Japan 2026 Tax Reform: Consumption Tax Changes Explained

In 2024, Japan announced plans to eliminate existing loopholes that allowed tourists visiting Japan to benefit from the consumption tax exemption system. As previously stated, the consumption tax exemption will no longer be in effect from 2026. Building on that promise, in late December 2025, the Japanese government released the 2026 Tax Reform, which, among other tax changes, included those relevant to consumption tax.

Consumption Tax Changes and Implementation Timeline

The 2026 Tax Reform includes a provision that subjects cross-border mail-order sales of goods valued at JPY 10,000 (around USD 63) or less to customs duty and consumption tax. More precisely, the importers or sellers will be liable for duties and taxes imposed. Additionally, if the goods are sold over digital platforms, the liability shifts to the platform operators who facilitated the transactions.

To prevent the imposition of a consumption tax at both the time of sale and the time of import, the government will establish a registration system for sellers of specified low-value goods. Registered sellers will be able to verify that the consumption tax was charged at the time of sale.

The tax reform also brings special measures for the consumption tax exemption system, which aims to reduce the tax administration burden on small businesses. Specifically, the tax reform underscores that the tax exemption system applies to businesses whose taxable sales in the base period are below JPY 10 million (around USD 63,000). 

The base period is used as a reference year for tax purposes. It is defined as the second year preceding the current taxable year for sole proprietors, and the second business year preceding the current tax year for companies. Additionally, the consumption tax rules for services relating to real estate in Japan for non-residents have also been revised. They are treated as similar to export transactions, making them eligible for export exemption for consumption tax purposes.

The 2026 Tax Reform also sets the implementation timeline for consumption tax changes. From April 2027, the notification obligation and the designation system will come into effect, followed by the implementation of registration of specific low-value goods sellers in October 2027. Other consumption tax changes will come into effect in April 2028.

Conclusion

Japan's 2026 Tax Reform leans on the 2024 and 2025 announcements to make changes to the consumption tax system, particularly regarding imports of low-value goods and the liability of digital platform operators for consumption tax purposes. More importantly, the tax reform provides a two–year implementation timeline, allowing all affected taxable persons to understand and adapt to the new rules and requirements.

Source: EY, KPMG, VATabout