Many foreign residents earn income from overseas transactions.
If you are earning income or paying expenses to foreign businesses, there are three things you should know about them for tax accounting purposes.

(1) When to recognize sales or expenses

If you provide a service to a foreign business, the date you record the sale is, in principle, the date the service is completed.
If you sold goods to an overseas business, the date of recording sales is the date of delivery of the goods.
It is neither the date you invoice the recipient for the fee nor the date you receive payment.
( The exception is if you receive a salary payment from an overseas business, the date of recording the revenue is the date of payment of that salary).

If you receive services from a foreign business, the date you record the expense is generally the date of completion of those services for tax purposes.
If you purchase goods from a foreign business, the date of recording the purchase is the date you receive the delivery.
It is not the date when you receive the invoice for the fee from your business partner or the date when you paid the fee.

Particular attention should be paid when the date of provision of services, etc. is during the year and the invoice date or payment date for those services, etc. is in the following year.

(2) The exchange conversion basis.

Japanese tax law requires that your taxable income be converted into yen at the date of the sales transaction (or expense recognition date) as described above.
The exchange rate is the rate of your main bank.
In practice, you can use the exchange rates of megabanks such as Mitsubishi UFJ Bank and Sumitomo Mitsui Banking Corporation.
Exchange rates for almost all currencies from 1990 to the present are available on the Internet.
Now, there are three types of exchange rates: TTS, TTM, and TTB.

TTS is the rate at which banks sell foreign currencies.
TTB is the rate at which banks buy foreign currencies.
TTM is the rate between TTS and TTM.
Generally, TTS is one yen higher than TTM and TTB is one yen lower than TTM.
Under tax law, in principle, TTM is the standard used for currency conversion.

However, as an exception, the tax law allows businesses to use TTS for the exchange rate conversion of expenses and TTB for the exchange rate conversion of sales.

By choosing this option, sales can be converted into yen at a smaller amount and expenses can be converted at a larger amount than if TTM were used.
This is a legitimate tax savings.
Moreover, no special application is required to elect this criterion.
The condition is that once you choose the standard, you must continue to use it.
Changing the criteria every year is not permitted.

(3) The consumption tax on foreign income.

You may be entitled to a consumption tax refund by becoming a taxable business.
Generally, if your annual sales do not exceed 10 million yen, you are not required to pay consumption tax to the tax office as a taxable business.
However, if you export goods overseas or provide services to overseas clients remotely from Japan, your overseas sales do not include consumption tax, even though your expenses include consumption tax.

Therefore, you may be entitled to a refund of the consumption tax included in your expenses by filing a consumption tax return as a business subject to consumption tax.

This is called “Export tax exemption (輸出免税　Yushutsu-Menzei)
However, there are a few things to keep in mind before receiving an export tax exemption.

A. The following documents are required to obtain export tax exemption

①In the case of export of goods
➡ Letter of Export Permit issued by customs（輸出許可書　Yushutsu-Kiyokasho）

②In the case of providing services
➡ A contract or other document that includes (1) your name and address, (2) date and time, (3) description of services, (4) amount of consideration, and (5) name and address of the counterparty.

B. As a general rule, Consumption tax on expenses and purchases for which there is no Qualified invoice(適格請求書Tekikaku-Seikyusho) (invoice/receipt with invoice registration number) is not refundable.

C. Some expenses, such as home rent, salary, and insurance premiums, are not deductible for consumption tax purposes, even though they are expenses for income tax purposes.

D. Filing a consumption tax return is complicated and is often outsourced to a tax accountant.
You need to consider whether you are a consumption taxable business or not, taking into account the tax refund and the cost of hiring a tax accountant.

E. Even if your annual revenue is less than 10 million yen, you can become a taxable consumption taxpayer during the term by registering as an invoice registrant.

However, once you become a taxable business, you are required to file a consumption tax return for the next two years.

If you register as an invoice registrant in 2024, you will have to file consumption tax returns until 2026.

If you are trading overseas, you should consider the above matters once.

I am a tax accountant in Nagoya.
If you need help with accounting or taxation issues, please contact me.

Certified Tax accountant　 Motohiko Aoyama
e₋mail: bemyself8314@gmail.com