Japan Reverse Charge on Intercompany HQ Charges

Reverse charge in Japan is the rule under which a Japanese business, not the foreign supplier, reports and pays consumption tax on certain services bought from abroad. For a multinational's Japan subsidiary it matters when HQ recharges costs. Business-to-business electronic services from a foreign group company fall under reverse charge, but only when the subsidiary files on the general method and its taxable sales ratio for the period is below 95%, a transitional rule set out by the National Tax Agency (NTA). Most other HQ charges follow different rules. This checklist gives the consumption tax result for each HQ charge and sets out what the intercompany invoice and the Japan books must show.

Intercompany charges are one of the places where Japan consumption tax departs from group VAT policy for a foreign-owned subsidiary. A group template that treats every cross-border business service as reverse charged will put most HQ charges in the wrong box. Imports of goods and exports follow their own rules, set out in our post on consumption tax on cross-border transactions.

Key Takeaways

• Reverse charge is narrow. It covers electronic services and certain performer services supplied by foreign businesses, not cross-border business services in general.
• The 95% test is run every period. Run the 95% test for every taxable period; a one-off non-taxable sale can switch reverse charge on for that year.
• Finished work done abroad is out of scope. Month-end processing, an audit or software that HQ completes abroad carries no Japanese tax even when sent by email; ongoing advice by phone or email is an electronic service.
• Secondee recharges are salary. A salary burden charge paid between HQ and the subsidiary creates no consumption tax on either side.
• Royalties depend on the right. A trademark or patent registered only in Japan makes the royalty a domestic taxable supply by HQ, which then needs a qualified invoice for full credit.

Sorting HQ Charges into Four Consumption Tax Results

Each HQ charge leads to one of four results: reverse charge, out of scope, salary with no tax, or a domestic taxable supply by HQ. The sourcing rule, not the invoice label, decides which.

Under Article 4(3) of the Consumption Tax Act (e-Gov law text), a service is sourced to where it is performed, while an electronic service is sourced to the recipient's address or head office. The National Tax Agency's Tax Answer No. 6210 (laws as of 1 April 2026) adds that where a service is performed both in and outside Japan and the fees are not reasonably separated, the location of the provider's office decides.

HQ charge	Why	Japan consumption tax result	Subsidiary's input credit
Group ERP, cloud platform or SaaS access	Business-to-business electronic service	Reverse charge on the payment amount (Article 28(2)) at the standard 10% rate, subject to the 95% test	Creditable under the apportionment method; books only
Software licence delivered by download	Business-to-business electronic service	Reverse charge at 10% of the payment, subject to the 95% test	Creditable under the apportionment method; books only
Ongoing advice by email, video call or online portal	Business-to-business electronic service (NTA Basic Circular 5-8-3)	Reverse charge at 10% of the payment, subject to the 95% test	Creditable under the apportionment method; books only
Finished work by HQ staff abroad (month-end processing, audit, contract drafting), delivered as a result	Service performed outside Japan	Out of scope	Nothing to claim
Software built by HQ abroad, code sent online	Service performed outside Japan	Out of scope	Nothing to claim
HQ staff delivering training on site in Japan	Service performed in Japan	Domestic taxable supply by HQ; HQ owes the tax if it is registered or above the threshold	Qualified invoice from HQ
Salary recharge for a seconded employee	Salary burden charge	Treated as salary; no consumption tax	Nothing to claim
Royalty for copyright or know-how, not supplied online	Sourced to the licensor's address	Out of scope	Nothing to claim
Royalty for a trademark registered only in Japan	Sourced to Japan	Domestic taxable supply by HQ; HQ owes the tax if it is registered or above the threshold	Qualified invoice from HQ
Royalty for a trademark registered in Japan and abroad	Sourced to the licensor's address	Out of scope	Nothing to claim

Business-to-Business Electronic Services: When Reverse Charge Applies

An HQ electronic service is a specified taxable purchase: the subsidiary self-assesses 10% on the payment unless the 95% rule switches it off.

What counts as an electronic service from HQ

Article 2(1)(viii-3) of the Act defines electronic services (電気通信利用役務の提供, denki tsushin riyo ekimu no teikyo) as services provided over a telecommunications line, including supplying or licensing copyright works such as software. It excludes carrying other people's communications and services incidental to another supply, such as notifying its result. A service is business-to-business where its nature or the transaction terms normally limit recipients to businesses, which an intercompany service agreement does.

Since 1 October 2015, a KK or GK with its head office in Japan receives these services in Japan. The subsidiary's purchase is a specified taxable purchase (特定課税仕入れ, tokutei kazei shiire). Article 5(1) of the Act makes the recipient liable, and Article 28(2) sets the tax base at the payment amount, so HQ bills the net fee and adds no Japanese tax.

The 95% test, applied period by period

The taxable sales ratio (課税売上割合, kazei uriage wariai) is the share of the subsidiary's sales in the period that are taxable. Under the transitional rule described in the NTA's Tax Answer No. 6118 (laws as of 1 April 2026), a specified taxable purchase is treated as not having occurred where the subsidiary files on the general method with a ratio of 95% or more, or uses simplified taxation (簡易課税, kan'i kazei).

A year with a land sale or significant interest income can pull the ratio below 95%, and every electronic service bought from abroad that period must then be reverse charged. The test also differs from the full-credit rule: under Article 30(2), a subsidiary with taxable sales over ¥500 million cannot fully credit input tax even at 95%, but its reverse charge position still turns on the ratio alone. An exempt subsidiary files no return, although a new subsidiary of a large group usually cannot rely on the start-up exemption.

