Consumption Tax Accounting in Japan for Group Reporting

Consumption tax accounting in Japan is how a company records the consumption tax (消費税, shohizei) it charges on sales and pays on purchases, and how those balances turn into the annual return and the figures HQ sees. A taxable Japan subsidiary chooses between a tax-exclusive and a tax-inclusive bookkeeping method, pays interim instalments once the prior year's national tax exceeds JPY 480,000, and closes each fiscal year against the filed return. For a group reporting under IFRS, the tax-exclusive method keeps the tax out of revenue and cost, so the Japan ledger maps directly onto the group VAT line. Our guide to Japan consumption tax for a foreign-owned subsidiary shows where Japan departs from the group VAT template.

Key Takeaways

• Book tax-exclusive: both methods give the same tax due, but only tax-exclusive keeps the tax out of revenue and cost.
• Last year's tax sets this year's instalments: the prior year's national tax decides whether the subsidiary pays zero, one, three or 11 instalments.
• The year-end balance is usually an estimate: the group close runs before the return is finished, so report the true-up as a named adjustment.
• Some input tax never becomes a receivable: the disallowed share on unregistered suppliers goes straight to cost, and tax made non-creditable by the taxable sales ratio goes to cost or a deferred asset.
• The return is the anchor: the filed return is the legal figure; tie the group VAT line to it through named reconciling items.

Tax-Exclusive and Tax-Inclusive Accounting in the Japan Ledger

A taxable subsidiary may book either way; tax-exclusive holds output and input tax in two balance sheet accounts, tax received and tax paid.

Under the tax-exclusive method (税抜経理方式, zeinuki keiri hoshiki), output tax is credited to a consumption tax received account (仮受消費税等, kariuke shohizei-to) and input tax is debited to a consumption tax paid account (仮払消費税等, karibarai shohizei-to), so sales and costs are recorded net. Under the tax-inclusive method (税込経理方式, zeikomi keiri hoshiki), the tax sits inside revenue, cost and asset values. According to NTA Tax Answer No. 6375 (2026), a taxable business may choose either method for corporate tax, while an exempt business must compute its taxable income on the tax-inclusive basis.

Point	Tax-exclusive method	Tax-inclusive method
Tax due for the year	Clears the two accounts	Expensed as taxes and dues when the return is filed, or when accrued through an expense entry (NTA Tax Answer No. 6901, 2026)
Refund	Settles a receivable	Miscellaneous income when the return is filed or the receivable is booked (NTA Tax Answer No. 6901, 2026)
Fixed asset cost and depreciation base	Net of creditable tax	Includes the tax, so the depreciation base is higher
Revenue and cost presentation	Net of tax	Gross, including tax (NTA Tax Answer No. 6375, 2026)
Year-end payable or refund account	未払消費税等 (mibarai shohizei-to) or 未収消費税等 (mishu shohizei-to), in the fiscal year that contains the tax period	未払金 (mibaraikin) or 未収入金 (mishu nyukin), where the amount is accrued through an entry before filing (NTA Tax Answer No. 6901, 2026)
Booking some groups of items this way	Required for sales before any mixing is allowed	Allowed for inventory, fixed and deferred assets, or expenses, if sales are booked tax-exclusive (NTA Tax Answer No. 6913, 2026)

Where items are booked tax-inclusive, the gap between the tax accounts and the tax due goes into that year's taxable income (NTA Tax Answer No. 6913, 2026).

Journal Entries Through the Year

Under tax-exclusive accounting, consumption tax runs through tax received, tax paid and interim tax paid, which net to one year-end balance.

The table follows a services subsidiary that sells to Japanese customers and to its parent.

Event	Debit	Credit	Note for the group pack
Sale to a Japanese customer at the 10% statutory rate	Receivable, gross	Revenue, net; tax received	Net amount only
Export of services to the parent (where the service qualifies as an export)	Receivable	Revenue; no tax	Own tax code, because zero-rated sales count in the taxable sales ratio
Purchase from a registered supplier at 10%	Expense or asset, net; tax paid	Payable, gross	Credit depends on holding the qualified invoice the law requires
Purchase from an unregistered supplier	Expense or asset, net plus the non-creditable share; tax paid at the transitional share	Payable, gross	Cost, not a receivable
Online service from HQ under reverse charge	Tax paid	Tax received	No cash moves; reported only on a general-method return with a taxable sales ratio below 95% (NTA Tax Answer No. 6118, 2026)
Interim instalment	Interim tax paid (prepayment)	Cash	Never expensed
Year-end close	Tax received	Tax paid; interim tax paid; payable (or a debit to receivable)	The net is the figure that ties to the return
Payment with the final return	Payable	Cash	Settles the payable

For purchases from an unregistered supplier from 1 October 2026, 70% of the tax-equivalent may be credited (NTA 2026 tax reform page); on a JPY 110,000 tax-inclusive purchase, JPY 7,000 goes to tax paid and JPY 103,000 to cost. Keep the supplier records that input tax credit after October 2026 lists, and book HQ's online services with the entry shown in consumption tax on intercompany charges from HQ.

Where the return computes output tax from totals by rate (割戻し計算, warimodoshi keisan) and the ledger accumulates the tax on each invoice (積上げ計算, tsumiage keisan), both allowed under NTA Tax Answer No. 6383 (2026), netting the two tax accounts leaves a small rounding residual, cleared to miscellaneous income or loss at the close.

Interim Payments: How the Prior Year's Tax Sets the Schedule

NTA rules tie interim payments to the national tax on the prior year's return: none up to JPY 480,000, then one, three or 11 instalments a year.

