Japan Input Tax Credit: Supplier Invoices and the 70% Rule

Input tax credit (仕入税額控除, shiire zeigaku kojo) is how a Japan subsidiary recovers the consumption tax (消費税, shohizei) it pays on purchases: it deducts that tax from the tax it collects on sales and pays or reclaims the difference. Since Japan's qualified invoice system started on 1 October 2023, a full credit needs two things: books that record the purchase, and a qualified invoice (適格請求書, tekikaku seikyusho) from a registered supplier or a document the law treats the same way. Purchases from unregistered suppliers earn only a partial credit under a transitional measure (経過措置, keika sochi). That share fell from 80% to 70% on 1 October 2026 under the 2026 tax reform.

The tax as a whole is covered in our guide to Japan consumption tax for a foreign-owned subsidiary.

Key Takeaways

• Two records, not one: a full credit requires both a qualifying supplier document and a book entry, so a correct invoice with no matching ledger line still fails.
• 70% since 1 October 2026: the 2026 tax reform law cut the credit for purchases from unregistered suppliers to 70% of the tax-equivalent, then 50% two years later and 30% two years after that.
• A smaller cap per supplier: for tax periods beginning on or after 1 October 2026, transitional credit stops once purchases from one unregistered supplier pass JPY 100 million in the year.
• Some purchases need no invoice: by law, public transport fares under JPY 30,000, stamp-paid post dropped in a post box and employee travel costs earn a full credit on the books alone.
• The lost share is a cost: the tax that cannot be credited is added to the expense or asset value, so each step-down raises the subsidiary's cost base.

Supplier Documents That Support a Full Credit

A full credit needs the books plus a qualified invoice, a simplified invoice, a supplier-confirmed purchase statement, or the same data sent electronically.

The two-part condition comes from Consumption Tax Act Art. 30(7), and the list of qualifying documents from Art. 30(9); the NTA's 2026 Tax Answer No. 6498, Requirements for Input Tax Credit, summarises the requirement.

Each registered supplier's number is the letter T plus 13 digits, and it can be checked on the NTA's public register of invoice issuers. A valid invoice carries the same fields a subsidiary prints on its own sales invoices, listed in issuing qualified invoices to Japanese customers.

Document in the file	Supplier status	Credit from 1 October 2026	What to check
Qualified invoice	Registered	Full	T-number on the register at the purchase date; tax shown by rate
Simplified qualified invoice	Registered	Full	T-number, and either the tax amount or the rate
Purchase statement prepared by the subsidiary	Registered	Full	Evidence that the supplier confirmed it
Invoice data received electronically	Registered	Full	Data stored under the electronic record rules
Invoice with itemised details but no T-number	Unregistered	70% of the tax-equivalent	Transitional note in the ledger; running total against the cap
Invoice showing a T-number that is not on the NTA register	Treated as unregistered	70% at most	Supplier asked to confirm or correct its number

The Transitional Credit for Unregistered Suppliers After 1 October 2026

Purchases from unregistered suppliers made on or after 1 October 2026 earn a partial credit that steps down every two years and ends after five years.

Before the reform, the share was due to fall from 80% to 50% on 1 October 2026 for three years and then end. The 2026 tax reform extended the measure by two years and replaced that schedule with the steps below, according to the NTA's 2026 tax reform page for the invoice system. The worked figures assume a purchase of JPY 1,100,000 including a tax-equivalent of JPY 100,000 at the 10% standard rate.

Purchase date (unregistered supplier unless stated)	Share of the tax-equivalent credited	Credited on the example purchase (JPY)	Added to cost (JPY)
Any date, registered supplier with a qualified invoice	100%	100,000	0
1 Oct 2023 to 30 Sep 2026 (original law)	80%	80,000	20,000
First two years from 1 Oct 2026	70%	70,000	30,000
Third and fourth years from 1 Oct 2026	50%	50,000	50,000
Fifth year from 1 Oct 2026	30%	30,000	70,000
Five years after 1 Oct 2026 and later	None	0	100,000

The purchase date sets the share

The share follows the date of each purchase, not the subsidiary's fiscal year. A company with a March year-end therefore applies both 80% and 70% within the same tax period, split at 1 October 2026. The NTA's Consumption Tax Basic Circular 11-3-1, on the timing of a taxable purchase, treats a service as purchased when it is received, so a September service invoiced in October still takes 80%.

The JPY 100 million cap per supplier

Once tax-inclusive purchases from one unregistered supplier exceed JPY 100 million in a year or fiscal year, the excess gets no transitional credit, according to the NTA's 2026 Qualified Invoice System Q&A (Question 113). This cap applies to tax periods beginning on or after 1 October 2026; under the 2024 tax reform law, the cap is JPY 1 billion for tax periods beginning between 1 October 2024 and 30 September 2026. Unlike the share, the cap follows the tax period: a subsidiary with an April to March year keeps the earlier, higher cap until its fiscal year beginning 1 April 2027. The cap matters where a single unregistered counterparty supplies a large share of spend, such as an individual who owns the office building.

What the Books Must Hold for the Transitional Credit

To claim the transitional credit, keep an invoice with the pre-2023 itemised details and mark each such purchase in the books as a transitional purchase.

