What Are the Tax Risks of Reselling? Explaining Examples of Underreporting and Countermeasures

More and more people are sourcing products from China as a side business and selling them on flea market apps and online stores.

If you engage in such for-profit transactions on a regular basis, they may be considered a “business” for tax purposes, and you may be required to file a tax return.

In 2025, a case involving the resale of luxury cars and approximately 500 million yen in unreported income made headlines.

In this article, drawing on this case, we will clearly explain the tax risks inherent in the China import business and the basic knowledge necessary to continue your business with peace of mind.

Lessons from the Former Chairman’s Underreporting Incident

In June 2025, reports emerged that the former chairman of a medical corporation in Osaka City had failed to declare approximately 500 million yen in income, drawing significant attention.

According to reports, the former director resold luxury cars, such as Ferraris, multiple times over a four-year period and failed to declare the profits on his tax returns.

The amount of back taxes is expected to reach approximately 300 million yen.

The essence of this case is that even if buying and selling began as a “hobby,” if it is carried out repeatedly and continuously with the aim of making a profit, it is considered a “business” for tax purposes and becomes subject to taxation.

In other words, whether an activity is taxed or not depends largely on whether it is judged to be the disposal of personal property or a transaction for profit.

Such tax risks are not limited to the trade of luxury cars; they are a very real concern for those who, for example, source goods from China for domestic resale, or those who sell goods as a side business using flea market apps or online shops.

In this article, using this case as a starting point, we will clearly outline the tax risks that those involved in import businesses or online retail should be aware of, as well as key preventive measures to keep in mind on a daily basis.

Where Does Taxability Begin? The Line Between "Hobby Trading" and "Business Income"

First, it is important to note that there are no clear legal “thresholds” regarding the number of transactions or the amount of revenue used to determine whether an activity is subject to taxation.

However, based on guidelines such as the “Basic Circular on Income Tax,” the tax office comprehensively considers the following factors to determine whether an activity constitutes a “business.”

[Key Factors That Often Lead to Taxation]

・Sales activities are carried out repeatedly and continuously (Guideline: 2–3 times or more per month)

・Purchases and sales are conducted in a planned manner and for profit

・Annual income exceeds 200,000 yen (*For salaried employees, this triggers an obligation to file a tax return)

・Use of social media accounts or bank accounts dedicated to sales

・Suppliers and customers are identified, and the network is continuously expanding

If multiple of these conditions apply, the tax office tends to view the activity as “a for-profit business operation, not merely an extension of a hobby.”

For example, in a case reported in 2025 involving a former director of a medical corporation, the individual was found to have continuously resold multiple luxury cars, such as Ferraris. This was judged to be “resale for profit” rather than “private disposal,” and approximately 500 million yen in unreported income was identified.

While the size of the transaction amounts was certainly a factor, it appears that the repetition and profitability of the transactions were given greater weight.

Such criteria may similarly apply to continuous sales activities, such as those involving the import of goods from China or the use of flea market apps.

It is important to understand that even if the goods being handled are secondhand or the scale of the transactions is small, if you are generating a certain amount of profit through continuous sales, there may be cases where you are required to file a tax return as “business income” or “miscellaneous income.”

Tax Points Often Overlooked in the China Import Business

Income exceeding 200,000 yen per year is subject to tax filing

Even if you started importing from China as a side business or to earn extra money, you are required to file a tax return if your annual income (i.e., sales minus necessary expenses) exceeds 200,000 yen (*for those with salary income).

This 200,000 yen threshold is one of the criteria for the obligation to file a tax return as defined by the National Tax Agency.

Reference: Salaried employees are required to file a tax return if their “income other than salary and retirement income” exceeds 200,000 yen annually (Article 121 of the Income Tax Act).

For example, if you have monthly income of 20,000 yen, that alone amounts to 240,000 yen over the course of a year, triggering the obligation to file a tax return.

Furthermore, even if your income is less than 200,000 yen, if your annual sales exceed 1 million yen, it is generally considered more likely that the tax office will determine that your activities have a “business-like nature.”

