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Japan invoice system: the 20% rule ends and a 30% rule begins
Since Japan's Qualified Invoice System began in October 2023, many small businesses that registered have paid consumption tax under the “20% special rule”. The FY2026 tax reform ends that rule and replaces it with a “30% special rule” for individuals. The transitional rule for buying from unregistered businesses also changes. This guide follows the NTA's FY2026 tax reform page.
Refresher: what a qualified invoice shows
- The issuer's name and registration number
- The transaction date
- What was sold (and a mark for reduced-rate items)
- The total price for each tax rate, and the rate
- The consumption tax for each tax rate
- The recipient's name
Retail, restaurants, taxis and similar businesses serving the general public can issue a simplified invoice that omits the recipient's name.
The 20% rule ends with 2026
The 20% rule lets businesses that became taxable only because they registered for invoices pay just 20% of the tax on their sales. It applies up to the tax period that includes September 30, 2026. For individuals, whose tax period is the calendar year, 2026 is the last year.
The new 30% rule
| Item | Details |
|---|---|
| Who | Individuals only (not corporations) |
| Condition | Became taxable by registering for invoices, with taxable sales of ¥10 million or less in the base period |
| Years | 2027 and 2028 |
| Effect | Tax payable can be 30% of the tax on sales |
Example: with ¥500,000 of tax on sales, you pay ¥100,000 for 2026 under the 20% rule, and ¥150,000 for 2027 and 2028 under the 30% rule.
Easier switch to simplified taxation
People using the 20% or 30% rule can move to the simplified taxation method by filing a notice by the return deadline for the period they want it to apply to. Simplified taxation uses a deemed purchase ratio by industry; for services (Type 5) it is 50%. Compare both methods for your own numbers.
Buying from unregistered businesses
A transitional rule lets buyers deduct part of the tax on purchases from businesses without invoice registration. Before the reform, 50% was planned for three years from October 2026. The reform phases it down instead.
| Period | Deductible share |
|---|---|
| Oct 1, 2023 – Sep 30, 2026 | 80% |
| Oct 1, 2026 – Sep 30, 2028 | 70% |
| Oct 1, 2028 – Sep 30, 2030 | 50% |
| Oct 1, 2030 – Sep 30, 2031 | 30% |
| From Oct 1, 2031 | 0% |
The small-amount rule runs to September 2029
Businesses with base-period taxable sales of ¥100 million or less (or ¥50 million or less in the specified period) can deduct tax on purchases under ¥10,000 including tax with only a ledger record, no invoice needed. It covers purchases from October 1, 2023 to September 30, 2029, judged per transaction.
What to check now
- Whether you qualify for the 30% rule
- How much more tax you will pay from 2027
- Whether the 30% rule or simplified taxation is better for you
- How the falling transitional percentages affect you if many suppliers are unregistered
Summary
- The 20% rule ends with the tax period including September 30, 2026; 2026 is the last year for individuals.
- Individuals can use the 30% rule for 2027 and 2028.
- The deductible share for unregistered suppliers falls 80% → 70% → 50% → 30% → 0%.