APAC Tax Matters: 13th edition

Japan

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At a glance

  • Tax incentives for domestic capital investment
  • Expansion of research and development tax credit

2013 Japan tax reform and update

Tax incentives for domestic capital investment

New tax incentives have been introduced to encourage domestic investment in manufacturing equipment. Taxpayers, who fulfill the following requirements can choose between a special depreciation allowance of 30% of the acquisition cost of investments in machinery and equipment or a national corporate tax credit of 3% of the acquisition price (capped at 20% of the national corporate tax due).

  • The current year (CY) total investment in production assets and equipment exceeds the CY total depreciation expenses.
  • The CY capital expenditure for production assets and equipment has increased by 10% compared to the previous year.

The above would be applicable to fiscal years (excluding the year of formation) beginning between 1 April 2013 and 31 March 2015.

Expansion of research and development (R&D) tax credit

Under the 2013 tax reform, the maximum R&D credit will be increased from 20% to 30% of a corporation’s tax liability. Furthermore, eligible expenses will be expanded to include joint research conducted between corporations based on certain contractual arrangements, such as cost sharing agreements.

The new rule will be applicable for fiscal years beginning 1 April 2013 through 31 March 2015 as a two-year temporary measure.