Consumption Tax Refunds for a Japan Subsidiary That Bills HQ

A consumption tax refund in Japan is the cash a taxable business gets back when the input tax on its purchases exceeds the output tax on its sales. A Japan subsidiary whose main customer is its foreign parent is often in this position: its services to the parent are usually zero-rated, while it pays the 10% standard rate under the Consumption Tax Act on rent and local suppliers.

The wider regime is set out in our guide to Japan consumption tax for a foreign-owned subsidiary.

Key Takeaways

• Zero rating has exceptions. Meals, lodging and storage of goods in Japan stay taxable even when the parent pays.
• A parent with a Japan branch changes the answer. Services to it are treated as supplied through the branch unless two conditions show the branch is not involved.
• Exempt status means no refund. Only taxable businesses can recover excess input tax.
• Simplified taxation cannot produce a refund. Its deemed credit is a share of output tax, which is zero on zero-rated sales.
• Refunds can be held for review. The tax office may pause an export-driven refund and ask for contracts, invoices and evidence of payment.

Why a Subsidiary That Bills HQ Ends Up in a Refund Position

Zero-rated sales to the parent carry no output tax, while rent and local services carry tax, so the input tax comes back as a refund each year.

Take a support subsidiary that bills its parent JPY 200 million a year for market research and sales support, all zero-rated. Its tax-exclusive costs are JPY 120 million of salaries, JPY 36 million of office rent and JPY 24 million of local services. Salaries are not taxable purchases under Article 2 of the Consumption Tax Act, so only the JPY 60 million of rent and services carries tax.

At 10%, that is JPY 6 million of input tax against zero output tax, refunded under Article 52 of the Act. The refund therefore belongs in the subsidiary's cash forecast and its yen budget.

The full credit test

Zero-rated sales count as taxable sales in the taxable sales ratio (課税売上割合, kazei uriage wariai), according to NTA Taxation Answer No. 6405 (FY2026), so this subsidiary's ratio is 100%. With taxable sales of JPY 500 million or less and a ratio of 95% or more, all input tax is creditable (NTA Taxation Answer No. 6401, FY2026). Above JPY 500 million, the individual or proportional method applies, though a ratio near 100% keeps the credit close to full.

Conditions for Zero Rating Services Sold to the Parent

A service to a non-resident parent is zero-rated unless it is consumed in Japan or delivered through the parent's own Japan branch or office.

Services to a non-resident fall under the export exemption (輸出免税, yushutsu menzei) in Article 7 of the Act and Article 17 of its Cabinet Order. NTA Taxation Answer No. 6567 on services to non-residents (FY2026) lists the exceptions below. HQ's own charges into Japan are covered in reverse charge on intercompany HQ charges.

Service the subsidiary sells to the parent	Treatment	What decides it
Market research, reports and sales support	Zero-rated	The parent receives the service outside Japan
Software development or R&D work	Zero-rated	The benefit does not end in Japan
Hotels and meals in Japan for visiting HQ staff, recharged	Taxable at 10%	Meals and lodging in Japan are excluded (NTA No. 6567)
Storing or transporting parent-owned demo stock in Japan	Taxable at 10%	Transport and storage of assets in Japan are excluded (NTA No. 6567)
Managing or repairing the parent's real estate in Japan	Taxable at 10%	The benefit is received directly in Japan (NTA No. 6567)
Agency for leasing or buying Japanese real estate	Taxable at 10%	Agency for Japanese real estate is excluded for supplies on or after 1 October 2026, except under contracts signed by 31 March 2026 (NTA No. 6567)

When the parent has a Japan branch

The NTA's consumption tax Q&A on services to a non-resident with an office in Japan (2025) accepts the export exemption only where two conditions are met: (1) the service is supplied directly to the head office abroad and the Japan branch is not directly or indirectly involved; and (2) the branch's business is neither the same as nor related to the service. A group with both a branch and a subsidiary in Japan needs that position documented before the first invoice.

Only a Taxable Business Can Claim the Refund

An exempt business cannot recover input tax even when it exceeds output tax, so the subsidiary must be taxable in the year it claims.

NTA Taxation Answer No. 6613 (FY2026) limits refunds to taxable businesses, including those that elected to be taxable.

Routes to taxable status

A company is taxable for a year when taxable sales exceed JPY 10 million in its base period, normally the business year two years earlier, or in its specified period, normally the first six months of the prior year (NTA Taxation Answer No. 6501, FY2026). Zero-rated sales count toward this test (Act Arts. 7 and 9), so a support subsidiary billing its parent JPY 200 million a year of zero-rated services is taxable from its second year under the specified-period test, provided its first business year ran longer than seven months, without any election.

Many subsidiaries of large groups are taxable from incorporation under the capital and group size tests in why a new subsidiary of a large group is not exempt in its first two years. Qualified invoice issuer registration also keeps a company taxable while it stays registered.

The general method is a condition too

Under simplified taxation (簡易課税, kan'i kazei), Article 37 of the Act computes deemed input tax as a percentage of output tax. With zero-rated sales, output tax is zero, so the deemed credit is zero and no refund can arise.

