Introduction: The Quiet Approach of the "October 2026 Wall"
Japan's Qualified Invoice Preservation Method (インボイス制度) launched in October 2023. Three years in, many freelancers and small IT businesses have coasted on the feeling that "transitional measures are in place, so we're fine for now."
But those transitional measures are changing significantly in October 2026.
The FY2026 Tax Reform Outline (令和8年度税制改正大綱), finalized in December 2025, delivers changes with real impact — especially for freelancers and solo corporations in Japan. This year is your final window to make decisions.
What's Changing: Three Key Points
Point 1: The 20% Special Provision Ends in September 2026
Current system (through September 2026)
Businesses that newly registered for the invoice system — transitioning from tax-exempt to taxable status — have been able to take advantage of the "20% rule": pay only 20% of your sales-side consumption tax as actual tax liability. No need to calculate complex input tax deductions. A huge paperwork relief.
From October 2026 onward
The 20% rule ends completely. A new "30% rule" will be introduced, but only for sole proprietors (not corporations), and for a 2-year limited period.
- Corporations are not eligible for the 30% rule and must choose between standard taxation (本則課税) or the simplified tax calculation method (簡易課税).
- To elect simplified taxation from October 2027 onward, you must file the notification by September 2026 — that deadline is this year.
Point 2: Input Tax Credit for Transactions with Unregistered Vendors Shrinks
When buying from tax-exempt vendors (those who haven't registered for the invoice system), the proportion of consumption tax you can credit against your own tax liability is decreasing:
| Period | Credit Ratio |
|---|---|
| Through September 2026 | 80% |
| October 2026 – September 2028 | 70% (originally planned at 50%, softened to 70% in the reform) |
| October 2028 onward | 50% (phased reduction continues) |
What this means in practice
If you pay ¥100,000/month in consumption tax to unregistered vendors:
- Now (through Sept 2026): ¥80,000 credit → effective burden ¥20,000
- From Oct 2026: ¥70,000 credit → effective burden ¥30,000 (+¥10,000/month)
- From Oct 2028: ¥50,000 credit → effective burden ¥50,000 (+¥30,000/month)
Point 3: Small-Transaction Exception Extended to 2029
For businesses with annual taxable sales under ¥100 million: transactions under ¥10,000 (tax included) can still be credited with just a ledger record, no invoice required. This "small-transaction exception" continues until September 2029. No change here.
Practical Impact for IT Businesses and Freelancers
Calculate Your New Tax Burden Now
If you're using the 20% rule, immediately estimate how your tax bill changes in October. Using annual sales of ¥5 million (¥500,000 consumption tax) as an example:
| Method | Tax Due |
|---|---|
| 20% rule (through Sept 2026) | ¥100,000 |
| 30% rule (sole proprietors, Oct 2026–) | ¥150,000 (+¥50,000) |
| Simplified tax, Type 5 (IT services, 50%) | ¥250,000 |
| Standard taxation (no input credit) | ¥500,000 |
The optimal method varies by industry and expense ratio. Consulting a tax accountant is wise, but start with your own rough calculation first.
Update Your Accounting Software Settings
From October 2026, the consumption tax credit ratio for unregistered vendor transactions needs to change from 80% to 70%. If you use freee or another accounting platform, set a reminder to update this configuration. Forgetting leads to incorrect filings.
Audit Your Vendor Invoice Registration Status
If you outsource to freelancers or individual contractors, verify now which of them are unregistered. From October 2026, your cost structure for these engagements changes, and you may need to renegotiate contracts or adjust your budget model.
Immediate Action Checklist
Freelancers (sole proprietors)
- [ ] Confirm whether you're using the 20% special provision
- [ ] Calculate the impact of switching to the 30% rule in October
- [ ] Evaluate whether to elect simplified taxation (filing deadline: September 2026 for October 2027 start)
- [ ] Consult your tax accountant or use freee's free consultation service
Corporations (small IT businesses)
- [ ] Confirm that the 30% rule does NOT apply to corporations
- [ ] Model standard vs. simplified taxation to determine which is more advantageous
- [ ] Quantify the cost increase from the 70% credit reduction on unregistered vendor transactions
- [ ] Set a calendar reminder to update freee's consumption tax settings on October 1, 2026
- [ ] Build an organized register of key vendors' invoice registration numbers
Conclusion: This Year Is the Last Year to "Put It Off"
Japan's invoice system has been evolving gradually for three years. But October 2026 is the biggest inflection point yet:
- The "easy" 20% rule disappears
- Costs for unregistered-vendor transactions continue rising
- Corporations must actively choose a taxation method
If you've been postponing, act this year. The simplified taxation filing window, in particular, cannot be undone once missed — you'll wait another year.
The end of tax filing season is the best time to revisit your tax structure before the next major change hits.
Related reading: Simplified tax rate by industry type / Setting up consumption tax in freee / Other highlights of Japan's FY2026 Tax Reform
Sources: Kiyosumi Tax Office Column (updated January 2026) / FY2026 Tax Reform Outline (December 2025)
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