Particular caution is required if you are continuously selling goods through flea market apps or online stores.

If your sales are growing steadily, you should also be aware of your obligation to file consumption tax returns.

Article 9 of the Consumption Tax Act stipulates that "if taxable sales for the year before last exceed 10 million yen, the business becomes a taxable entity for consumption tax starting two years later."

Example: Sales of 12 million yen in 2025 → Becomes a taxable business for consumption tax in 2027

Once you become a taxable business, you are obligated to add consumption tax to the price when selling goods, while also needing to deduct the consumption tax paid on purchases and expenses (input tax credit).

Therefore, bookkeeping and expense recording must be handled with even greater precision than when operating as an exempt business.

Considering a switch to the blue-form tax return system, implementing accounting software, or consulting with a tax accountant at this stage will help prevent future problems.

If you neglect bookkeeping while remaining a tax-exempt business, you risk facing back taxes after becoming a taxable business, so early preparation is crucial.

Why Managing Purchase Records and Invoices Is Important

In the China import business, relying on vague estimates like “purchases were probably around this amount” poses significant risks for tax compliance.

This is particularly true for purchases made through agents, where the order and payment processes tend to be complex, and it is not uncommon for business owners to not keep receipts or invoices themselves.

However, clearly managing details such as “where,” “what,” and “at what price” you purchased goods serves as the most powerful evidence to prove that you have “reported accurately” during a tax audit.

Key Items to Keep Track Of

・Purchase Invoices

Documents clearly stating the product name, quantity, unit price, total amount, currency, and transaction date.

These are extremely important as they serve as the basis for customs clearance and consumption tax calculations.

・Payment records for shipping costs and fees

Detailed records of logistics costs, customs duties, and agency fees.

Since these can be recorded as expenses, it is necessary to retain them as supporting documents.

・Sales Records (Sales Ledger, Order Details)

Records showing when, which products, and at what price they were sold.

If linked to purchase data, this enhances the reliability of profit calculations and income tax returns.

Whether or not you organize and retain this information directly affects the tax office’s trust in your business.

During actual audits, you may be asked to present up to seven years’ worth of ledgers and supporting documents (*Blue Return filers are generally required to retain records for seven years, while White Return filers must retain them for five years).

Explanations such as “I don’t remember well” or “I don’t have a record” will not be accepted by tax authorities.

Maintaining proper documentation of purchases and sales serves as a “foundation of credibility” that will be useful during future tax audits and when applying for loans.

Record management is undoubtedly one of the essential practical tasks for sustaining an import business.

The Reality of Tax Audits: “I Didn’t Know” Is No Excuse

In the past, many people believed that “if it’s just a side business, not filing a return wouldn’t be a problem.” However, today, even for individual-level transactions, the tax office’s monitoring system has been strengthened, and the risk of being detected has increased significantly.

Information from e-commerce platforms, cashless payments, and bank accounts is subject to information requests and data sharing by the tax authorities, allowing them to grasp the actual situation far more accurately than before.

Examples of activities likely to be targeted for investigation

・Those with a history of continuous sales on platforms such as Mercari, Rakuma, BASE, or Rakuten Ichiba

・Using payment services such as PayPay, Rakuten Pay, or Stripe

・Regular "sales deposits" can be confirmed in your bank account (even personal accounts are subject to scrutiny)

Since 2022, the National Tax Agency has been strengthening its collection of information regarding “side income” and “flea market transactions.” Through the adoption of cloud-based accounting systems and information provided by platform providers, the National Tax Agency has made it clear that individual import sales and online transactions may also be subject to tax audits.

Scope of Tax Audits and Penalties

If a tax audit is actually conducted, it is common to be asked to present books and transaction records covering the past 3 to 7 years.

In particular, those filing blue-form tax returns are required to retain records for seven years, and any deficiencies may result in the imposition of a heavy surcharge.

Additionally, if you have not filed a tax return, you may face the following additional penalties:

・Non-filing surcharge (15%–20%)

A surcharge imposed when a tax return has not been filed.

・Late payment penalty

A tax similar to interest imposed on the period by which the payment is late relative to the original due date.

