Note: This article covers Japan's consumption tax display rules (tax-inclusive pricing and the reduced tax rate), which are specific to businesses operating in Japan under Japanese tax law. The information below will not be directly relevant if you are not selling in the Japanese market.
Running an e-commerce site on Shopify, you cannot avoid dealing with consumption tax settings. This has become even more complex since the Invoice System (Qualified Invoice System) took effect in October 2023.
Many store operators struggle with questions like "How do I set up consumption tax?" or "What should I do for products subject to the reduced tax rate?"
In this article, we provide a comprehensive explanation for Japanese Shopify store operators — from the basics of consumption tax, through the specific setup steps, to handling overseas sales and the Invoice System.
After reading this article, your questions and concerns about consumption tax should be resolved, and you'll be able to run your store with confidence.
※ The content of this article is based on general information supervised by a certified tax accountant, but actual tax treatment may vary depending on your business situation and accounting rules. Please always confirm final decisions with your own tax advisor.
Essential Knowledge Before Setting Up Consumption Tax on Shopify
Before configuring consumption tax settings on Shopify, it's important to understand the basic rules of Japan's consumption tax system. Here we explain three key points to help you determine which tax rate applies to your store and whether you have a tax payment obligation.
What Is the Consumption Tax Rate for Your Products? Understanding Products Subject to the Reduced Tax Rate
As of 2025, Japan has two consumption tax rates: the standard rate of 10% and the reduced rate of 8%. First, accurately determine which rate applies to the products handled in your store.
- Standard rate 10%: Applies to most products and services.
- Reduced rate 8%: Applies to "food and beverages, excluding alcoholic beverages and dining out" and "newspapers published at least twice a week under a subscription contract."
However, separate rules apply to "combination products" such as candy sold together with a toy, where food and non-food items are bundled together. Also, seasonings containing alcohol are taxed differently depending on the type — mirin-style seasoning is subject to the 8% reduced rate, while hon-mirin and cooking sake are treated as alcoholic beverages and subject to the standard 10% rate. If you're unsure whether your product qualifies, please check the details on the National Tax Agency website and other sources.
Shopify allows you to configure these different tax rates on a per-product basis.
Taxable Businesses and Tax-Exempt Businesses
Businesses are divided into "taxable businesses," which are obligated to pay consumption tax to the government, and "tax-exempt businesses," which are exempt from this obligation.
- Taxable business: In principle, a business whose taxable sales during the base period (two years prior for sole proprietors, or two fiscal years prior for corporations) exceed 10 million yen
- Tax-exempt business: A business whose taxable sales during the base period are 10 million yen or less
That said, even tax-exempt businesses are increasingly choosing to become taxable businesses (registering as a "Qualified Invoice Issuer") in order to comply with the Invoice System described below. In addition, under certain conditions, a business may become a taxable business, so please be careful.
The Invoice System
The "Invoice System" (Qualified Invoice Retention Method), a new consumption tax rule that began on October 1, 2023, also affects e-commerce businesses. This system is designed to ensure sellers accurately convey the applicable tax rate and consumption tax amount to buyers.
This is especially important if your store's customers are corporations or sole proprietors who are taxable businesses. That's because in order for a taxable-business customer to claim the "purchase tax credit" — deducting the consumption tax they paid when buying your products from their own tax liability — they need a "Qualified Invoice" issued by your store.
To issue Qualified Invoices compliant with the Invoice System on Shopify, we recommend using an app or accounting software. For details, please refer to the article below.
Steps to Set Up Consumption Tax / Tax-Inclusive Display on Your Shopify Store
Here we explain the steps for configuring tax-inclusive display of consumption tax on Shopify.
Step 1: Set the Consumption Tax Rate
If your store's location is set to Japan, Shopify automatically applies Japan's consumption tax (standard rate 10%).
You can confirm whether Japan's tax rate has been correctly applied using the following steps. From the Shopify admin, go to "Settings" > "Taxes and duties." Under "Regional settings," if "Japan" appears under "Region" and "Collect tax" is checked, it's configured correctly.
Image source: Shopify
The setup for products subject to the reduced tax rate (8%) is explained in the next section.
Step 2: Change the Price Display Method to "Tax-Inclusive"
In Japan, businesses are legally required to display prices to consumers as a total amount that includes consumption tax. Let's enable this setting on Shopify.
Open the "Settings" > "Taxes and duties" screen. Scroll down to "Global settings," and check both "Include sales tax in product price and shipping rate" and "Charge sales tax on shipping rates."
Click "Save" at the top of the screen. With this setting, all product prices displayed on product pages and in the cart, as well as shipping rates, will switch to tax-inclusive prices.
Step 3: Register Product Prices as "Tax-Inclusive Prices"
When registering a product, enter the price as a tax-inclusive price. For example, for a product with a base price of 2,300 yen, register the total price of "2,530 yen," which adds 230 yen (10% consumption tax) on top.
