.
Whether to register is a separate question. Sole proprietors can use the newly created 30% special measure for 2027 and 2028 (the 20% measure ends with the 2026 year). That comparison is covered in the end of the 20% special measure.
What to do today
- From the past year's payment records, pull out suppliers without an invoice registration number and total what you pay each of them.
- Multiply the consumption tax on that total by 10%. That is roughly your extra tax over the coming year.
- Check whether any single supplier is near 100 million yen a year. If so, you need per-supplier tracking from the first taxable period starting on or after 1 October 2026.
- Ask your accounting software vendor when and how the 70% tax category switches over.
Frequently asked questions
Does this matter if I file under the simplified method or the 20% special measure?
No. The simplified method and the 20% and 30% special measures calculate input tax mechanically from sales, so who you bought from is irrelevant. The 70% rule only affects businesses filing under the standard method.
Can I pay in advance before 30 September to keep the 80% rate?
Timing follows the date the purchase was made — when goods were delivered or services received. Paying early does not by itself create a purchase on that date. Do not shift paperwork into September without the underlying delivery actually happening.
Is the 100-million-yen ceiling tested across all tax-exempt suppliers combined?
No. It is tested per counterparty — each person or company that is not a registered invoice issuer. Payments to different tax-exempt suppliers are not added together. Where one supplier exceeds 100 million yen in the year or fiscal year, only the excess loses the measure, and this applies to taxable periods beginning on or after 1 October 2026.
When does the transitional measure end?
Under current law it ends on 30 September 2031, with no deduction from 1 October 2031. The Reiwa 8 reform already extended it by two years, with the share stepping down to 70% in October 2026, 50% in October 2028 and 30% in October 2030.
Sources
- National Tax Agency, Reiwa 8 tax reform pages on the invoice system
- National Tax Agency leaflet, "Reiwa 8 Tax Reform and the Invoice System" (April 2026, revised May 2026)
- National Tax Agency, outline of the small-amount exemption (under 10,000 yen, to 30 September 2029)
- Japan Fair Trade Commission, on the January 2026 renaming of the Subcontract Act
This article is general information based on materials published as of 19 September 2026. For your own filings, consult a tax office or a licensed tax accountant.
