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The FY2026 Tax Reform Outline (published Dec 12, 2025) introduces tighter documentation rules for intra-group transactions, affecting companies of all sizes. This measure specifically targets arbitrary pricing or lack of documentation for intra-group services (including IP transfers and loans), such as shared cost facilities.

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.

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.

The electronic preservation system for books and documents is a system for storing books,receipts, invoices, financial statements,and other national tax related documents that are required to be preserved under tax law in electronic data format instead of paper format, and is divided into the following three categories. The system is stipulated in “ the Act on Special Provisions concerning Preservation Methods for Books and Documents Related to National Tax Prepared by Means of Computers(“the Act").

Under the 2022 tax reform, the Japanese government will strengthen tax incentives for companies that actively raise wages, in order to encourage companies to return profits to their employees in order to realize a virtuous cycle of growth and distribution.

Under Japan’s traditional employment practice represented by lifetime employment and seniority-based wage systems, employees’ wages increased at an accelerated speed during the later years of career.