2026 Tax Changes for Tourists in Japan: Goodbye Tax-Free Shopping

December 20, 2024

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Japan is one of the most popular tourist destinations in the world, with more than 30 million tourists visiting annually. In addition to cultural and historical monuments and sightseeing attractions, foreign tourists can benefit from the consumption tax exemption system, which allows them to purchase goods without paying consumption tax.

However, due to increased abuse of the system, the refund-based tax exemption model could replace the tax exemption system.

Implementation of a Refund-Based Model

The current system allows loopholes to be exploited, where visitors purchase goods under the exemption scheme and resell bought items for a profit. The 2022 customer survey showed some alarming results and data, revealing JPY 1.85 billion (around USD 11.8 million) in unpaid taxes due to unverified tax-free purchases.

More precisely, it was determined that the local retailers sold tax-exempt goods to foreign residents of Japan who were not eligible for tax exemptions.

To eliminate these loopholes, starting in 2026, tourists visiting Japan will no longer be able to benefit from the consumption tax exemption system. When buying goods at duty-free shops, they will have to pay consumption tax on home appliances, watches, food, cosmetics, and others. Consequently, standard and reduced consumption taxes of 10% and 8% will apply to those transactions.

To reclaim consumption tax, tourists will have to show customs officials, e.g., at airports, goods they bought in duty-free shops upon departure. Once the customs confirms that the goods are exported, the refund will be made in cash or to previously registered credit cards.

Conclusion

Although it may seem that the decision to replace the tax exemption system with a refund-based one only affects tourists, taxable persons who are part of the tax-free shop system will be affected. Therefore, taxable persons who offer tax-free or tax-exempt goods to tourists should closely monitor further developments and determine to which extent this will influence their business models and operations.

Source: JapanTravel, Japan Tourism Agency, JapanToday, TaxScan

What is Japan’s consumption tax, and how does it apply to tourists?

Japan’s consumption tax is a value-added tax of 10% (standard rate) or 8% (reduced rate). Starting in 2026, tourists must pay this tax on purchases and claim refunds upon departure.

Why is Japan replacing the tax-free shopping system with a refund-based model?

The new model addresses loopholes in the tax-free system, preventing abuse such as reselling tax-exempt goods, which has led to significant unpaid taxes.

When will the new refund-based consumption tax system for tourists start?

The refund-based system will be implemented in 2026, replacing the current tax-free shopping framework.

How can tourists claim a refund on Japan’s consumption tax?

Tourists must show purchased goods to customs officials upon departure, who will verify the export. Refunds will be issued in cash or credited to a registered card.

Which items are affected by the new consumption tax system?

Goods such as home appliances, watches, cosmetics, food, and other items sold in duty-free shops will be subject to the consumption tax under the new system.

How will this change impact duty-free retailers in Japan?

Duty-free retailers will need to adapt their processes and systems to comply with the refund-based model, which may influence their business operations and customer experience.