How does Tax work on Digital Items if customer enters a different billing address than storeLocation

Accounting & Taxes
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Topic summary

A merchant using Shopify Markets with Japan as the primary market is uncertain about tax application for digital products when customers have billing addresses outside Japan.

Current Issue:

  • Digital items purchased from the Japan site are charging Japanese consumption tax (JCT) to customers with non-Japanese billing addresses (e.g., Canada)
  • The checkout displays the total in Japanese Yen, including JCT for all customers regardless of location

Tax Rules Clarification:

  • Shopify defaults to applying the store’s primary market tax (JCT) to all sales unless configured otherwise
  • Japanese tax law typically requires JCT only for customers in Japan, not overseas customers purchasing digital goods
  • Without tax overrides, foreign customers are incorrectly charged JCT

Recommended Solution:

  • Configure tax overrides or exemptions in Shopify to charge JCT only to customers with Japanese billing addresses
  • Consider enabling multi-currency support if customers should see prices in their local currency

The merchant needs to adjust their tax settings to comply with Japanese tax regulations for digital goods sold internationally.

Summarized with AI on October 27. AI used: claude-sonnet-4-5-20250929.
1

Hi,

I have enabled Shopify Markets with 2 markets (example Japan and Canada). Japan is the main market.

How does Tax work on Digital Items if customer enters a different billing address than the store location? Please see sample screenshot:

The digital item (so there’s no need to input delivery address) I bought is from Japan site, but my billing country is different country (example Canada or let’s any in another Asian country).

How is the tax here? Do Canadians or Asians customer pay consumption tax in Japanese Yen?

If I got any idea wrong, please do correct me. Thank you.

aih_kimg_1-1750904870865.png
aih_kimg_1-1750904870865.png2171×1256 194 KB

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  • If Your Store Is Set Up in Japan: By default, Shopify will apply Japanese consumption tax (JCT) to all sales, regardless of the customer’s billing country, unless you set up tax overrides or exemptions

  • Digital Goods and International Customers: For digital products, Japanese tax law generally requires you to charge JCT to customers in Japan, but not to overseas customers. However, Shopify’s default settings may still apply JCT unless you configure tax rules to exempt non-Japanese customers

  • In your screenshot, the Canadian customer is being charged Japanese consumption tax, and the total is shown in Japanese Yen45. This suggests your store is not currently set up to exempt foreign customers from JCT.

  • If You Want to Exempt Foreign Customers from Japanese Tax: You need to set up a tax override or exemption in Shopify so that only Japanese customers (billing address in Japan) are charged JCT. Otherwise, all customers, regardless of their country, will be charged Japanese tax by default

  • Currency Display: The checkout will display the total (including tax) in the store’s default currency (Japanese Yen), unless you have set up multi-currency support