Japan: Qualified Invoice System 70% deemed deduction due Oct 1, 2026

From October 1, 2026, the first step-down of Japan's Qualified Invoice System (適格請求書等保存方式) transitional input-tax credit takes effect under the 2026 tax reform (Reiwa 8 Act No. 12, 所得税法等の一部を改正する法律), administered by the National Tax Agency under the Ministry of Finance. The deemed deduction rate on purchases from exempt businesses (免税事業者) and non-registered suppliers drops from 80% to 70%, and a tighter per-supplier cap also applies from October 1, 2026.

Consumption-tax-registered Japanese businesses (課税事業者) purchasing from exempt or non-registered suppliers must apply the 70% deemed input-tax deduction rate instead of 80%, preserve a differentiated invoice and ledger (区分記載請求書等) noting the transitional measure, and cap the deemed deduction per exempt supplier at JPY 100 million inclusive of tax per taxable period, or the deduction is denied or reduced and the National Tax Agency may impose additional tax for under-declaration.

• Deadline : October 1, 2026, the 70% deemed deduction rate applies, with 2 further obligations taking effect
• Who : consumption-tax-registered Japanese businesses purchasing from exempt or non-registered suppliers
• What : apply the 70% rate instead of 80%, preserve a differentiated invoice and ledger noting the transitional measure, and cap the deduction per exempt supplier at JPY 100 million inclusive of tax per taxable period
• Otherwise : the deemed deduction is denied or reduced, raising consumption-tax liability, and the NTA may impose additional tax for under-declaration
• Official source : Consumption Tax Act supplementary provisions, as amended by Reiwa 8 Act No. 12

What is due on October 1, 2026

Three obligations take effect on October 1, 2026 under Supplementary Provisions Articles 52 and 53 of the 2016 reform act (平成28年改正法附則第52条・第53条), as amended by Reiwa 8 Act No. 12 (promulgated March 31, 2026, in force April 1, 2026). The deemed input-tax deduction on non-qualified-invoice purchases drops from 80% to 70% for taxable purchases from October 1, 2026 to September 30, 2028; buyers must preserve a differentiated invoice and ledger (区分記載請求書等) noting the transaction particulars and the transitional measure (for example 70%控除対象 or 免); and the per-supplier cap tightens to JPY 100 million inclusive of tax per year, down from JPY 10 billion for periods beginning October 1, 2024 to September 30, 2026.

The 2026 reform replaced the original two-step taper (80%, then 50%) with a five-step schedule, of which the 70% step is the first:

Who is covered

The deemed deduction applies to consumption-tax-registered businesses (課税事業者) that purchase from exempt businesses (免税事業者) or unregistered taxable businesses that do not issue qualified invoices. The exposure is concentrated among large enterprises and manufacturers sourcing from small exempt SME suppliers, and wholesalers and retailers with significant non-qualified-invoice purchase volumes. The tightened JPY 100 million per-supplier cap reaches any taxable business whose purchases from a single exempt supplier exceed that threshold in a taxable period beginning on or after October 1, 2026; above the cap, no transitional deduction is available on the excess.

What to do before October 1, 2026

• Configure systems to apply the 70% deemed deduction rate instead of 80% on non-qualified-invoice purchases from October 1, 2026.
• Update the differentiated invoice and ledger (区分記載請求書等) template to carry the counterparty, date, description, per-rate tax-inclusive amount and a transitional-measure notation.
• Identify exempt suppliers whose annual purchases exceed JPY 100 million inclusive of tax, and exclude the excess from the deemed deduction for taxable periods beginning on or after October 1, 2026.
• Audit vendor registration status and urge exempt suppliers to register as Qualified Invoice Issuers to preserve full input-tax credit.
• Recompute consumption-tax liability and estimated payments on the 70% rate and the new per-supplier cap.

What happens otherwise

If the wrong rate or an ineligible deduction is applied, the deemed input-tax deduction is denied or reduced, raising consumption-tax liability. The National Tax Agency (国税庁) may impose additional tax for under-declaration. Continuous, per-jurisdiction monitoring surfaces each step of the taper as the National Tax Agency publishes it.

Sources

• Consumption Tax Act supplementary provisions, as amended by the Act for Partial Amendment of the Income Tax Act etc. (Reiwa 8 Act No. 12), e-Gov Japan