Worked example at an 80% ratio

A subsidiary on the general method has a taxable sales ratio of 80% and uses the proportional method (一括比例配分方式, ikkatsu hirei haibun hoshiki) under Article 30(2)(ii). HQ bills ¥10,000,000 for group ERP access. Output tax is ¥10,000,000 x 10% = ¥1,000,000. The creditable portion under Article 30 is ¥1,000,000 x 80% = ¥800,000, leaving a net cost of ¥200,000 for the period.

Services Performed Abroad Fall Outside Japanese Consumption Tax

Work HQ staff complete abroad is out of scope; only ongoing advice delivered online counts as an electronic service.

Because ordinary services are sourced to the place of performance, a monthly fee for group finance work done in HQ's own country is out of scope (不課税, fukazei). Under the incidental-supply exclusion in NTA Basic Circular 5-8-3, emailing a report or finished code is part of that service, not an electronic service, and no qualified invoice is needed.

The common error is a single shared-services fee that bundles platform access with advisory work done abroad. Pricing the elements as separate lines in the intercompany agreement lets each be classified, so only the electronic part is tested for reverse charge. Whether the fee is deductible for corporate tax depends on the intercompany service agreement and benefit test.

Seconded Staff Cost Recharges Are Treated as Salary

A recharge of a seconded employee's salary is treated as salary, so it carries no consumption tax for HQ or the Japan subsidiary, whichever side pays the employee.

The NTA's Tax Answer No. 6475 (laws as of 1 April 2026) covers three payment patterns: the home company pays and charges the host, the host pays and charges the home company, or each pays a share. In all three, the salary burden charge (給与負担金, kyuyo futankin) is treated as salary to the secondee.

Worker dispatch is different. Where the worker stays employed only by the dispatching company, the same NTA answer treats the fee as consideration for a service, taxable for both sides. A worker dispatched by HQ who works in Japan therefore makes the fee a domestic supply by HQ. The secondment agreement should match the facts, with the secondee working under the subsidiary's direction and the recharge covering salary cost.

Royalties and Licence Fees from HQ

Royalties follow where the right is located: copyright and know-how sit at the licensor's address, while patents and trademarks sit where they are registered.

Article 6(1) of the Order for Enforcement of the Consumption Tax Act sources patents, designs and trademarks to the registering authority, or to the licensor's address where the same right is registered in two or more countries. Copyright and special production techniques, which cover most know-how, go to the licensor's address. For a foreign HQ licensor, only a right registered solely in Japan, such as a Japanese-language version of the brand, makes the royalty a domestic taxable supply by HQ.

Checking the trademark register before the licence is signed settles which result applies. The subsidiary may also have to deduct Japanese withholding tax on the royalty payment before remitting it to HQ.

What the Intercompany Invoice and the Japan Books Must Show

HQ issues a reverse charge statement for electronic services, a qualified invoice for domestic supplies, and nothing Japanese otherwise.

Article 62 of the Act requires a foreign business supplying a business-to-business electronic service to state in advance that the recipient owes the consumption tax. Under Article 30(7) and (8), a specified taxable purchase needs only book entries for credit. For a domestic supply, the subsidiary needs a qualified invoice (適格請求書, tekikaku seikyusho) carrying HQ's registration number and the tax by rate; the full field list is in our post on qualified invoice requirements, and HQ's registration follows the steps in qualified invoice issuer registration.

Requirement	Reverse charge electronic service	Out-of-scope charge	Domestic taxable supply by HQ
Japanese tax on HQ's invoice	None; HQ bills the net fee	None	10%, shown by rate
Statement HQ must make	Article 62 advance statement	None	Qualified invoice fields
HQ registration number	Not needed	Not needed	Needed for full credit
Subsidiary's return	Output and input tax, subject to the 95% test	Nothing reported	Input tax claimed
Subsidiary's books	Counterparty, date, description, payment amount, note that it is a specified taxable purchase	Ordinary expense entry	Book entries plus the qualified invoice
If HQ is not registered	Not relevant	Not relevant	Transitional credit only: 70%, then 50%, then 30% of the tax

The NTA's FY2026 tax reform page on the invoice system sets the transitional credit for purchases from unregistered suppliers at 70% for two years from 1 October 2026, 50% for the next two years, and 30% for one year after that. For periods beginning on or after 1 October 2026, the NTA page adds, purchases from one unregistered supplier above ¥100 million a year get no transitional credit. Our post on consumption tax filing deadlines covers when the subsidiary's return and payments fall due.

FAQ

Does HQ need to register for Japanese consumption tax to charge its subsidiary?

Only when HQ makes a supply sourced to Japan. Reverse charge and out-of-scope charges create no Japanese filing for HQ. Whether HQ becomes a taxpayer depends on its Japanese taxable sales in the base period against the ¥10 million threshold, or on choosing to register.

What if HQ's invoice does not say reverse charge applies?

Article 5(1) places the tax on the recipient of a specified taxable purchase, and the display duty in Article 62 sits with the provider, so a missing statement does not move the liability. The fix is to add the statement to HQ's invoice template and intercompany agreement.

Does reverse charge apply to charges from a sister company rather than the parent?

Yes. The rule covers electronic services from any foreign business, so a regional hub or sister company abroad is treated the same way as the parent.

Does the platform taxation that started in April 2025 affect intercompany charges?

No. Platform taxation covers consumer-facing electronic services sold through digital platforms, and intercompany charges are business-to-business.

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