Elections and Deadlines That Decide the Refund

Most elections must be filed by the day before the period they cover and lock in for two years, so the refund position must be settled before the period begins.

None of these deadlines moves to the next business day when it falls on a weekend or holiday (NTA Taxation Answer No. 6501, FY2026).

Filing	Effect on the refund	Deadline	Minimum period
Election to be a taxable business (消費税課税事業者選択届出書, shohizei kazei jigyosha sentaku todokedesho)	Lets an exempt company claim	During the prior period, or during the first period of business	2 years; 3 years from the start of the year of purchase if an asset of JPY 1 million or more is bought in those years under the general method (NTA No. 6501)
Withdrawal of the taxable election	Ends taxable status if the company would otherwise be exempt	Not before the period containing the date two years after the election took effect	None
Simplified taxation election	Blocks any refund	Day before the period starts; in the first period, during it	2 years; only where base-period taxable sales are JPY 50 million or less (NTA No. 6505)
Withdrawal of simplified taxation (消費税簡易課税制度選択不適用届出書, shohizei kan'i kazei seido sentaku fu-tekiyo todokedesho)	Restores the general method so a refund can arise	Day before the period it is to apply from	Cannot be filed until 2 years after the simplified election took effect
Short tax period election (消費税課税期間特例選択・変更届出書, shohizei kazei kikan tokurei sentaku henko todokedesho)	Brings refunds forward with shorter periods	Day before the first short period; in the first period of business, during it	2 years

Documents the Refund Return Relies On

A refund return under the general method must attach a refund statement, and the tax office can ask for the contracts and invoices behind it.

The refund statement (消費税の還付申告に関する明細書, shohizei no kanpu shinkoku ni kansuru meisaisho) is required by Article 22(3) of the Consumption Tax Ordinance (NTA Taxation Answer No. 6615, FY2026). The NTA's instructions for the corporate refund statement ask for the main reason for the refund, the main export transactions with the bank used, and fixed assets of JPY 1 million or more per item.

For services to a non-resident, the export exemption needs a contract or other document recording both parties' names and addresses, the date, the service and the consideration (Consumption Tax Ordinance Art. 5), kept for 7 years at the place of tax payment (NTA Taxation Answer No. 6551, FY2026).

Document in the refund file	What it shows the tax office	Rule behind it
Intercompany service agreement	The non-resident customer, the services and the pricing basis	Ordinance Art. 5
Invoices addressed to the parent's head office abroad	Each zero-rated sale, its date and amount	Ordinance Art. 5
Bank records of the parent's payments	That the payments were made	NTA leaflet on consumption tax refund returns
Qualified invoices and ledgers for local purchases	The input tax claimed	NTA Taxation Answer No. 6498
Contracts and invoices for fit-out and equipment	The timing and amount of large purchases	NTA leaflet on consumption tax refund returns

Purchases from unregistered suppliers earn only a partial credit, as set out in input tax credit after October 2026. The intercompany agreement often already exists for corporate tax, as described in intercompany management fees and service agreements. In the books, use separate tax codes for zero-rated sales, taxable recharges of Japan costs and creditable purchases, and book the expected refund as a receivable.

When the Refund Arrives

The tax office pays after reviewing the return, so a refund arrives later than the filing date and a hold for evidence pushes it back further.

An Article 45 return is due within two months of the period end; a subsidiary whose only sales are zero-rated and that owes no tax files a refund return under Article 46 instead, on the timetable in consumption tax filing and payment deadlines. In a leaflet on its handling of consumption tax refund returns, the NTA says it may hold a refund, ask for evidence and carry out a tax examination. Holds last longer when counterparties cannot be reached, payments are hard to confirm or export records are not kept properly.

Shorter periods bring the cash forward

Under the short period election, each period has its own return (NTA Taxation Answer No. 6601, FY2026), so refunds come back several times a year, at the cost of more returns.

Interest on the refund

Interest on refunds (還付加算金, kanpu kasankin) accrues under Article 52 of the Act: for a refund return under Article 46, from the later of two months after the period end and the end of the month the return is filed; for an Article 45 return filed on time, from the day after the deadline.

FAQ

Is a consumption tax refund taxable income in Japan?

Under tax-exclusive accounting, the refund settles a receivable and does not affect taxable income. Under tax-inclusive accounting, it is miscellaneous income in the year the return is filed, or the year it is booked as a receivable (NTA Taxation Answer No. 6901, FY2026).

Can the tax office use the refund to pay other taxes the subsidiary owes?

Yes. Under Article 57 of the Act on General Rules for National Taxes (国税通則法, kokuzei tsusoku ho), a refund can be applied to other unpaid national taxes before any balance is paid out. Refund interest stops on the date the refund became eligible for that offset (Consumption Tax Act Art. 52).

Does a subsidiary in a refund position make interim consumption tax payments?

Interim payments are set by the national consumption tax payable on the prior year's return. A subsidiary that was in a refund position last year had no tax payable, so it has no statutory interim payments this year.

Working with AQ Partners. Our Tokyo team provides annual tax filings, including the consumption tax refund return, monthly bookkeeping and customer invoicing administration for foreign companies operating in Japan. Book a consultation to discuss your situation.