The Impact of the 2022 Japan Tax Reforms for Inbound Businesses

On 10 December 2021, the ruling parties (a coalition comprised of the Liberal Democratic Party and Komeito) released an outline of the 2022 tax reforms. This years’ tax law changes are relatively `modest` and should not require companies to make significant structural changes. This newsletter focuses on the areas of the 2022 tax reform most relevant to Japan’s inbound businesses and investors. Therefore it does not comprehensively cover all aspects of this year’s tax law changes. For a more comprehensive overview of the 2022 tax reform, please see the newsletter titled “2022 Japan tax reform outline” issued by EY on 27 December 2021.

The Kishida Cabinet, which was formed in October, strives for a version of capitalism where there is “a virtuous cycle of growth and distribution” … “developing a new post-COVID-19 society.” The Cabinet sees it as vital that companies achieve sustainable growth by increasing investments in R&D and personnel as well as returning profits to a diverse range of stakeholders. As such, through the 2022 Japan tax reform, tax reduction measures have been further enhanced for companies that proactively increase employee wages and those undertaking open innovation, encouraging businesses to transform and increase the value they add.

Out of consideration for the challenges business operators face introducing electronic data retention, a grace period of 2 years will be granted, deferring the mandatory introduction deadline from 1 January 2022 to 1 January 2024. In addition, measures will be implemented in preparation for the upcoming consumption tax invoice system, which is scheduled to be enforced from October 2023.

In October 2021, under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), an international agreement was reached concerning new international taxation rules. Within the outline of the 2022 tax reforms, it is declared that Japan will also establish tax rules in accordance with the international agreement. The government states that it will deliberate on revising domestic law to fulfill this objective while keeping in mind its effects on existing rules to avoid placing excessive burdens on Japanese companies.

Please note that the contents of this newsletter may be partially revised, deleted or supplemented in response to future Diet deliberations on the reform bill.

Contents

• Corporate taxation
• International taxation
• Tax administration

For inquiries in relation to tax matters for Japan inbound investments, please contact any of the following members of our Inbound Tax Advisory Services Team: