In some case, Japan’s consumption tax system requires sole proprietors and companies to pay a half of consumption tax as “Interim Payment”（中間納付） prior to the time when the tax should be paid.
This page provides an easy-to-understand explanation of the basics of “interim payment” of the Japanese consumption tax.
Basics of Interim Payment
If the annual national tax payment for the immediately preceding taxable period was more than 480,000 yen and less than 4,000,000 yen, “Interim Payment” is applicable.
In such cases, one-half of the consumption tax amount must be paid in advance once a year before the original due date.
The reality is that many business owners are unaware of this interim payment and panic when they receive the payment slip from the tax office.
In spring, business owners are faced with a rush of tax payments such as income tax, property tax, and automobile tax. Many business owners suffer cash flow difficulties due to the requirement to make an interim payment of consumption tax.
If the annual national tax payment for the immediately preceding tax period is more than 4 million yen but less than 48 million yen, interim payments must be made three times a year.
Furthermore, if the annual national tax payment for the immediately preceding taxation period exceeds 48 million yen, then interim payments must be made 11 times a year.
Why is Interim Payment Necessary？
Some may wonder why they have to make an interim payment when the consumption tax payment is not due yet.
Interim payment has advantages for the companies and sole proprietors.
In principle, the first payment of consumption tax is due in the year following the year in which taxable sales for the base period exceed 10 million yen, except the companies or person who registered as Qualified Invoice Issuing Business.
So, some business owners carelessly think that the time to pay sales tax is still a long way off and they reinvest all of their earnings into their business. As a result, they may later struggle to find the funds to pay the tax.
Thanks to the interim payment, the amount of consumption tax that must be paid at one time is reduced by one-half. This reduces the risk of not being able to pay consumption tax even if the timing of the tax payment coincides with a period of low cash flow.
For Basic of Invoice System and Basics of Consumption Tax Japan, Please refer to following articles.
Sole Proprietors and companies whose annual national tax payment for the immediately preceding tax period exceeds 480,000 yen must make an interim consumption tax payment before the original payment period.
Be sure to have funds ready so that you will not panic when the tax office sends you the payment slip for the interim payment.