Also, check "Charge tax on this product," located directly below the "Price" field.
Step 4: Register Shipping Rates as "Tax-Inclusive Prices"
Shipping rates should also be registered as tax-inclusive prices. For example, if the shipping rate is 1,000 yen, register the price with "100 yen" (10% consumption tax) added on top.
Step 5: Confirm Correct Display With a Test Order
Once all settings are complete, be sure to verify that everything displays correctly on your online store.
When you proceed to the checkout screen, if the "Includes ¥◯◯ in taxes" field matches the expected consumption tax amount, your setup is complete.
In the sample image, the product's base price is 2,300 yen and the shipping rate is 1,000 yen. The consumption tax on each is 230 yen and 100 yen respectively, for a total consumption tax of 330 yen. The total amount is 3,630 yen, which matches the price shown in the image.
How to Set Up the Reduced Tax Rate
If you handle products subject to the reduced tax rate (8%), additional configuration is required. To explain the mechanism simply: you create a collection (category) for products subject to the reduced tax rate, and apply an 8% tax override to that collection's products.
First, create a collection for products subject to the reduced tax rate.
※ Note: Products must be selected "manually."
Image source: Shopify
Next, from the admin, go to "Settings" > "Taxes and duties" > "Regional settings," and click on "Japan."
In the "Tax overrides" section at the bottom, click "+ Add tax override."
Configure the pop-up window's fields as follows.
- Add a tax override for: Products
- Collection to apply the tax override to: The reduced-tax-rate product collection
- Location: Japan
- Rate: 8%
After configuring, click "Add override."
Add a target product to your cart and check the checkout screen.
We added a product with a base price of 400 yen to the cart. With the 8% reduced tax rate applied, the consumption tax is 32 yen. In the sample screen below, "Includes ¥32 in taxes" is displayed, confirming that the 8% reduced rate — not the standard 10% rate — is applied.
※ As mentioned earlier, since tax-inclusive display is mandatory in Japan, register the product price as 432 yen — the base price of 400 yen plus the 32 yen reduced-rate consumption tax.
Frequently Asked Questions About Shopify Consumption Tax
Here we provide concise answers to some of the most common questions about Shopify's consumption tax settings.
Is Consumption Tax Charged on Shopify's Monthly Fee or Shopify Payments' Transaction Fees?
Since Shopify is an overseas business, its services are non-taxable for consumption tax purposes. Therefore, in principle, the monthly subscription fee is not subject to consumption tax. However, if you are a taxable business, it falls under the reverse charge mechanism.
Credit card fees are exempt from consumption tax as they fall under financial transactions, so Shopify Payments' transaction fees are likewise not subject to consumption tax.
Is Shopify Related to the Reverse Charge Mechanism?
The reverse charge mechanism is a system whereby "when a Japanese buyer receives a service from a foreign business, the Japanese buyer instead calculates and pays the consumption tax."
This mechanism applies only to taxable businesses; tax-exempt businesses are not affected. If you are a taxable business, you must self-declare and pay the consumption tax that applies to fees such as your Shopify subscription and app usage fees.
How Does Shopify Handle Rounding in Consumption Tax Calculations?
Here we explain how fractions of less than 1 yen are handled when calculating consumption tax. Shopify's standard behavior is to "round per order."
For example, the 8% reduced-rate consumption tax on a tax-inclusive 100-yen product is shown as 7 yen. This is because the tax amount is 7.40...yen, and the first decimal place is rounded down.
When purchasing two different tax-inclusive 100-yen products, the consumption tax is shown as 15 yen. This is not simply 7 yen × 2 products = 14 yen, but rather 7.40...yen × 2 products = 14.81...yen, where the first decimal place is rounded up.
Rather than rounding per product, the tax rate is applied to the order's overall subtotal, and the resulting tax amount is rounded at the end.
What Happens to Consumption Tax on Overseas Sales?
When selling products (exporting) to overseas customers, Japanese consumption tax is not levied. This is called "export tax exemption." Taxable businesses can apply for a refund of the consumption tax paid on purchases related to export tax-exempt transactions.
Understand Shopify's Consumption Tax Settings Correctly and Run Your Store With Confidence
This article explained the basics of consumption tax settings on Shopify, the specific setup steps, and frequently asked questions.
Understanding consumption tax is unavoidable when running an e-commerce site. Configuring it correctly is necessary not only to comply with the law, but also to earn customer trust and run your store smoothly.
Use this article as a reference to set up consumption tax correctly and achieve sound, worry-free store operations. For details on actual tax settings and year-end processing, we recommend consulting a professional such as a tax accountant.
If you're starting cross-border e-commerce on Shopify and want to learn more about customs duties, please refer to the blog article below.
