2010 Tax Reform on Consumption Tax
Under the Consumption Tax Reform, enterprises that fall under both 1 and 2 below are not allowed to choose to become an exempt enterprise nor adopt the simplified tax system for some time.
1. Enterprise that becomes a taxpayer from the taxable period starting on April 1, 2010 and after by submitting a Notification of Taxable Enterprise Status for Consumption Tax or establishes an enterprise whose capital is 10 million JPY or more.
2. If a “fixed assets subject to adjustment(*)” are purchased in the tax period which started within the first 2 years of the beginning of the taxable period or which enterprise does not have the base period, and thus has adopted the regular tax calculation.
(*) Fixed assets subject to adjustment are such assets (except inventory assets) as buildings and attached facilities, machinery and equipment, shipping, aircraft, vehicles and conveyance equipment, tools and fixtures, mining industry and other assets, purchased at a price of 1 million JPY or more (tax excluded).
In principle, an enterprise is not eligible to become an exempt enterprise for 3 years from the first day of the tax period where “fixed assets subject to adjustment” were purchased (Consumption Tax Law, Article 9, Paragraph 7 and Article 12, Paragraph 2, Items 2). Moreover, an enterprise will not be able to adopt the simplified tax system during that tax period (Consumption Tax Law, Article 37, Paragraph 2). They need to file a consumption tax return by the regular tax calculation.
Enterprise shall adjust the amount of deduction concerning fixed assets subject to adjustment if the average taxable sales ratio of the third period significantly changes from the taxable sales ratio of the purchase period when they still own the assets at the end of the third period (Consumption Tax Law, Article 37).
Please note that special consideration should be taken if a taxable period is less than 12 months.
