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12 June 20232 minute read

A potential reform of the tax-free sales regime for inbound tourists


The current in-store tax-free sales treatment for visitors to Japan is partially anticipated to be replaced with a new refund system, which could be introduced in April 2024 at the earliest.

The Government of Japan is considering the introduction of a new refund system for tax-free sales, in which Japanese Consumption Tax ("JCT") will be paid at the time of purchase and refunded later after confirming that the requirements for tax-free purchases are met.

The current JCT Act allows non-residents to purchase goods without paying the applicable JCT amount at a store licensed as the "export goods selling place" for JCT purposes under the conditions that the purchased goods will be taken out of Japan and goods are purchased for personal uses. In order to sell goods under the tax-free scheme, the sellers (i.e. the retail stores) are required to obtain the "export goods selling place" license and confirm if the customers meet the requirements for tax-free sales.

Recently, however, some retailers were successively pointed out by the Japanese tax authorities that they sold goods tax-free to non-residents who did not meet the requirements for tax-free sales.

Under the new refund system, it is expected that the tax-free amount will be refunded upon non-residents' departure from Japan after confirming that the requirements for tax-free purchases are met, similar to the regimes introduced in many other countries.

Although details are not published by the government so far, it is likely that the new refund system will be introduced in April 2024 or later.

Key takeaway

Under the current in-store tax-free sales regime, it is a significant burden for the licensed retail stores to check every time whether the sales to non-residents satisfy the requirements, and such a practice caused many compliance issues, as recently pointed out by the tax authorities. However, the new refund system is expected to reduce the seller's burdens and risks.