What is refund of consumption tax in Japan.
In the case consumers purchase merchandise or service, they need to pay consumption tax. When they pay purchase price to seller of merchandise or service, they add money for consumption tax. Then, the seller pay the money for tax office.
For example, you operate convenience store and sell ice cream at 324 yen. Among 324 yen, 24 yen is money for consumption tax. (324/108×8. In the case consumption tax rate is 8%). On the other hand, when you have purchased the ice cream from wholesaler, you paid 108 yen to wholesaler. Among 108 yen, 8 yen is money for consumption tax. In this case, journal entry is as below.
Merchandise inventories 100 / cash 100
suspense paid consumption tax 8 / cash 8
Cash 300 / Sales 300
Cash 24 / Suspense receipt of consumption tax 24
So, 24-8=16 yen should be paid by you to tax office.
Moreover you have renovated your shop at 5.4 million yen ( amount of consumption tax is 400,000 yen).
repair cost 5 million yen / cash 5 million yen
suspense paid consumption tax 400,000 yen / cash 400,000 yen
In this case , 400,000 + 8 – 24 = 399,984 can be reimbursed to you from tax office, roughly speaking.
Requirements to receive refund of consumption tax
In the event you are salaried worker or land lord for residential building, you cannot receive refund of consumption tax. Because, you are not taxable tax payer for consumption tax. You are just a kind of general consumer. So, you need to satisfy following conditions.
1 You need to become taxable taxpayer for consumption tax
You need to submit necessary documents to tax office by due date.
The amount of taxable sales amount of reference period should be 10 million yen or more.
2 Rate of taxable sales amount should be around 100% or more ( at the time of transfer of ownership of real estate ).
So, if you are operating business before transfer of ownership of real estate and all your sales is taxable sales of consumption tax, 100% of 399,984 can be reimbursed to you.
Tax refund in the case of real estate transaction.
In the case you purchase land and a building ( assumed price for land is 10 million yen, price for building is 1.08 million yen ), purchase for price for building includes consumption tax ( 80000 yen ). If you can apply for tax refund of consumption tax in this transaction, a part of this 80000 yen can be returned to you. If you receive consumption tax of 50,000 yen from your customers ( tenant of your apartment ), 30,000 yen can be returned to you. The problem is that if your tenant is renting your apartment for her residence, the rental fee is not object of consumption tax. So, you can not apply for this tax refund.
Rate of Taxable income of consumption tax
Rate of Taxable income of consumption tax = Taxable income of consumption tax / Total income.
Assumed your tenant ( “Z company” ) is using your real estate for office space. The rental fee from Z company is included in taxable income for consumption tax and rental fee is 100 yen.
Assumed your tenant ( “Mr.Abe” ) is using your real estate for his residential space. In this case rental fee from Mr.Abe is NOT included in taxable income for consumption tax and rental fee is 40 yen.
In this case Rate of Taxable income of consumption tax is 40/100 = 40%.
If your income is based on airbnb, office space, parking space, vending machine, your income is included in taxable income.
How to apply for tax refund of consumption tax
1 You need to submit tax report of selection of taxable taxpayer
2 At the time you receive ownership transfer, you need to increase rate of taxable income to 100%.
3 Take necessary procedure to avoid refund of money that you have received as refund.
Assumed that Rate of Taxable income of consumption tax is 100% at the time you have purchased your real estate.
Amount you received as consumption tax is 100 yen.
Amount you paid as consumption tax is 160 yen.
60 yen × 98%= 58･8 yen can be refunded for you ( depending on situation )
However if total amount of taxable sales for three year after date of your purchase is less than 50%, you need to return this 58.8 yen to tax office, generally speaking.
So, your company needs to keep rate of taxable income for consumption tax at high percentage.
Assumed You incorporate a company at 11th, August, 2017 and fiscal year end of your company is end of September. Your company is going to purchase a real estate in end of September, 2017. Your company needs to make only taxable sales until end of September, 2017. For example, your company will place vending machine and make some sales. And your company needs to submit tax report to select taxable taxpayer.
In this way, at the time your company purchases real estate, rate of taxable sales amount is 100%. So, your company can receive refund of consumption tax ( assumed 10 million yen ). Then, your company needs to keep this rate at high rate by other business (“collateral business”). Otherwise, your company needs to repay a part of this 10 million yen to tax office.
You think it is not easy to make sales of 1 million yen by collateral business. However your company does not need to make profit in collateral business. For example, your company can purchase and sale Gold. Your company can include such sales amount in taxable income for consumption tax.