Japan Lawmakers To Cut Cross-Border B2B Tax

Japanese lawmakers are making headway in amendments to the nation’s eCommerce tax laws, and the most recent developments could bring good news for the B2B sector in particular.

According to a report by DLA Piper’s Makiko Kawamura in JD Supra Business Advisor, published Friday (May 22), officials are looking to amend the Consumption Tax Act, which taxes nearly every import of foreign goods and domestic transaction. Digital commerce transactions originating from companies outside of Japan, however, have not been subject to this tax, leading domestic eCommerce players to argue that they face a competitive disadvantage.

Lawmakers are looking to amend the Act that would impose taxes on eCommerce services that are provided in Japan but stem from outside the nation. Reports said that the motion was passed by the National Diet and the legislation will come into effect on Oct. 1 of this year.

The impact of the legislative change is far-reaching, but has unique implications for B2B eCommerce. B2B eCommerce transactions will not include a tax imposed on the service provider, reports said, and instead the buyer will have to pay the consumption tax to the National Tax Agency. Business buyers will be able to obtain a tax credit for the fee, however.

For eCommerce service providers based outside of Japan, the law will require them to collect a tax from the Japanese consumer to be paid to the NTA.

According to reports, eCommerce businesses will now need to register as an offshore service provider by July. Companies will need to register as either a B2B or a B2B and B2C firm. B2B companies are defined based on the nature of the services providers, reports said, with a clear business buyer involved in the transaction. The legislation is similar to rules used by the European Union, which differentiates between B2B and B2B and B2C eCommerce transactions.

The new rules are likely to impact cross-border trade in the nation and could encourage more B2B online commerce, especially as experts anticipate the rise in B2B technology in a nation known for its innovative startups and high-tech markets.