What is the Qualified Invoice System?

What is the Qualified Invoice System?

The Japanese government has introduced a new system called the Qualified Invoice System (QIS) as part of its 2016 Tax Reform. The QIS will come into effect on October 1, 2023.

Under this system, businesses that are registered for Japan's Consumption Tax (JCT) will be able to claim a tax credit if they receive a qualified invoice from another registered business. This means that businesses must include their QII number on invoices. The QIS also includes various rules and regulations, such as details on how businesses can register as a qualified invoice issuers.

Impact for Freelancers

Under the Qualified Invoice System (QIS), freelancers and small businesses that are registered for Japan's Consumption Tax (JCT) will be required to include their QII number on invoices in order for the purchaser  (counterparties) to be able to deduct tax on purchases. This means that these businesses will need to apply for a QII number and follow the rules and regulations set out in the QIS in order to issue qualified invoices. If they do not do this, they may not be able to deduct tax on their own purchases, which could affect their bottom line. It is therefore important for freelancers and small businesses to understand the QIS and take steps to ensure compliance with the new rules.

Impact for Companies that hire Freelancers

Businesses that contract freelancers may prefer that the freelancers they work with are registered for Japan's Consumption Tax (JCT) and have a QII number. This is because businesses will only be able to claim an input tax credit on purchases from registered JCT taxpayers who have a QII number. If the freelancer they are working with does not have a QII number, the business may not be able to deduct tax on the services provided by the freelancer.

For more information on the Qualified Invoice System, see the official government resource here.