Over JPY 480,000 up to JPY 4 million: one interim return (中間申告, chukan shinkoku) at 6/12; over JPY 4 million up to JPY 48 million: three at 3/12; over JPY 48 million: 11 at 1/12, with voluntary interim filing available below JPY 480,000 (NTA Tax Answer No. 6609, 2026).

Local consumption tax is added to each instalment, and each return and payment is generally due within two months after its interim period ends; plan the dates from the calendar of consumption tax filing and payment deadlines in Japan.

Filing on a provisional closing instead

A company may calculate an interim on actual figures for the interim period, a provisional closing (仮決算, kari kessan), instead of using the prior year's tax. A negative result does not produce a refund, and a company that misses the interim deadline is treated as having filed on the prior-year basis. The option helps when sales have fallen sharply or heavy capital spending has pushed input tax up.

What the schedule means for the cash forecast

A first fiscal year has no prior return, so no instalments. NTA Tax Answer No. 6609 changes the calculation where the prior period was shorter than 12 months, so rebuild year two's instalments after a short first fiscal year from the actual return, and refresh the treasury forecast in the yen budget for the subsidiary each time a final return is filed.

The Year-End Payable or Receivable

At year-end, tax received less tax paid and interim instalments nets to one balance: a payable due with the return, or a refund receivable.

The final return is due within two months after the end of the tax period. Under NTA Tax Answer No. 6610 (2026), a company that already has the corporate tax filing extension can add one month by filing a notification by the fiscal year-end, but it then pays interest tax (利子税, rishizei) for the extended period.

Where the group pack closed on an estimate, show the difference from the filed return as a named adjustment in the next monthly pack, not inside other payables. A subsidiary that bills mainly its parent often closes with a receivable and claims it through the process for consumption tax refunds for a subsidiary that bills HQ.

Input tax that cannot be credited

Non-creditable consumption tax (控除対象外消費税額等, kojo taishogai shohizei gaku-to) arises under tax-exclusive accounting when the taxable sales ratio (課税売上割合, kazei uriage wariai) is below 95% or taxable sales exceed JPY 500 million. NTA Tax Answer No. 6921 (2026) lets the amount relating to assets be expensed in the year where the ratio is 80% or more, where it relates to inventory, or where it is under JPY 200,000 per asset. Otherwise it is held as a deferred asset (繰延消費税額等, kurinobe shohizei gaku-to) and deducted over 60 months, with half the normal amount in the year of acquisition. Amounts not relating to assets are deductible in full.

Under IFRS, the cost of an item of property, plant and equipment includes "non-refundable purchase taxes" (IAS 16, paragraph 16(a)), so non-creditable tax on a fixed asset belongs in that asset's cost in the group pack.

Reconciling the Return to the Group VAT Line

Start from the filed return, then name each item between it and the ledger; the group VAT balance should then tie to the yen.

Reconciling line	Supporting document	What a difference usually signals
National and local consumption tax for the year	Final return, or the estimate prepared for the close	Starting point; not a reconciling item
Less interim instalments paid	Interim returns and bank statements	An instalment expensed, or booked to the wrong period
Equals the amount due or refundable with the final return	Final return	Should equal the ledger payable or receivable after the lines below
Tax received balance before the close	General ledger	Zero-rated or out-of-scope sales coded as taxable, or the reverse
Tax paid balance before the close	General ledger and supplier master	Unregistered suppliers credited in full, or HQ charges coded as domestic purchases
Rounding residual cleared at the close	Closing journal	Residual larger than invoice-level rounding
Non-creditable tax in cost or deferred assets	Schedule of non-creditable amounts	Group capitalises an amount that Japan expensed, or the reverse
Difference from items booked tax-inclusive	Taxable income adjustment in the corporate tax return	Supplier invoices posted gross by the group system
Translation to the group currency	Consolidation workings	Exchange rate difference only; never a tax difference

Decide in the group chart of accounts whether the interim prepayment is reported inside the VAT line or as a separate prepaid tax, and keep that mapping fixed. Map the tax accounts alongside the rest of the Japanese chart of accounts, and carry them through the J-GAAP to US GAAP or IFRS reporting bridge.

Decisions to Settle Before the First Japan Close

Settle these five points before the first month-end close; they fix how the return and the group pack come out of the ledger.

1. The booking basis, and any groups of items booked tax-inclusive.
2. The tax code set, including the 8% reduced rate and non-taxable items.
3. Each supplier's registration number and registration date in the supplier master.
4. The group mapping, and whether the monthly pack carries an estimated payable.
5. The cash calendar: instalments, the final payment date and the extension.

Catch tax coding errors in the monthly review set out in what HQ should expect from monthly reporting on a Japan subsidiary.

FAQ

Does local consumption tax need a separate return in Japan?

No. Local consumption tax is reported on the same return as the national tax and paid to the tax office with it (NTA Tax Answer No. 6101, 2026).

What does 22/78 mean on a Japanese consumption tax interim calculation?

It is the ratio of local to national consumption tax. The local tax on an interim instalment is 22/78 of the national amount (NTA Tax Answer No. 6609, 2026).

Are interim consumption tax payments refunded if the final tax is lower?

Yes. Interim instalments are credited against the tax on the final return, and any excess is refunded once the final return is processed (NTA Tax Answer No. 6609, 2026).

Working with AQ Partners. Our Tokyo team provides accounting software setup, monthly bookkeeping and annual tax filings, including the consumption tax return for foreign companies operating in Japan. Book a consultation to review how your Japan subsidiary books and reports consumption tax.