Deductible Purchase Tax for Japan

Important:

Starting April 1, 2012, Japanese companies can deduct all purchase tax amounts only if their taxable sales are more than 95% and their annual sales are less than 500M JPY.

The Japan Localization SuiteApp supports deductible purchase tax for Japan subsidiaries and their purchase transactions and records.

The following can be subject to deductible purchase tax:

purchase orders
vendor bills
vendor returns
vendor credit
journal entry
expense report

For deductible purchase tax to work, you must enable the following required features:

A/P
purchase order
vendor return
expense report

Before you can subject transactions or records to deductible purchase tax, you should first apply purchase tax rates to corresponding tax codes.

To set purchase tax rates to tax codes:

Go to Setup > Accounting > Tax Codes.
Edit a Japan tax code for standard rate and reduced rate.
In the Tax Deductible field, select either 100%, 80% or 50%.

The purchase tax rate selected is the percent that will be deducted from the transaction tax amount.
Click Save.

Next, you should apply the tax code, with deductible purchase tax rate, to purchase transactions or records.

To apply a tax code with purchase tax rate to transactions or records:

Create or edit supported purchase transaction or record that you want to subject to deductible purchase tax.
Do any of the following:
- For a purchase transaction or a journal entry, ensure that a Japan subsidiary is selected.
- For an expense report, ensure that an employee from a Japan subsidiary is selected.
Select a tax code with purchase tax rate you want in the Tax Code field in any of the following:
- a line item on the Expenses and Items subtab of a purchase transaction
- a line item on the Expenses subtab of an expense report
- a debit or credit line on the Lines subtab of a journal entry
- an item or expense on the Lines subtab or Expense subtab of a purchase order, if the preference Allow Expenses on Purchases is enabled for purchase orders
Click Save.

You can use CSV import to input or update deductible purchase tax values for Account, Tax Codes and Amount fields. This is applicable only to the item sublist of supported purchase transactions. However, updating these fields for journal entries and expense reports through CSV import is not yet supported.

If you use CSV import to create purchase transactions or set purchase tax values the first time, you must include Gross Amount or ensure that it has a value, because this is required in calculating deductible purchase tax.

Note:

Values for Gross Amount and Amount are required for NetSuite to calculate deductible purchase tax. Ensure that you specify them on applicable transactions and records or include them if you set or update purchase tax values through CSV import. Having only amount and tax amount values, without gross amount, will only calculate standard or regular tax amount, not the deductible purchase tax, even if you use a tax code with purchase tax rate.

NetSuite automatically calculates the purchase tax and applies it on the transaction tax amount, which is indicated on relevant tax reports.

Note:

Consider the following:

If the preference, Allow Expenses on Purchases, is enabled for purchase orders, then expenses or items on the Expense subtab of purchase orders (aside from items on the Lines subtab) can be subject to deductible purchase tax.
The tax agency accepts only rounding down or rounding off the tax amount for transactions with deductible purchase tax rates. Use Round Down or Round Off only for purchase tax. Do not use Round Up. For more information, see Setting Tax Rounding Methods - Japan.
Do not use Tax Group for your transactions, use Tax Codes instead. Deductible purchase tax is not available on tax groups.
Deductible purchase tax calculation is not yet included in the appendices of the Japan Consumption Tax Form.

To set purchase tax rates to tax codes:

To apply a tax code with purchase tax rate to transactions or records:

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