The supplier's document must carry the same items as the itemised invoice (区分記載請求書, kubun kisai seikyusho) used from 2019 to 2023: the supplier's name, the date, a description with reduced-rate items marked, the total by tax rate and the buyer's name. The ledger must record the supplier's name, the purchase date, the description and the amount paid, and state that the purchase falls under the transitional measure. According to the same NTA Q&A (Question 113), a note such as "transitional credit" on each entry, or a symbol explained in the ledger's legend, is enough.

Common mistakes start in the supplier master, not the invoices: a vendor record with no field for registration status, so every purchase is booked at full credit; a T-number that belongs to a related company rather than the invoicing entity; and full input tax booked monthly and corrected only in the annual return, which moves cost between periods in the group reporting.

Purchases That Need No Qualified Invoice

Where an invoice is impractical to obtain, the Consumption Tax Act allows a full credit on a ledger entry alone for a closed list of purchases.

The full list in the NTA's 2026 Tax Answer No. 6496, Keeping Books and Invoices for Input Tax Credit includes the categories below.

Purchase	Condition
Train, bus and ferry fares	Public transport, under JPY 30,000 tax-inclusive per fare
Admission tickets	Ticket carries the simplified invoice details except the date and is collected on entry
Vending machine and automatic service machine purchases	Under JPY 30,000 tax-inclusive
Postal services paid only with stamps	Item posted in a post box
Travel costs paid to employees	Normal business travel, lodging, daily allowances and commuting allowances
Second-hand goods, pawned goods, buildings, specified metal scrap and recycled materials bought from unregistered sellers	Only where the buyer deals in them and they are its inventory

Employee travel costs qualify only where the subsidiary pays the employee; a hotel booked and paid directly by the company needs the hotel's invoice.

The small-amount rule under JPY 10,000

The small-amount rule (少額特例, shogaku tokurei), introduced by the 2023 tax reform law, allows a full credit on the books alone for each transaction under JPY 10,000 tax-inclusive. The NTA's 2026 Tax Answer No. 6496 limits the rule to businesses with taxable sales of JPY 100 million or less in the base period (基準期間, kijun kikan) or JPY 50 million or less in the specified period (特定期間, tokutei kikan), and to purchases made in the six years from 1 October 2023.

Monthly Bookkeeping Checks for Supplier Invoices

Run five checks each month: registration status, tax code, purchase date, cumulative spend per unregistered supplier, and the invoice fields.

1. Registration status: every new vendor record holds a T-number or an "unregistered" flag before the first payment, and existing records are rechecked against the NTA register at least once a year.
2. Tax code per purchase: each purchase line carries one of full credit, transitional credit, books-only category, small-amount rule, non-taxable or out of scope, so the return can be built from the codes.
3. Purchase date against the schedule: each transitional purchase coded at the share in force on its purchase date, not the invoice or payment date.
4. Cumulative spend per unregistered supplier: a running tax-inclusive total for the fiscal year, flagged well before it reaches the cap.
5. Invoice fields: a sample of supplier invoices is checked for the T-number, tax by rate and the subsidiary's correct legal name, and wrong invoices are sent back for reissue or covered by a confirmed purchase statement.

The registration flag and the transitional tax codes have to be set up in the qualified invoice settings in your accounting software before the first month is booked. These checks belong in the month-end close in Japan on a group calendar, alongside the rest of monthly bookkeeping and tax compliance in Japan.

Effect on the Subsidiary's Cost Base

Under tax-exclusive accounting, the tax that cannot be credited is added to the asset's cost: JPY 300,000 on a JPY 11 million purchase from an unregistered supplier made after 1 October 2026.

With tax-exclusive accounting (税抜経理方式, zeinuki keiri hoshiki), only the creditable share is recorded as input tax. The NTA's 2021 corporate tax FAQ on consumption tax accounting works through a depreciable store asset bought for JPY 11,000,000 from an unregistered supplier during the 80% period: JPY 800,000 is recorded as input tax and JPY 10,200,000 becomes the acquisition cost for depreciation. Applying the same NTA method at 70% gives JPY 700,000 of input tax and an acquisition cost of JPY 10,300,000.

The decisions are commercial: ask the supplier to register, renegotiate the price, change supplier, or accept the cost and budget it, starting from the supplier list sorted by unregistered spend. Any cost the subsidiary accepts then needs its own line when budgeting a Japan subsidiary in yen.

FAQ

Can the subsidiary claim input tax on an invoice from a foreign supplier that is not registered in Japan?

Foreign businesses face the same registration test, so a taxable supply in Japan from an unregistered foreign supplier earns only the transitional share. The exception is consumer-facing digital services (消費者向け電気通信利用役務の提供, shohisha-muke denki tsushin riyo ekimu no teikyo) from an unregistered foreign business, which get no credit at all, according to the NTA's Question and Answer on Consumption Tax (質疑応答事例, shitsugi oto jirei) on consumer-facing electronic services.

What happens when an unregistered supplier registers partway through the year?

Purchases from the supplier's registration date onward earn a full credit once a qualified invoice is received, while earlier purchases stay at the transitional share. Check the register for the effective date rather than relying on the date the supplier gave you.

Do HQ recharges to the Japan subsidiary fall under the 70% rule?

Usually not. The place-of-supply rule in Consumption Tax Act Art. 4(3) treats services HQ performs abroad as supplied outside Japan, so they carry no Japanese consumption tax to credit. Online services from HQ can instead fall under the reverse charge described in intercompany service fees and reverse charge.

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 records supplier invoices.