When you invoice an overseas client from Japan, one question comes up every time: what do you do about consumption tax? Getting the classification wrong affects both your filing and your input tax credit. This article explains how to think about the tax category, grounded in National Tax Agency (NTA) guidance. For a specific transaction, confirm with a licensed tax accountant (as of September 2026).

The four categories

Japanese consumption tax sorts transactions into four buckets. Most confusion on English invoices comes from leaving this vague and simply billing "tax-excluded."

  • Taxable: the domestic supply of goods or services for consideration. Standard rate 10%, reduced rate 8% for items such as food.
  • Export-exempt: normally taxable, but treated as 0% because it is an export or a service to a non-resident. You add no tax to the sale, but you can still claim the input tax on related purchases.
  • Out of scope: not subject to consumption tax at all, for example a service performed outside Japan.
  • Non-taxable: within scope but exempted for policy reasons (land, insurance, certain medical and education). This rarely appears on overseas invoices.

For overseas billing, the real choice is almost always between export-exempt and out of scope.

The domestic/foreign test decides it

What separates the two is whether the service is a domestic or a foreign transaction. NTA Tax Answer No.6210 states that, as a rule (with certain exceptions), a service is judged domestic or foreign by the place where the service is performed (NTA No.6210). So work you perform in Japan is a domestic transaction.

However, a domestic transaction to a non-resident can still qualify as export-exempt. NTA Tax Answer No.6551 lists services provided to non-residents among the transactions eligible for the export exemption (NTA No.6551).

So a Japan-based freelancer doing design, development, or consulting for a non-resident company is usually "a domestic transaction that is export-exempt (0%) as a service to a non-resident." Calling this simply "out of scope" is a very common error.

When the export exemption does not apply

Being non-resident is not always enough. No.6551 notes that services where the non-resident directly enjoys the benefit in Japan (domestic transport or storage, domestic food and lodging, and similar) remain taxable. The same page also states that real-estate brokerage for non-residents becomes taxable from 1 October 2026, regardless of residence. Rules change, so check the current NTA page for your situation.

How to show it in English

  • Export-exempt (0%): Consumption tax: 0% (export-exempt under Japanese Consumption Tax Law).
  • Out of scope: Out of scope of Japanese consumption tax (services provided outside Japan).

If you issue a qualified invoice, the per-rate consumption tax must be shown in yen, even when you bill in a foreign currency.

A worked example

Suppose you are based in Japan and build a website for a US company (a non-resident) for USD 3,000, performing all the work in Japan. The place of supply is domestic, so it is a domestic transaction; but the client is a non-resident and does not consume the result in Japan, so the basic treatment is export-exempt (0%). You add no tax and note Consumption tax: 0% (export-exempt). No tax is charged on the sale, yet the input tax on related domestic purchases is generally still creditable. If instead you travelled to the US and completed the work there, the place of supply could be foreign, making it out of scope.

Why the difference matters

Export-exempt and out of scope both mean you add no consumption tax to the sale, so it is tempting to treat them as the same. They are not. Export-exempt sales are, in principle, taxable transactions treated at 0%, and the input tax on your related domestic purchases remains creditable. Out-of-scope sales sit entirely outside the consumption tax system. The two also behave differently in the taxable-sales ratio used for input tax credit calculations. If you are choosing whether to register as a qualified-invoice issuer, or working out how much input tax you can reclaim, putting a sale in the wrong bucket can change the numbers on your return. That is why "just call it non-taxable" is risky shorthand.

What about a Japanese branch of an overseas company?

Residence, not nationality, drives the test. If your client is the Japanese branch or subsidiary of an overseas group, and the service is supplied to and consumed by that Japanese entity, you may be looking at an ordinary domestic taxable transaction at 10%, not an export. Look at who actually receives and benefits from the service, and where. When the counterparty is a Japanese taxable business, a qualified invoice with the tax stated in yen is likely to be expected.

Do it automatically

BridgeInvoice lets you pick a tax category per line (10% standard, 8% reduced, 0% export-exempt, out of scope, non-taxable), and an "overseas" button sets every line to export-exempt at once. The English and bilingual tax notes are added automatically, and the per-rate tax is shown in yen even for a foreign-currency invoice.

Start with the overseas tax preset.

Common misclassifications to avoid

A few patterns come up again and again. Treating every overseas sale as "non-taxable" blurs the line between export-exempt and out of scope and can distort your input tax credit. Adding 10% consumption tax to a straightforward service for a non-resident, out of habit, over-charges the client and is hard to unwind later. Forgetting that a qualified invoice needs the per-rate tax in yen, even on a foreign-currency document, leaves the invoice short of the requirements. And assuming that a client's foreign parent company means the sale is an export, when the service actually goes to and is used by a Japanese subsidiary, points you at the wrong category. When more than a trivial amount is at stake, it is worth a quick check with a tax accountant before the invoice goes out.

FAQ

Does export-exempt mean I lose the input tax on my costs? No. That is the practical difference from out of scope. Because export-exempt sales are taxable transactions treated at 0%, the input tax on your related domestic purchases generally remains creditable, whereas out-of-scope sales sit outside the system entirely.

My client is overseas but paid me in yen. Does that change the category? The currency of payment does not decide the tax category. The domestic/foreign test and the client's residence do. Bill in whatever currency you agree, and classify the tax on the substance of the transaction.

Related reading

Summary

For overseas invoices, first apply the domestic/foreign test; if it is a domestic transaction to a non-resident, it is usually export-exempt (0%); if the service is performed abroad, it is out of scope. Because the two differ for input tax credit purposes, misclassifying them affects your filing. When in doubt, ask a tax accountant.