On 19 December 2025, Japan’s ruling coalition released the outline of the fiscal year 2026 (Reiwa 8) tax reform proposals. While the proposals introduce several individual amendments to corporate and international tax rules, collectively they reflect a broader recalibration of Japan’s tax policy - one that prioritizes strategic investment, domestic economic substance, and tighter alignment between incentives and measurable outcomes.The proposals reflect a clear policy shift toward targeted incentives that support capital formation, advanced technology development, and economic security, while simultaneously tightening eligibility criteria, reducing reliance on broad-based tax benefits, and strengthening compliance expectations. This article summarizes the key corporate and international tax measures based on publications issued by the Ministry of Finance.
A new Defense Special Corporate Tax has been introduced in Japan pursuant to tax reform legislation enacted on March 31, 2025. As a consequence of this legislative change, Japan’s statutory effective tax rate will be revised.
If you are planning on doing business in Japan, knowledge of the investment environment and information on legal, accounting, taxation and human resource frameworks are essential to keeping you on the right track. This guide has been prepared for the assistance of those interested in doing business in Japan. It does not cover the subject exhaustively but is intended to answer some of the important, broad questions that may arise. When specific problems occur in practice, it will often be necessary to refer to the laws and regulations of Japan and to obtain appropriate accounting and legal advice. This guide contains only brief notes and includes legislation in force as of November 27, 2024.
In December 2024, The Japan National Tax Agency (NTA) has recently issued an update correction to Form of Statement Concerning Foreign Tax Credit for an individual resident taxpayer for 2022 calendar year and thereafter. This correction is concerning foreign income taxes on distribution of collective investment trust income.
Under the 2024 tax reform, the Japanese government strengthened tax credit for salary increase from the perspective of (a) easing the burden on citizens whose wage increases have not kept pace with rising prices, (b) aiming to achieve an economy where wage increases that fully exceed price increases are sustained and (c) supporting efforts to balance work and child-caring and promote the advancement of women. The main points of the revision are the establishment of a new definition called “medium-sized enterprises” and the raising of the tax credit ratio through the establishment of additional deductions for childcare support and the promotion of women's activities.
The deductibility of entertainment expenses under Japan corporate tax law is a complicated topic. This newsletter explains the deductibility of entertainment expenses in general and also in relation to the special sub-category of entertainment expenses for meals and drinks.
Japan's commitment to invigorating its small and medium-sized enterprises (SMEs) took a significant step forward with the announcement of the 2024 fiscal year tax reforms. These reforms, part of the Reiwa 6 year plan, focus on expanding the SME Business Reorganization Investment Loss Reserve System. This policy is tailored to empower SMEs to grow through strategic acquisitions and integrations.
This article explains the impact of the reform of determining a taxable enterprise for consumption tax purposes on foreign owned domestic enterprise and a foreign enterprise for taxable periods beginning after October 2024, based on the amendments.
The size-based business taxation system was introduced in 2004. The size-based business taxation system imposes “a value-added tax” and “a capital-based tax” on companies with stated capital of more than JPY100 million. The taxes are levied even where a corporation is in currently loss position. A value-added tax is levied based on the sum of the distribution of earnings (comprising remuneration and salaries, net interest paid and net rent paid) and profit or loss for a single year, and a capital tax is levied based on the amount of stated capital, capital reserve, other capital surplus etc. as defined by the Corporation Tax Law.
On February 19, 2024, the Organization for Economic Cooperation and Development (OECD) published its final report on Pillar 1 Amount B to simplify and streamline the application of the arm's length principle to baseline marketing and sales activities, with a focus on the needs of countries or regions with low tax enforcement capacity.
Hometown Tax donation (Furusato Nozei) is a system that allows individuals to receive income tax and inhabitant tax deductions for donations made to local governments of their choice. In addition, since the donor can receive return gifts from the recipient local government, the number and amount of such donations have been increasing in recent years attracting more and more attention. This article explains how it works and how the tax amount is reduced.
In accordance with the 2024 Japan Tax Reform, fixed amount of tax credit against National Income Tax and Local Inhabitant Tax will be implemented. This tax credit is a one-time deal and applicable to 2024 National Income Tax and 2024/25 Local Inhabitant Tax payable from June 2024.
In the ever-evolving landscape of international taxation, the Controlled Foreign Company (CFC) regime has emerged as a critical tool for jurisdictions seeking to curb tax avoidance through the strategic allocation of profits to subsidiaries in low-tax jurisdictions. This article aims to unpack the complexities of the CFC regime, with a focus on the recent amendments in Japan, providing a comprehensive understanding for businesses and tax professionals navigating these changes.
An NK is a partnership stipulated in the Civil Code. NKs are sometimes used to design tax shelter products. This bulletin contains an overview of the legal framework of NKs in the Civil Code, tax treatments of NKs, discusses a court case where a judgement was made on a tax shelter structure using an NK and the anti-avoidance rules.
A corporation is allowed to deduct monetary claims when they become fully unrecoverable. Corporation Tax Law Basic Circular (“CTLBC”) lists cases where a deduction of monetary claims is allowed.
On October 8, 2021, it was announced that 136 of the 140 member countries of the OECD/G20 Inclusive Framework on BEPS, representing more than 90% of global GDP, agreed on new international tax rules, which is the Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy (“digital taxation”). As of November 15, 2023, 140 countries/regions have agreed.This digital taxation consists of “Pillar One” and “Pillar Two” and is a response to the situation where the current principles of international taxation are no longer fully functional as the economy becomes increasingly digitalized.
The implementation of Japan's new VAT invoicing system on October 1, 2023, has caused significant disruptions, particularly for Tax-Exemption Businesses. In this analysis, we will focus on the impact of the Invoicing System on general VAT taxpayers, with a particular emphasis on foreign enterprises. The complexities surrounding foreign currency transactions and invoicing regulations present unique challenges that demand a thorough understanding of the new system.
The National Tax Agency (NTA) in Japan announced on 30 March 2023 a change in interpretation of “the end of the accounting period for which the distribution of profits takes place” under (Article 10, Japan Luxembourg Tax Convention (JLTC)), following a case determined by the Tokyo High Court on 16 February 2023.
For the translation of foreign currency transactions and assets and liabilities held in a foreign currency at the end of the fiscal year, the rate used for conversion and the method of conversion for each asset and liability are defined in detail for Japanese tax purposes. Although there have been no major revisions to the tax treatment of foreign currency transactions in recent years, it is necessary to consider the advantages and disadvantages for tax purposes, including the applicability of a special treatment (the so-called “15% rule”) in the event of large fluctuations in exchange rates due to the recent sharp depreciation of the Yen.