What’s New: 3-割特例 under Invoice Reform
Under Japan’s tax reform, starting for 令和９年分（FY2027） and FY2028 tax years, eligible sole proprietors who register as invoice-issuing businesses and had taxable sales ¥10 million or less in the base period (two years earlier) may use a special rate where payable consumption tax is calculated as 30% of the sales tax amount (売上税額の３割) rather than applying the normal calculated output-tax minus input‐tax. (nta.go.jp)
Who Is Affected: Key Criteria
- Must be 個人事業者 (sole proprietor), not a corporation. (nta.go.jp)
- Taxable sales in base period (the year two years before filing) must be ¥10 million or less. (nta.go.jp)
- Must be registered as an invoice issuing business under Japan’s invoice system (インボイス制度). Transition rules help smooth the change. (nta.go.jp)
Practical Example
Imagine you run a small freelance business, earning ¥8 million in taxable sales in fiscal year 2025. If registered as invoice‐issuing, in FY2027, instead of calculating consumption tax normally, you can declare payable tax as 30% of your sales tax amount. For example, if your output tax would be ¥800,000 and your input tax deductible is ¥200,000 under regular rules (net tax ¥600,000), using the 3-割特例 you instead file for ¥240,000 (30% of ¥800,000) which may be significantly lower. Note: this eliminates input tax deduction, so assess costs vs benefit.
Planning and Compliance Tips
- Determine whether staying under the ¥10 million threshold is feasible or whether scaling up will disqualify you.
- Estimate input tax vs the special rate to see if this method saves you money—often beneficial for businesses with low expense ratios.
- Ensure timely registration as an invoice‐issuing business. Missing the registration means losing access to both this special rule and full relationships under invoice system.
- Maintain clear records of sales and invoices, because taxpayer will lose input tax deduction under this special rule.
- Keep an eye on policy updates or clarifications — the government published FAQs and transitions. (nta.go.jp)
Broader Impact & Future Considerations
- This reform encourages small business operators to formally transition into the invoice regime.
- May reduce compliance burden for micro businesses with limited expenses.
- But may discourage investment or cost incurrence, as input deductions are forgone in exchange for simplicity.
- Corporations are excluded, so many small incorporated businesses must plan differently.
Conclusion
For small business owners and sole proprietors in Japan, the 3-割特例 under the new invoice system offers a real opportunity to simplify consumption tax compliance and possibly reduce tax liability — but the trade-offs (no input credits, need to stay under thresholds) mean it should be evaluated carefully. Early action — registration, record keeping, simulation — will be crucial to maximize benefit.