Tax Laws Related to Export Transactions

Section 1: General Remarks

A number of tax-related laws and regulations are relevant to export transactions, including the Consumption Tax Act, the Corporation Tax Act, customs-related laws and regulations of the exporting country, and tax treaties. 

Section 2: Consumption Tax

1 Tax Exemptions on Exporting goods

Under the Consumption Tax Act, consumption tax is levied on the sale of goods and services, etc. However, export transactions are exempt from tax and no consumption tax is levied.

However, in order to qualify for export tax exemption, documents proving the export (contracts, export licenses, and other related documents) must be kept for 7 years.

2 Refund of Consumption Tax paid at time of purchase of parts, etc. for making export products

Refunds are often available for the amount equivalent to consumption tax, etc., paid when entering a contract to purchase parts, etc., from other companies to make finished products.

In other words, the cost of goods, etc. purchased for export usually includes consumption tax, which means that the company has paid too much consumption tax. By filing a tax return, an exporting company can receive a refund of the amount of consumption tax it actually paid at the time of purchase.

Companies that receive refunds are likely to be more vulnerable to tax audits and inspections than those that do not, so careful preparation of taxation measures is advised.

3 Exemption from consumption tax when providing paid services to a foreign country

Exporting companies often receive orders for construction work in a foreign country to install exported equipment, online training, etc., or technology licensing contracts for the head office of a foreign company, etc. Such service contracts for construction work, licensing, etc. to foreign companies are also often exempt from export tax. (On the other hand, it may be subject to consumption tax and value-added tax in other countries where the installation work is performed.)

Section 3: Customs Laws and Regulations of the Destination Country

1 General Remarks

Although tariffs may be imposed in the destination country, there may be cases where reduction or exemption of tariffs is available through EPAs, etc., and it is useful to consider such cases.

2 Withholding Tax

When an exporting company enters into a contract with a foreign business partner (purchaser of goods) for technical licensing, provision of technology, training, etc. in connection with the export of goods, the payment of such contract may be subject to withholding tax in the country of the business partner.

With regard to withholding tax, if there is a tax treaty between Japan and the other country, there may be cases where a reduction or exemption of withholding tax can be obtained. However, in most cases, the notification must be made prior to tax payment, and even if the taxpayer notices the tax after the payment, the taxpayer will not be able to obtain a reduction or exemption. Therefore, in cases in which our firm is involved, we often make allowances in advance in the contracts.

3 Tariffs, Consumption Taxes, etc.

When an exporting company exports to a foreign business partner (purchaser of goods), it should be aware that the other country may impose customs duties, consumption taxes, liquor taxes, and other taxes.



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