For example, if you have an annual income of 500,000 yen but fail to file a tax return, it is not uncommon to face additional tax assessments of 70,000 to 100,000 yen or more on top of the tax liability.

Even if you rush to organize your books after being notified by the tax office, incomplete historical data undermines credibility and makes corrections time-consuming and labor-intensive.

That is why it is important to manage your records and prepare your tax return early, rather than thinking, “It’s just a side job, so it’s fine,” or “The amount is small, so it’s no problem.”

Points Hubbuyer Users Should Note

Transparency in Product Classification and Import Records Is the First Step in Tax Planning

In businesses that source and sell products from China, accurately recording “what,” “at what price,” and “from where” you sourced items is directly linked to avoiding tax risks.

In particular, when purchasing goods such as general merchandise or apparel, it can be difficult to distinguish between “personal shopping” and “purchases for business purposes.”

Therefore, maintaining proper accounting records and supporting documentation is extremely important.

The following information is essential for filing tax returns and responding to inquiries from the tax authorities:

・Invoices clearly stating the product name, quantity, and unit price

Including details such as currency, date, and supplier in your records enhances their reliability.

・Proof of payment for shipping costs, customs duties, and agency fees

These are necessary to have these expenses recognized as legitimate business expenses.

・Sales records (sales ledger)

A record clearly stating which products were sold, when, to whom, and for how much.

It is important that these records correspond with purchase records.

In particular, whether the contents of your ledgers match your supporting documents directly impacts your eligibility for blue-form tax filing and serves as a key evaluation criterion during tax audits.

To enhance the reliability of your tax return, it is essential to make it a habit to maintain accurate records on a daily basis.

Note: Under tax law, the retention period is 7 years for blue-form filers and 5 years for white-form filers (Article 63 of the Enforcement Order of the Income Tax Act).

*Please note that the retention period may be extended in cases of late filing or failure to file.

Consult a professional if your annual sales exceed 3 million yen

Even if you start import sales as a side business, tax and accounting matters become significantly more complex once annual sales reach the 3 million to 5 million yen range.

This is because the following issues will arise:

・Consumption tax registration

If your taxable sales for the year before last exceed 10 million yen, you will become a taxable business entity for consumption tax starting two years later (Article 9 of the Consumption Tax Act).

・Increase in income tax rates

If your taxable income exceeds 1.95 million yen, the tax rate rises from 10% to 20%, which can cause your tax liability to surge.

・Increased complexity of accounting procedures

There will be an increase in situations requiring accurate bookkeeping, such as managing inventory, recording depreciable assets, and allocating business expenses when using your home for business purposes.

Once you reach this stage, it is time to consider adopting the blue-form tax return system, utilizing accounting software, or consulting with a tax accountant.

If you continue to handle tax matters on your own, you run a higher risk of missing out on deductions you are entitled to or facing additional tax assessments due to incorrect filings.

Even if it’s a side business, if you aim to expand it as a business, “reviewing your tax structure” is an essential part of your growth strategy. Early preparation is key to ensuring stable management in the future.

A case reported in 2025 involving the resale of luxury cars by a former director of a medical corporation served as a stark reminder that “regardless of scale, the repeated sale of goods can be subject to taxation as a business activity.”

This lesson also applies to side hustles and small-scale businesses involving imports from China.

Even if monthly sales are only a few tens of thousands of yen, if the activity is deemed to be for profit and ongoing, it may be considered a “business” for tax purposes, potentially triggering an obligation to file income tax and consumption tax returns.

To avoid this, it is important to first clearly distinguish between “hobbies” and “business” for yourself and accurately record sales, profits, expenses, and inventory.

By maintaining basic records such as ledgers and invoices on a daily basis, you will enhance your credibility with the tax authorities and be able to respond appropriately in the event of an audit.

In today’s world, where side hustles and personal businesses are becoming commonplace, “whether you can act with tax awareness” is the deciding factor in growing your business sustainably.

To ensure you can continue your import business with peace of mind, please take this opportunity to review your transaction history and bookkeeping practices.