Running a small guesthouse in Japan, you’re probably a 免税事業者 — a consumption tax-exempt business. You don’t collect Japan’s 10% consumption tax from guests, you don’t file a consumption tax return, and your accounting is simpler for it. As revenues climb though, that status has a shelf life. And the rules for when it ends are easier to get wrong than most people realize.

Here’s what I wish someone had laid out clearly when our own revenue started approaching the threshold.

TL;DR

  • Businesses with annual taxable revenue of ¥10M or less in the base period (two years prior) are exempt from collecting consumption tax
  • The two-year lag means you won’t know you’ve crossed the threshold until after it happens — so you need to project ahead
  • A separate 6-month rule can trigger the obligation even if your annual base-period revenue was under ¥10M
  • Voluntarily registering for the invoice system (インボイス制度) makes you a consumption tax filer immediately, regardless of revenue
  • Once you cross, accommodation charges are taxed at 10%; filing and remittance obligations kick in

How Does Japan’s Consumption Tax Exemption Work?

Japan’s consumption tax law exempts businesses whose taxable sales in the base period (基準期間) were ¥10M or less. For sole proprietors (個人事業主), the base period is two calendar years ago. For corporations, it’s the fiscal year two years prior.

The critical detail: the exemption is based on revenue from two years ago, not the current year. A guesthouse that earned ¥9.5M in 2024 is still exempt in 2026, even if bookings have grown substantially since then.

Why Does the Two-Year Lag Matter for Operators?

The lag is a built-in grace period — it exists so businesses have time to adjust pricing, systems, and accounting before the obligation kicks in. But it also means the threshold check isn’t as simple as glancing at last year’s numbers.

If your FY2024 revenue crossed ¥10M, FY2026 is when the exemption ends. You need to be looking two years out, not at the current year. For hospitality operators with steadily growing revenue, this is worth tracking actively rather than discovering it when your accountant files the annual return.

What Is the 6-Month Rule — and Why Do Most Operators Miss It?

Even if your base period revenue was under ¥10M, there’s a second trigger called the 特定期間 (specific period) rule. If your taxable revenue in the first six months of the prior year exceeded ¥10M, you lose your exemption for the current year.

In practice: if your guesthouse had a strong first half in 2025 — say, ¥10M or more in the January–June window — your exemption ends in 2026, regardless of what your full-year 2023 base-period revenue showed.

The 特定期間 threshold can also be triggered by salary payments (給与等支払額) exceeding ¥10M over the same period, which affects operators with staff more than solo operators.

Most people in hospitality I talk to only know about the annual base-period rule. The six-month trigger is the one that catches operators off guard mid-year.

How Did the Invoice System Change the Equation?

Since the invoice system (インボイス制度) launched in October 2023, there’s a third path to becoming a consumption tax filer: voluntary registration.

If you registered as a qualified invoice issuer (適格請求書発行事業者) — to reassure B2B clients, to receive input tax credits, or simply because someone suggested it — you automatically became a 課税事業者 (taxable business). Revenue threshold doesn’t matter; registration alone triggers the obligation.

For a typical guesthouse serving leisure guests, the invoice system probably wasn’t relevant. Most individual travellers don’t need a qualified invoice. But if you manage properties for corporate owners, offer any B2B services, or registered “just in case,” it’s worth verifying your actual status.

What Does Consumption Tax Look Like in Practice for Accommodation?

Once you’re a consumption tax filer, here’s how the typical revenue lines break down:

  • Room charges: 10% consumption tax
  • Meals served at the property (breakfast service, buffet): 10% — note that the reduced 8% rate applies to food sold for home consumption (packaged takeout items), not to restaurant-style meal service at the property
  • Cleaning fees, linen, amenity add-ons: 10%

Japan accommodation platforms generally display prices in tax-inclusive (税込) format. You’ll need to configure your OTA accounts to reflect your tax status correctly and ensure your invoices show the pre-tax price and consumption tax separately.

For remittance, consumption tax filers file annually (or quarterly for larger operations) and pay the difference between the tax collected from guests and the input tax paid on business expenses.

When Should You Start Planning the Transition?

If your annual accommodation revenue is under ¥5M, it’s not urgent — but start tracking. Between ¥5M and ¥9M, actively monitor your base-period revenue and project two years forward. The time to find a tax accountant (税理士) with hospitality experience is before you cross the threshold, not after.

At ¥8M+, talk to your accountant about two things specifically:

  • Whether your current ADR already has margin to absorb the 10%, or whether you’ll need to raise prices
  • Whether the simplified tax calculation method (簡易課税制度) makes sense — it lets smaller businesses calculate their liability using a fixed deemed-purchase ratio rather than tracking every input expense

One thing that’s helped on our side: maintaining a single consolidated revenue log across all OTA channels. When the threshold question comes up, you can answer it in minutes instead of digging through individual platform reports.

FAQ

Q: Is all accommodation revenue taxable at 10%, or are there exceptions?

Room charges are universally 10%. The reduced 8% rate applies to food sold for home consumption — packaged goods, grocery items — not to meals served at a hospitality facility. So breakfast you serve in your guesthouse dining area is 10%. If you’re unsure about a specific revenue line in your setup, ask your 税理士.

Q: I registered for the invoice system in 2023. Am I definitely a consumption tax filer?

Yes. Registering as a qualified invoice issuer (適格請求書発行事業者) makes you a 課税事業者 immediately, regardless of revenue level. If you’ve been collecting tax and filing returns since then, you’re on track. If you registered but haven’t been filing, speak to an accountant as soon as possible.

Q: Can I go back to being tax-exempt if my revenue drops below ¥10M?

If you became taxable through the revenue threshold, it’s possible to return to exempt status once your base-period revenue drops back below ¥10M — but switching back has restrictions and can’t happen immediately. If you became taxable through invoice system registration, deregistration requires a formal process and notice period. Either way, don’t make this change without guidance from a qualified 税理士.

This post is for informational purposes only and does not constitute legal or tax advice. Japan’s consumption tax rules are complex and subject to change. Please consult a qualified tax accountant (税理士) for advice tailored to your specific situation.