We are Murata Sogo Tax & Accounting Office, specializing in inheritance and international taxation, with an office in Miyakojima-ku, Osaka.
In this issue, we would like to explain some points to keep in mind regarding Japanese taxation when operating an IT business overseas.

We often receive consultations on cases where a company moves overseas or establishes a corporation overseas in order to avoid the Japanese tax burden.
Many of them are IT business people who are mainly engaged in Internet transactions and can do business from anywhere in the world.

In such cases, they are, of course, non-residents under the Income Tax Law and do not have to pay corporate tax unless they have domestic source income or PE.

(1) Consumption Tax Filing and Payment Obligations

The “provision of telecommunications services” by a foreign business operator (a sole proprietor or corporation operating abroad) is subject to the foreign business operator's obligation to file and pay consumption tax. In other words, if a business is conducted via the Internet to Japanese consumers anywhere in the world, the consumption tax will be imposed on the person who conducts the business.

(2) What is the Provision of Telecommunications Services?

The term “provision of telecommunication services” includes distribution of e-books, music, software, etc. via telecommunication lines, distribution of online advertisements, provision of cloud services, and consulting services via telephone, e-mail, etc.
*The provision of services that mediate the communication of others using telephones, telegraphs, or other communication facilities, i.e., telephone, fax, Internet connection, etc., which fall under the category of communication itself, are excluded.

3. When a Consumption Tax Return must be Filed

As a general rule, an enterprise whose taxable sales for the base period of the taxable year are 10 million yen or less is exempt from tax liability.
In this case, for example, in the case of a foreign business operator that only provides telecommunications user services, the taxable turnover is determined based on the turnover related to the “provision of telecommunications user services to consumers” made to the domestic market.

In other words, if sales to the domestic market exceed 10 million, it will be necessary to file and pay consumption tax in Japan.

Recently, we have been receiving an increasing number of tax consultations from expatriates, particularly those in the IT industry.
In particular, it is important to note that awareness of consumption tax is a point that can easily be omitted.
If you have any questions, please feel free to contact us using the “Contact Us” form.