[From October 2026] The Invoice Transitional Measure Drops from 80% to 70% — What to Check by End of September

From October 1, 2026, Japan's invoice-system transitional measure changes. For purchases from tax-exempt businesses (counterparties not registered for the invoice system), the input tax credit—until now allowed at 80%—is lowered to 70%. For companies that deal with tax-exempt businesses, this is a change that reliably raises costs. Time is short. This article lays out what changes and what to check by the end of September.

*This is a practical memo from a non-tax-accountant. Amounts are rough estimates; always confirm individual decisions with your tax accountant or competent tax office. This article contains affiliate links (Amazon Associates).

01　What changes? — "70% deduction" from October 2026

Under the invoice system, purchases from tax-exempt businesses without a registration number are, in principle, not eligible for the input tax credit. But a transitional measure allows a fixed percentage to be deducted, to avoid a sudden burden. That percentage drops from 80% to 70% on October 1, 2026. It was revised in the FY2026 tax reform: the original plan of "jumping to 50%" was softened to "70% → 50% → 30%," and the end date was extended to the end of September 2031. Here's the upcoming schedule.

・Through Sep 30, 2026: 80% deduction (current)

・Oct 1, 2026 – Sep 30, 2028: 70% deduction ← this is the change

・Oct 1, 2028 – Sep 30, 2030: 50% deduction

・Oct 1, 2030 – Sep 30, 2031: 30% deduction

・From Oct 1, 2031: no deduction (the measure ends)

02　How much does the burden increase?

Since the deductible percentage drops by 10 points, the more you purchase from tax-exempt businesses, the more your tax burden rises. Here are rough ballpark figures.

If annual dealings with tax-exempt businesses are ¥5M (tax-incl.): 80%→70% means roughly ¥45,000 more per year

For a single ¥2,200 (10%) purchase: the deductible national-tax portion goes from about ¥124 to ¥109 (about a ¥15 difference)

Heads up!　The figures above are rough estimates to give you a feel. Actual amounts vary with the itemized/proportional calculation methods and rounding. The more you purchase from tax-exempt businesses, the larger the impact.

03　The switch date is judged by the "transaction date"

Which rate applies—80% or 70%—is determined not by the invoice date or payment date, but by when the taxable purchase took place (the transaction date). On or before Sep 30, 2026 it's 80%; on or after Oct 1 it's 70%. The National Tax Agency has also published a Q&A on judging the switch timing.

Purchase of goods: judged by the date the goods were delivered

Provision of services: judged by the date the service was received (in principle, the completion date)

Heads up!　Transactions spanning September–October are an easy place to misclassify. Record the transaction date accurately in your books, and take extra care around the switch.

04　The easily-missed "¥100 million" annual cap

In addition, for taxable periods beginning on or after October 1, 2026, the transitional measure no longer applies to the portion of annual taxable purchases (tax-incl.) from the same tax-exempt business that exceeds ¥100 million. The previous cap of ¥1 billion was sharply lowered to ¥100 million.

Heads up!　Not many companies will hit this immediately, but if payments to a specific unregistered supplier are large, it's worth checking.

05　What to do by the end of September

Here's a checklist of things worth doing before the switch.

☑ Take stock of suppliers' registration status. On the NTA's "qualified invoice issuer" public site, check whether your main suppliers are registered.

☑ Grasp the transaction amounts with tax-exempt businesses. Starting with the larger ones, roughly estimate the impact.

☑ Update your accounting software's tax categories. In freee etc., prepare to switch to the "70% deductible" category.

☑ Manage transaction dates around the switch. For deals spanning September–October, split the category by transaction date.

☑ Consider reviewing prices or contracts. For high-impact deals, discuss price negotiation or asking for registration early.

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Wrap-up

The "80%→70%" from October 2026 is a quietly significant change for companies dealing with tax-exempt businesses. Still, what to do is simple: (1) check suppliers' registration status, (2) grasp the impact, and (3) update your accounting software's categories. Get these three done by the end of September and you won't be caught off guard after the switch. For transactions you're unsure about, consulting your tax accountant early is ultimately the fastest route.

Robin Planning also helps with taking stock of suppliers and reviewing freee settings. Feel free to reach out.

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Books on consumption tax & invoicing (PR)

For those who want to firmly grasp the transitional measure and consumption-tax practice in-house.

Book (PR)　A practical book on invoicing & consumption tax　For confirming the transitional measure and input-tax-credit concepts together.

Find on Amazon →

Book (PR)　A guide to consumption-tax filing & accounting　For sole proprietors and small companies who file in-house.

Find on Amazon →

Book (PR)　A guide to using freee accounting　For smoothly changing tax-category settings.

Find on Amazon →

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Disclaimer: This article is a practical memo for general information and does not guarantee any particular tax judgment. All amounts are rough estimates. Confirm individual applicability and calculations with your tax accountant or competent tax office. Affiliate: Robin Planning participates in the Amazon Associates Program and may earn referral fees from purchases via links on this site.