(With Illustrations) Do This by October! An Easy-to-Understand Guide to the Invoice System

Purpose of Introducing the Invoice System

The main purposes for introducing the invoice system are as follows:

Eliminating Tax Exemptions

Previously, tax-exempt businesses (sole proprietors and freelancers) with taxable sales of 10 million yen or less were not required to pay the consumption tax collected from consumers to the government. This is known as a tax exemption. However, with the introduction of the invoice system, tax-exempt businesses are now required to pay the appropriate amount of tax.

Preventing Confusion Between Reduced and Standard Tax Rates

Since October 1, 2019, a reduced tax rate of 8% has been applied to certain products such as daily necessities and food and beverages, while a standard consumption tax rate of 10% has been applied to others, leading to mixed rates on invoices. The invoices (qualified invoices) that began on October 1, 2023, include additional fields to accommodate these two tax rates, and the total consumption tax amount categorized by tax rate will be recorded.

What Is the Purchase Tax Credit?

The purchase tax credit is a system designed to prevent double taxation of consumption tax incurred during purchases within a taxable period. When paying consumption tax, the consumption tax amount on taxable purchases is deducted from the consumption tax amount on taxable sales. Once the invoice system begins, in principle, businesses cannot apply for the purchase tax credit unless they receive an invoice.

Registration Is Required to Receive Purchase Tax Credits

At the start of the invoice system, businesses must register to receive purchase tax credits (as an invoice-issuing business). First, you must obtain a registration application form, fill in the required information, and submit it to the competent tax office. The deadline for registration applications was originally March 31, 2023, but was changed to September 30, 2023.

Simply applying does not allow you to issue invoices; it takes about two months after submitting a paper application, or about three weeks for applications via e-Tax (the National Tax Agency's online system).
You can check the time required for notification on the National Tax Agency's website, "Qualified Invoice Issuer Site."

Requesting Invoices from Suppliers

If you receive an invoice from a supplier, you can apply for the purchase tax credit; if you do not, it will not be eligible for the credit. If you fail to receive an invoice, you will lose out on the consumption tax portion, so please be careful.

Disadvantages of the Invoice System

We will explain the disadvantages of the invoice system in detail.

Risk of Losing Business Partners

If you remain a tax-exempt business, you cannot issue qualified invoices under the invoice system. Consequently, since the ordering party will face increased consumption tax payments when dealing with suppliers who cannot issue qualified invoices, they may choose to switch to other suppliers. Therefore, tax-exempt businesses face the risk of losing business partners.

Increased Operational Burden and Administrative Effort

An increase in the workload for accounting staff is expected. Once the invoice system begins, traditional invoices can no longer be used, and businesses are required to issue invoices, retain copies, and fulfill the obligation to store qualified invoices.
With the introduction of invoices, because registration numbers and applicable tax rates (such as reduced tax rates) vary, invoices must be created for every transaction, increasing the administrative burden.
Additionally, we do not recommend using Excel for bookkeeping; we recommend utilizing accounting software to handle accounting processes.

Advantages of the Invoice System

Having discussed the disadvantages, we will now explain the advantages.

Eligibility for Tax Credits

By completing the aforementioned registration, businesses can receive purchase tax credits. Under the invoice system, even previous tax-exempt businesses are now required to pay appropriate taxes. Therefore, taxable businesses that make purchases from tax-exempt businesses will be able to receive deductions for the purchase tax amount.

Simplification of Operations Through Electronic Invoices

Electronic invoices refer to the digitization of required qualified invoices. As the demand for electronic invoices increases, the volume of data-based transactions will grow, significantly reducing transaction processing time.

Reduction of Storage and Management Costs

With electronic data, there is no need for physical storage space. While paper media carries the risk of loss or deterioration, electronic data can be stored in the cloud, allowing you to retrieve data whenever necessary. Furthermore, digitization can lead to cost reductions through personnel optimization and a decrease in consumables like paper.

Elimination of Data Tampering Risks

Electronic invoices are considered to offer improved security compared to paper-based qualified invoices. The Ministry of Internal Affairs and Communications is considering the introduction of electronic signatures (e-seals) that attach qualified invoice business information to electronic invoices, and further security enhancements are expected as adoption progresses.

Required Actions for the Invoice System

We summarize the specific actions required after the introduction of the invoice system.

Content Required in Books for Purchase Tax Credits

To receive purchase tax credits, simply receiving an invoice is not enough; the following items stipulated by law must be recorded:

1. Name of the supplier
2. Date of the transaction
3. Details of the transaction
4. Transaction amount (including the equivalent consumption tax amount)

Seven-Year Retention Period for Invoices (Qualified Invoices)

"Qualified Invoice Issuers" under the invoice system have an obligation to retain issued copies and electronic records. Both the issuing side and the receiving side are obligated to store all invoices for seven years. Retention is required for seven years starting from the day two months after the end of the taxable period in which the invoice was issued.

Invoices Under 30,000 Yen Also Require Retention

Provisions that previously exempted the retention of invoices for taxable purchases under 30,000 yen are scheduled to be abolished. Therefore, in principle, retention of qualified invoices is required even for amounts under 30,000 yen.

Summary

The benefits of implementing an invoice (qualified invoice) system include the ability to develop new business opportunities and streamline operations for electronic invoicing. Early registration preparation is essential for the upcoming invoice system. In particular, as there are many items to be filled out, care must be taken to avoid omissions or errors. Let us begin the necessary preparations now to ensure a smooth transition.

With uSonar's corporate data LBC, we can support the assignment of invoice registration numbers. Please check the following for detailed materials.