The invoice system (the qualified invoice retention method) began in October 2023, and for tax-exempt businesses with sales of ¥10 million or less, "whether or not to register" became a real dilemma. The key to the decision is whether your customers are taxable businesses or general consumers. From October 1, 2026, the share of the tax that can be credited on purchases from tax-exempt businesses falls from 80% to 70%. The 20% special provision also ends with the taxable period that includes September 30, 2026, and a new 30% special provision has been established for sole proprietors for the 2027 and 2028 years. This article organizes the decision criteria, the calculation of consumption tax, the latest schedule of transitional measures, and how to cancel your registration, with concrete examples.
Key points of the invoice system
The amount of consumption tax to pay is calculated as "consumption tax received on sales − consumption tax paid on purchases (the purchase tax credit)." From October 2023, to receive this purchase tax credit you must, in principle, retain a qualified invoice. Only a qualified invoice issuer registered with the tax office can issue an invoice[NTA — Overview of the invoice system (in Japanese)].
A tax-exempt business with sales of ¥10 million or less that has no consumption tax payment obligation cannot issue an invoice as it stands. To issue one, registration is required, and once you register, an obligation to file and pay consumption tax arises. This is the biggest point in the decision.
What happens to the other party if you don't register? (80% falls to 70% in October 2026)
People often mistakenly think, "If they buy from a tax-exempt business, the other party can't take any credit at all," but in fact there are transitional measures, and they shrink in stages. The FY2026 tax reform extended these measures by two years and rebuilt the creditable share into 70%, 50% and 30% steps[NTA — FY2026 tax reform special page (in Japanese)].
| Date the taxable purchase was made | Credit for purchases from tax-exempt businesses, etc. |
|---|---|
| October 2023 – September 2026 | 80% of the equivalent consumption tax paid |
| October 2026 – September 2028 | 70% of the equivalent consumption tax paid |
| October 2028 – September 2030 | 50% of the equivalent consumption tax paid |
| October 2030 – September 2031 | 30% of the equivalent consumption tax paid |
| October 2031 onward | Cannot be credited (the full amount becomes an increased burden on the other party) |
Source: NTA, Q&A on the qualified invoice retention method, Question 113 (revised April 2026)[NTA — Q&A Q113 (in Japanese)]
In other words, the increased burden on the ordering side is limited to a part for now, and grows larger year by year. This is the background to the pressure to negotiate a "please register."
The share is judged by the timing of the taxable purchase you want to apply it to. Where services are provided, the date of the taxable purchase is, in principle, the day all of those services were completed. For example, if work received from September 21 was completed on October 20 and you paid on October 31, the share is 70%[NTA — Q&A Q113-3 (in Japanese)]. The ordering side also has to change the "80% creditable" note in its books to "70% creditable" for purchases from October onward.
If total taxable purchases (tax included) from a single counterparty exceed ¥100 million in the year or fiscal year, the transitional measure cannot be applied to the part above that. It was lowered from ¥1 billion before the reform and applies from taxable periods beginning on or after October 1, 2026[NTA — FY2026 tax reform special page (in Japanese)]. Small outsourcing is unaffected, but a company paying large sums to tax-exempt businesses needs to total it per counterparty.
A one-sided reduction in payment or termination of business on the grounds that someone is a tax-exempt business may become a problem under the Antimonopoly Act (abuse of a superior bargaining position) or the Subcontract Act. The Japan Fair Trade Commission has shown its view[Japan Fair Trade Commission (in Japanese)]. Registration is entirely voluntary and cannot be forced.
Should you register, or is it fine not to?
Worth considering registration
- Your customers are mostly taxable businesses (mainly BtoB)
- You have dealings with large companies or public offices
- Your sales are close to, or likely to exceed, ¥10 million
- An industry where the presence of registration affects whether you win orders
Often fine not to register
- Your customers are mainly general consumers (mainly BtoC)
- Your customers are also tax-exempt businesses or on the simplified taxation
- You have agreement to continue dealings while remaining unregistered
For hair salons, cooking classes, handmade sales, and licensed professionals' services to individuals, and the like, the customer is a general consumer, so no invoice is requested — in many cases there is little real harm in remaining unregistered.
Calculating consumption tax if you register (three methods)
Once you become a taxable business, you can choose the method of calculating consumption tax from the following three (with requirements).
- Principle taxation: consumption tax on sales − actual consumption tax on purchases. Advantageous for industries with many purchases, but bookkeeping and invoice management are required.
- Simplified taxation: consumption tax on sales × (1 − the deemed purchase rate). For taxable sales of ¥50 million or less in the base period, with a prior notification required.
- The 20% special provision: consumption tax on sales × 20%. A burden-easing measure for those who register from being tax-exempt (explained below; time-limited).
