What is Tax-free?

Types of Duty-free shops

When speaking of Duty-free shops in Japan, there is the concept of “Duty-free” and “Tax-free.” The company engages in the “Tax-free” business.

Difference between “Tax-free” and “Duty-free”

Tax-free Duty-free
How to Engage in Business Obtain permission from the tax chief having jurisdiction over the taxpayer for each store Obtain permission of bonded area as a bonded warehouse under the Customs Act
Qualified Purchasers Non-residents Departing persons (Japanese, foreigners)
Exempt Categories Consumption tax (value-added tax) Exemption of various taxes, in addition to consumption tax (value-added tax)
Subject Articles Articles supplied for daily life (general articles, consumables) Goods, cigarettes, alcohol, and other products imposed with duty
Delivery of Goods Receipt of goods is available when purchasing at stores Receipts are available at the delivery place for Duty-free products at airports or ports, after going through the departure process
Number of Stores 55,134 (as of September 2020) 43（as of July 2017 ）

Exempted categories in “Tax-free” stores

Type of Store Detailed Example Exemption Categories
Consumption Tax
(Value-added Tax)		 Customs Liquor Tax Cigarette Tax
Tax-free JTC Yes No No No
Market tax exemption stores, such as drug stores Yes No No No
Duty-free Airport Duty-free Shop Yes Yes Yes Yes
City Duty-free Shop Yes Yes Yes Yes

Specific examples of articles qualifying as “Tax-free” articles

Goods provided for use in daily life (general goods, consumables)

Goods that have been explicitly purchased for business or for sale by a non-resident are not exempted from tax.

General goods
  • JPY 5,000 or more in total purchase amount for one (1) day within the same store, for one (1) non-resident
  • A copy of the passport will be kept at the location of the store or place subject to tax of the business when the sum of sale exceeds JPY 1,000,000.
Consumables
  • The total purchase amount for one (1) day within the same store for one (1) non-resident shall be within a range from JPY 5,000 or more to JPY 500,000 or less.
  • Non-residents shall pledge to take out consumables within thirty (30) days after the purchase date.
  • The product shall be packed in a designated method disallowing use in the country.
※ Spending for general goods, which have wrapped so they cannot be consumed while in Japan, can be combined with the spending for consumables. In this case, applicable requirements are the same as those for consumables.

Source:Drafted by this company based on the website of Japan Tourism Agency (https://www.mlit.go.jp/kankocho/tax-free/about.html)

Tax exemption process at Tax-free shops

Source: Website of Japan Tourism Agency（http://www.mlit.go.jp/kankocho/news01_000260.html）

Frequently Asked Questions
What is the difference between Duty-free shops and Tax-free shops?
Generally, customs, cigarette tax, and liquor tax are exempt in Duty-free shops, and consumption tax (value-added tax) is exempt in Tax-free shops.
How many Tax-free shops are there in Japan?
A2 As of September 30, 2019, there are 55,134 Tax-free shops in Japan. (FN1)

(FN1) Source: Website of Japan Tourism Agency（ https://www.mlit.go.jp/kankocho/topics02_000196.html ）

What is the background of the increase of Tax-free shops, in particular, in Japan?
The Japanese government is becoming more active in increasing the level of consumption of those traveling in Japan, such as by continuing to establish and implement various policies, through enhancing the shopping attractiveness for foreign tourists. Less stringency in the system, such as lowering the maximum price for articles to become qualified for sale under tax exemption has become a factor increasing the attractiveness for selling tax exempt goods, thus, the number of Tax-free stores are increasing.
What is the process to open a Tax-free shop?
Businesses planning to open a Tax-free shop must obtain permission from the tax chief controlling the jurisdiction for each store.
When is the consumption tax (value-added tax) reimbursed?
At the Tax-free shops of this company, you can pay the amount subtracting the consumption tax (value-added tax) on the spot, once you show your passport and pledge upon purchasing goods, after purchasing in an amount under the limit. Thus, there is no separate consumption tax (value-added tax) reimbursement process.
When can I receive the goods I purchased at a Tax-free shop?
Unlike Duty-free shops, you can immediately receive the goods at the time of purchase.
What are the articles qualifying for tax exemption at Tax-free shops?
The articles that are exempt are general goods that are supplied for daily use (excluding gold and platinum) and consumables (food, beverages, medicine, cosmetic products, and other consumables), but in principle, include all products that can be taken overseas.(FN2)

(FN2) Only goods supplied for daily use are exempt, thus, purchasing for business or for sale do not qualify for exemption.

Why is shopping at a Tax-free shop inexpensive?
The fact of foreign tourists or non-residents taking out gifts or goods overseas is deemed as equivalent to exportation, thus, Tax-free shops are allowed to sell at a price excluding consumption tax (value-added tax) (10% as of October 2019).