Update of Tax Losses under Japan Tax Law

As part of the 2025 tax reform, revisions have been introduced to reduce the tax burden amid rising wages and to aid flexible employment arrangements. The reform includes an increase in the basic exemption and the minimum amount of the employment income deduction, as well as the introduction of a new special exemption for specific dependents.

In recent years, with the spread of teleworking and the diversification of international work styles, there has been an increasing number of cases where employees of foreign corporations stay in Japan and continue working remotely. While such work arrangements allow companies to utilize human resources more flexibly, they may also give rise to Permanent Establishment (PE) risks in Japan. The determination of a PE directly affects the attribution of taxing rights in Japan, making proper analysis and appropriate responses essential.

Many companies in Japan conduct lease transactions, such as office leases, copiers and vehicles, and these lease transactions are accounted for in accordance with IFRS, US GAAP or Japan GAAP and so on. Japan corporate tax law has particular treatments for lease transactions. This article provides an overview of leases from the lessee's perspective.