Deemed purchase rates under the simplified taxation (by industry)
Wholesale (Category 1)
90%
Retail (Category 2)
80%
Manufacturing, etc. (Category 3)
70%
Restaurants, etc. (Category 4)
60%
Services, etc. (Category 5)
50%
Real estate (Category 6)
40%
Simplified taxation (deemed 50%): ¥100,000 × (1 − 50%) = ¥50,000
The 20% special provision: ¥100,000 × 20% = ¥20,000
Schedule of transitional measures (the 20% special provision, the 30% special provision, and the small-amount special provision)
A small business that registered for an invoice from being a tax-exempt business can deduct 80% of the consumption tax on sales as a special credit, so the tax payment is 20% of the consumption tax on sales. It applies to each taxable period that includes a day from October 1, 2023 to September 30, 2026, and for sole proprietors the 2026 year (the filing done in 2027) is the last one. No prior notification is needed: you simply note on the return that you are applying it[NTA — Q&A Q114 (in Japanese)].
It was newly established in the FY2026 tax reform. Only sole proprietors can use it; corporations cannot. For the 2027 and 2028 taxable periods, 70% of the consumption tax on sales can be deducted as a special credit, so the tax payment is 30% of the consumption tax on sales. As with the 20% special provision, no prior notification is needed: you note on the return that you are applying it[NTA — Q&A Q114-2 (in Japanese)]. The conditions include taxable sales of ¥10 million or less in the base period (2025 for the 2027 year, 2026 for the 2028 year)[NTA — FY2026 tax reform special page (in Japanese)]. Note that from April 1, 2028, the consideration for transfers of specified small-value assets is excluded from the amount used in the calculation[NTA — Q&A Q114-2 (in Japanese)].
For a taxable purchase under ¥10,000 (tax included), you can take the purchase tax credit with only the retention of books, even without retaining an invoice. The period is October 1, 2023 – September 30, 2029. It targets businesses with taxable sales of ¥100 million or less in the base period (or ¥50 million or less in the specified period).
What to do once the 20% special provision ends?
The options are the simplified taxation or the principle taxation. Sole proprietors can also use the 30% special provision, but only for the 2027 and 2028 years. For industries with few purchases, such as services, the simplified taxation (effectively a 50% credit for Category 5) is often advantageous[NTA — No.6505 (in Japanese)]. The simplified taxation can only be used for taxable periods where taxable sales in the base period are ¥50 million or less, and once chosen it must in principle be kept for two years.
As a rule, the "notification of election of the simplified consumption taxation system" must be filed by the day before the taxable period you want to apply it to begins. However, if you move to the simplified taxation from the taxable period following one in which you used the 20% or 30% special provision, filing it by that period's final return deadline is in time[NTA — Q&A Q117 (in Japanese)]. For example, a sole proprietor who filed with the 20% special provision through the 2026 year and wants the simplified taxation from the 2027 year can file the notification stating "apply from the 2027 year" by the consumption tax return deadline for the 2027 year (March 31, 2028). For a sole proprietor, the consumption tax filing deadline is March 31, not the March 15 of income tax[NTA — D1-22 (in Japanese)].
If you want to cancel your registration: the deadline for the notification and the two-year lock
You can stop being registered for an invoice by filing the "notification requesting the cancellation of the registration of a qualified invoice issuer." The day the registration loses its effect, however, is decided by the day you file, and being one day late pushes that day a full year further out.
File by that day and the registration loses its effect on the first day of the following taxable period. Miss it, and it loses its effect on the first day of the period after next[NTA — D1-70 (in Japanese)].
| Who files | When it is filed | Day the registration loses effect |
|---|---|---|
| Sole proprietor (taxable period = calendar year) | By December 17 | January 1 of the next year |
| Sole proprietor (same) | December 18 or later | January 1 of the year after next |
| Corporation with a March year-end | By March 17 | April 1 of the same year |
| Corporation with a March year-end (same) | March 18 – March 31 | April 1 of the next year |
Source: NTA, Q&A on the qualified invoice retention method, Question 13, and the instructions for the cancellation notification[NTA — Instructions (in Japanese)]
Even if "the day 15 days before" falls on a Sunday, a public holiday, a Saturday, or December 29–31, it is not carried over to the next day[NTA — Q&A Q13 (in Japanese)]. It is safer to file before the year-end break. It goes to the operations center for your place of tax payment, and can also be filed with the e-Tax software[NTA — D1-70 (in Japanese)].
