Tax Categories for Individual Calculation of Deductible Purchase Tax

Typically, this is how a Japanese business would classify tax payables:

1. Purchase tax only for taxable sales transactions – This refers to tax paid for purchases that will be used for taxable sales transactions. Examples are consumption tax paid for the following:

   • Inventory item for sale

   • Raw materials or any other materials used for the production of inventory items for sale

   • Transportation costs, PR/advertising costs, outsourcing costs incurred in the production of inventory items for sale

2. Purchase tax only for non-taxable sales transactions – This refers to tax paid on purchases or expenses that will be used for non-taxable transactions. For example:

   • Costs incurred from development of land for sale (Sale of land is non-taxable.)

   • Costs incurred from construction of apartments for rent (Rent is non-taxable.)

3. Purchase tax for both taxable and non-taxable transactions – This refers to tax paid on purchases or expenses commonly used for both taxable and non-taxable transactions. This tax category is set after purchase. For example:

   • Electricity in the office

   • Bank charges

Note:

Please see your tax consultant for information and advice.

General Notices