Revisions to Japanese Consumption Tax Transitional Measures under the Qualified Invoice System

Under the FY2026 Tax Reform, Japanese Consumption Tax (JCT) rules on Transitional Measures for taxable purchases from non-registered suppliers have been amended. To ease the burden on buyers, the transitional period has been extended to 8 years with revised deduction ratios (introducing 70% and 30% deduction phases), while a stricter spending cap of JPY100 million (tax-inclusive) per non-registered supplier per taxable period has been enacted. This bulletin outlines these updated deduction schedules, reduced limits, compliance rules and key cut-off principles.

Overview of the Qualified Invoice System

Effective October 1, 2023, Japan implemented the Qualified Invoice System. Under this regime, taxable enterprises can generally only claim an input JCT credit (deducting JCT paid on taxable purchases from JCT collected on sales) if they retain a "Qualified Invoice" issued by a registered "Qualified Invoice Issuer" along with required general ledgers.

For taxable purchases from suppliers other than Qualified Invoice Issuers (such as consumers, tax-exempt businesses, or non-registered taxable businesses), no Qualified Invoice can be issued. Consequently, buyers are in principle ineligible to claim any input JCT credit on such purchases unless Transitional Measures apply.

Revised Transitional Deduction Ratios

To support smooth adaptation, temporary Transitional Measures allow buyers making taxable purchases from suppliers other than Qualified Invoice Issuers and claim a partial input JCT credit, provided specific book and invoice retention requirements are satisfied.

The period for these Transitional Measures spans a total of 8 years (from October 1, 2023, to September 30, 2031) following the recent extension. The updated phased deduction ratios under the Transitional Measures are as follows:

Revision of Annual Limit (Cap per Non-registered Supplier)

Under the Transitional Measures for input tax deduction, an annual limit (cap) is imposed on the aggregate amount of taxable purchases from a single non-registered supplier per taxable period. The rules regarding this cap are summarized below:

If total taxable purchases from a single supplier other than a Qualified Invoice Issuer exceed the applicable cap within a taxable period, the portion exceeding the threshold is completely ineligible for Transitional Measures (0% deduction).

Compliance and Retention Requirements: Books and Invoices

To qualify for the Transitional Measures (80%, 70%, 50% or 30% deduction) on taxable purchases from non-registered suppliers, buyers must fulfill both book and invoice retention requirements:

1)  General Ledger (Book) Retention Requirements

The general ledger entries for the transaction must contain standard required items plus an explicit statement indicating that the Transitional Measures apply:

1. Name of the supplier
2. Date of the taxable transaction
3. Description of transaction (including whether subject to reduced tax rate) and a statement indicating eligibility for transitional measures
4. Total amount paid for the taxable purchases

Note:

Buyers may directly note "80% deduction applies", "70% deduction applies", or "Taxable purchase from non-registered supplier under Transitional Measures" on individual ledger lines. Alternatively, symbols (e.g., "※" or "☆") may be used for eligible line items, provided a legend is clearly displayed on the ledger (e.g., "※ indicates Transitional Measures apply").

2)  Invoice Retention Requirements

Buyers must retain invoices containing information equivalent to "Classified Invoices":

1. Name of the issuer (the supplier)
2. Date of the taxable purchase
3. Description of the transaction (including an indication if reduced tax rates apply)
4. Total tax-inclusive amount grouped by tax rate
5. Name of the recipient (the buyer)

Note:

"Classified Invoice" (Kubun Kisai Seikyusho) refers to the invoice format required under the Japanese consumption tax system prior to the introduction of the Qualified Invoice system in October 2023. Unlike a Qualified Invoice, it requires tax rates to be classified (e.g., standard 10% vs. reduced 8%) but does not require a registration number or explicitly itemized tax amounts.

Cut-off Rules for Transactions Around October 1, 2026

Determining whether the 80% or 70% deduction ratio applies to taxable purchases from non-registered suppliers around October 1, 2026 depends on the actual date of the taxable purchase (i.e., date of service completion or asset delivery), regardless of invoice issuance dates or cash payment dates.

1)  Provision of Services

The taxable purchase date is defined as the date on which the agreed service is fully completed. 

Cut-off Rule:

If service completion occurs on or after October 1, 2026, the 70% deduction ratio applies.

Example: 

Services provided span September 21, 2026, to October 20, 2026. The service is fully completed on October 20, 2026, and payment is remitted on October 31, 2026. Since the completion date falls on October 20, 2026, the entire transaction is subject to the 70% deduction ratio.

2)  Purchase of Goods / Assets

The taxable purchase date is defined as the date on which goods and assets are delivered.

Cut-off Rule:

Goods delivered on or before September 30, 2026, qualify for the 80% deduction ratio. Goods delivered on or after October 1, 2026, fall under the 70% deduction ratio.

Example: 

Goods ordered from a supplier are delivered in separate shipments: 

• Deliveries up to September 30, 2026 -> 80% deduction ratio
• Deliveries on and after October 1, 2026 -> 70% deduction ratio

service

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