If a tax-exempt business registered using the "transitional measure on registration" (other than those who registered in the taxable period that includes October 1, 2023), then even after cancelling the registration it cannot become a tax-exempt business, regardless of taxable sales in the base period, up to the taxable period that includes the day two years after the registration date[NTA — Q&A Q13 (in Japanese)]. For example, a sole proprietor who registered on April 1, 2024, filed the cancellation notification on December 1, 2025, and stopped being registered on January 1, 2026, still has to file consumption tax as a taxable business for the 2026 year[NTA — Q&A Q13-2 (in Japanese)].
If you previously became a taxable business by filing the "notification of election of taxable status for consumption tax," you remain a taxable business even after the registration loses its effect. To return to tax-exempt status you must separately file the "notification of discontinuance of election of taxable status for consumption tax" by the day before the first day of the period you want it for[NTA — Q&A Q13 (in Japanese)]. That notification cannot be filed before the first day of the taxable period that includes the day two years after the first day of the taxable period in which you became a taxable business[NTA — D1-5 (in Japanese)].
If the business has closed, if a sole proprietor has died, or if a corporation has disappeared through a merger, the "notification of discontinuance of business" and similar filings are enough — the cancellation notification is not needed[NTA — Leaflet (in Japanese)]. You can also register again after cancelling, but the application must state the desired registration date and be filed at least 15 days before that date, and a fresh two-year period in which you cannot be tax-exempt starts from the new registration date[NTA — Q&A Q13-2 (in Japanese)].
On the National Tax Agency's public site for qualified invoice issuers, searching by the 13 digits of the registration number (excluding the leading letter) shows the name, the registration date, and also the date of cancellation or lapse of the registration[NTA — Public site (in Japanese)]. This is where to check whether a counterparty is still registered.
FAQ
If my customers are only individuals, do I not need to register?
General consumers do not need an invoice, so if you are mainly BtoC, the impact of remaining unregistered is often small. Judge by whether taxable businesses are included among your customers.
Do I always have to pay consumption tax once I register?
Yes. Once you register, you become a taxable business and an obligation to file and pay consumption tax arises. You can choose the tax payment from the principle taxation, the simplified taxation, or the 20% special provision (time-limited).
Until when is the 20% special provision? And after it ends?
Up to the taxable period that includes September 30, 2026 (for sole proprietors, up to the filing for the 2026 year). After that, sole proprietors can use the 30% special provision for the 2027 and 2028 years (the tax payment is 30% of the consumption tax on sales, with no notification needed). Corporations move to the simplified or the principle taxation.
What changes for payments to tax-exempt businesses from October 2026?
The creditable share on purchases from tax-exempt businesses falls from 80% to 70%. The share is decided by the date of the taxable purchase, not the date of payment, and the "80% creditable" note in the books has to be changed to "70% creditable" from October.
How do I cancel my invoice registration, and by when?
File the "notification requesting the cancellation of the registration" by the day 15 days before the first day of the taxable period from which you want to stop. For sole proprietors that is December 17 (it does not move for weekends or holidays), and the registration lapses on January 1 of the next year. Miss it and the lapse is January 1 of the year after next.
What if I'm asked for a price cut on the grounds that I'm unregistered?
A one-sided price reduction or termination of business may become a problem under the Antimonopoly Act or the Subcontract Act. Check the Japan Fair Trade Commission's view, and consider using a consultation desk if necessary. Registration is entirely voluntary.
Summary
Reference links (sources)
This article is written based on the materials of the following public bodies (neutral, primary sources). Transitional measures and special provisions are subject to reform, so always confirm the latest content with the National Tax Agency.
- National Tax Agency — Overview of the invoice system (the qualified invoice retention method) (in Japanese)
- National Tax Agency — Overview of the 20% special provision (a burden-easing measure for small businesses) (in Japanese)
- National Tax Agency — No.6501 Exemption from the tax payment obligation (in Japanese)
- National Tax Agency — No.6505 The simplified taxation system (in Japanese)
- National Tax Agency — Invoice system: FY2026 tax reform special page (in Japanese)
- National Tax Agency — Q&A on the qualified invoice retention method (Q13, Q113, Q114, Q114-2, Q117) (in Japanese)
- National Tax Agency — The 20% special provision special page (in Japanese)
- National Tax Agency — D1-70 Notification requesting cancellation of the registration of a qualified invoice issuer (in Japanese)
- National Tax Agency — D1-22 Notification of election of the simplified consumption taxation system (in Japanese)
- National Tax Agency — D1-5 Notification of discontinuance of election of taxable status for consumption tax (in Japanese)
- National Tax Agency — Public site for qualified invoice issuers (in Japanese)
- Japan Fair Trade Commission — Views on the invoice system and the Antimonopoly Act, etc. (in Japanese)
* This article is general information, not tax advice. For whether registration is necessary or the choice of taxation method, please consult a tax office or a tax accountant.
