On October 1, 2015, Japan commences application of its business-to-consumer (“B2C”) ecommerce consumption tax (“JCT”), analogous to the EU electronic services VAT which commenced January 1 of this year. The JCT will require foreign businesses supplying certain electronic services and products from outside of Japan to customers inside Japan to collect and remit the current 8% JCT. This Legal News Alert applies to any business (person or company) who provides electronic products or services from outside of Japan to Japanese based customers. Certain exemptions may apply, but all businesses should review the rules to assess whether they are obligated to comply with the collection and remittance obligations. Registration is not required, however, failure to register will prevent customers from being able to obtain a JCT input tax deduction.

The ecommerce JCT was passed into law in March 2015, and registration for foreign businesses commenced in August. The reported policy basis for enacting this new JCT are that foreign businesses are supplying electronic goods and services to Japanese customers without imposition of tax, while Japanese businesses are required to collect and remit the JCT, thereby creating a competitive disadvantage for Japanese based businesses. The new JCT will apply to a broad range of digital and electronic goods and services, including but not limited to the purchase of applications (and in-app purchases) directly and/or from the various available platforms (GooglePlay, iTunes, Amazon and the like), music and game downloads, digital books, and mobile and Internet advertising. Certain exceptions will apply. A de-minimis threshold is among such exceptions. Businesses with a taxable turnover of less than 10 million Japanese Yen are currently excepted from the JCT collection and remittance requirement.

With respect to platforms like GooglePlay and iTunes, early information reflects varying processes are being established. It appears that iTunes has temporarily established a tax inclusive approach (requiring developers selling into Japan on its platform to raise their prices to cover the JCT collection), and GooglePlay appears to be developing a JCT charge to customers that will populate and appear at the checkout page (this needs to be confirmed because, at this publication, competing information was available as to whether GooglePlay would apply tax exclusive approach, or a tax inclusive approach like iTunes). In either case, it appears that requests of the Japanese Tax Authority to allow simplified JCT remittance were rebuffed and therefore, at least at the moment, the JCT must be collected and remitted by independent foreign businesses rather than GooglePlay, iTunes, or other apparent intermediaries who could collect and remit on their behalf.