Japan Tax Deductible Field Setup for NetSuite

The Japan Localization SuiteApp supports deductible purchase tax for Japan subsidiaries and their purchase transactions and records. Set Tax Deductible to 100%, 80%, or 50% on a Japan tax code, then select that code where supported. NetSuite calculates the deductible amount from the transaction tax amount and indicates it in relevant tax reports.

How does the Tax Deductible field work?

The Tax Deductible field is set on a Japan tax code for the standard rate or reduced rate. Its selected percentage is the purchase-tax percentage deducted from the transaction tax amount.

Configure the tax code before applying it to a purchase transaction or record. When a configured tax code is selected in a supported location, NetSuite automatically calculates deductible purchase tax and applies it to the transaction tax amount. The calculated amount is indicated on relevant tax reports.

The documentation also states that, beginning April 1, 2012, Japanese companies can deduct all purchase tax amounts only when taxable sales are more than 95% and annual sales are less than 500M JPY.

What must be enabled before using deductible purchase tax?

The following features are required:

• A/P
• Purchase Order
• Vendor Return
• Expense Report

A Japan subsidiary is also required in the transaction context:

• For a supported purchase transaction or a journal entry, select a Japan subsidiary.
• For an expense report, select an employee from a Japan subsidiary.

How do you configure a Japan tax code?

To apply a deductible purchase-tax rate to a tax code:

1. Go to Setup > Accounting > Tax Codes.
2. Edit a Japan tax code for the standard rate or reduced rate.
3. In Tax Deductible, select 100%, 80%, or 50%.
4. Click Save.

The selected rate determines the percentage deducted from the transaction tax amount. This configuration is made on the tax code, so the tax code selected on the transaction determines the deductible purchase-tax rate used for that entry.

Which transactions and records are supported?

Deductible purchase tax is supported for these transaction and record types:

• Purchase orders
• Vendor bills
• Vendor returns
• Vendor credits
• Journal entries
• Expense reports

Apply the configured tax code in the Tax Code field at the supported location.

For a purchase order, enabling Allow Expenses on Purchases allows expenses or items on the Expense subtab to be subject to deductible purchase tax, in addition to items on the Lines subtab.

What calculation and reporting limitations apply?

NetSuite automatically calculates deductible purchase tax using the rate selected on the tax code and applies the calculation to the transaction tax amount. The deductible amount is indicated on relevant tax reports.

However, deductible purchase-tax calculations are not yet included in the appendices of the Japan Consumption Tax Form. The availability of the calculation in relevant tax reports does not extend to those appendices.

Which rounding methods can be used?

For transactions with deductible purchase-tax rates, the tax agency accepts only Round Down or Round Off for purchase tax. Do not use Round Up.

Tax rounding can be set at the company level or individually for each customer or vendor. On the Set Up Taxes page, if Allow override rounding setting per Entity is not selected, tax amounts follow the tax rounding method and precision defined for the country nexus, regardless of customer or vendor settings. If no rounding preferences are defined on an entity record, NetSuite uses the country-nexus preferences.

Enter the gross amount first, then set the tax rounding method. The selected method applies to all input and output amounts. As a result, the tax amount calculated from a net amount can differ from the tax amount calculated from a gross amount.

For an item priced at ¥893, with consumption tax of ¥44.65, the documented results are:

Although Round Up produces ¥45 in this example, it is not a permitted method for purchase tax on transactions using deductible purchase-tax rates.

Can deductible purchase-tax data be imported by CSV?

CSV import can input or update deductible purchase-tax values for the Account, Tax Codes, and Amount fields on purchase orders, vendor bills, vendor returns, vendor credits, journal entries, and expense reports. This applies to the item and expense sublists of supported purchase transactions.

Journal entry and expense report imports have an additional condition. If the CSV file explicitly sets Amount, Tax, and Gross Amount, disable or clear Run Server SuiteScript and Trigger Workflows in Advanced Options.

The setting defaults to the company preference, but it can be changed for the current import if the role can modify it. Saving the import also saves the preference selected for that field. An administrator can specify roles that cannot change the setting.

Disabling server SuiteScripts and workflow triggers turns them off during the import and can result in data corruption. Use the setting with caution.

What restrictions should be checked?

Use individual Tax Codes for deductible purchase tax. Do not use a Tax Group: deductible purchase tax is not available on tax groups.

Before saving a supported transaction or record, confirm the applicable conditions:

• The purchase transaction or journal entry has a Japan subsidiary selected.
• The expense report has an employee from a Japan subsidiary selected.
• The selected Japan tax code has a Tax Deductible value of 100%, 80%, or 50%.
• The tax code is selected in a supported line location.
• Purchase-order expense entries use the Expense subtab only when Allow Expenses on Purchases is enabled.
• Purchase tax uses Round Down or Round Off, not Round Up.
• The transaction uses a tax code rather than a tax group.
• Japan Consumption Tax Form appendices are not expected to include the deductible purchase-tax calculation.

Who This Affects

• Japan subsidiary users creating supported purchase transactions or journal entries, because those records require a Japan subsidiary for deductible purchase tax.
• Expense report users selecting an employee from a Japan subsidiary and applying a tax code on an expense line.
• Users maintaining Japan tax codes for the standard rate and reduced rate, because the deductible percentage is selected on the tax code.
• Users entering purchase orders, vendor bills, vendor returns, and vendor credits that use the supported item or expense sublists.
• Journal entry users selecting a tax code on debit or credit lines.
• CSV import users importing supported purchase transactions, journal entries, or expense reports, particularly when Amount, Tax, and Gross Amount are explicitly supplied.

Key Takeaways

• The Japan Localization SuiteApp supports deductible purchase tax for Japan subsidiaries and supported purchase transactions and records.
• Set Tax Deductible to 100%, 80%, or 50% on a Japan tax code before using that code on a supported transaction or record.
• NetSuite automatically calculates the deductible amount from the transaction tax amount and indicates it in relevant tax reports.
• Use Tax Codes, not Tax Groups, and use Round Down or Round Off for purchase tax on transactions with deductible purchase-tax rates.
• Deductible purchase-tax calculations are not included in the appendices of the Japan Consumption Tax Form.
• When importing journal entries or expense reports that explicitly provide Amount, Tax, and Gross Amount, clear Run Server SuiteScript and Trigger Workflows in the CSV import's Advanced Options.