2024 Japan tax reform outline - translation of Japan tax newsletter which was issued on 16 Jan 2024

Japan tax newsletter 11 March 2024

On 14 December 2023, Japan’s ruling party (a coalition comprised of the Liberal Democratic Party and Komeito) released the 2024 Tax Reform Outline (below “the outline”). This newsletter provides an overview of the major amendments and revisions contained in the outline.

The 2024 tax reform has labeled the challenge of sustaining wage growth in a manner that outpaces inflation as one of its key priorities. To achieve this crucial task, this year’s reform proposes a one-time fixed amount reduction of individual income and inhabitant tax, as well as the strengthening of incentives which encourage companies to increase wages. Another goal of this year’s reform is the strengthening of supply capacity through promoting the accumulation of capital and further improving productivity. On these fronts, measures such as a tax credit regime to promote domestic production in strategic industries and an “Innovation Box“ regime will be introduced. Also, measures to significantly enhance the startup ecosystem will be implemented.

Furthermore, tax revisions will be introduced to increase the public’s trust in Japan’s tax system and to address the economic and social structural changes affecting Japan and the international community, including declining populations and economic globalization. The government is actively implementing a host of initiatives to combat the declining birthrate, with various measures designed to aid taxpayers who are parents also being implemented across the tax system.

Finally, in an effort to respond to the issue of globalization, the global minimum tax (“GMT”) will be gradually legislated upon, and new systems such as platform taxation will also be introduced.

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

Contents

Corporate taxation

1. Tax incentives encouraging wage increases
2. Creation of tax credit to promote domestic production in strategic industries
3. Creation of the “Innovation box” regime
4. Revision of R&D tax rules
5. Revision of size-based enterprise taxation
6. Other
    

International taxation

1. Revision of top-up tax assumed as corporate tax
2. Revision of qualified capital contributions in kind
3. Revision of Japanese Controlled Foreign Company (“J-CFC”) rules
4. Establishment of reporting system for the automatic exchange of information requests related to crypto asset transactions of non-residents
5. Other
    

Individual income taxation

1. One-time fixed amount reduction of income tax and inhabitant tax
2. Revision of dependent deduction (2025 tax reform)
3. Revision of housing-related tax credit for households with children
4. Revision of stock option rules
5. Expansion of angel investor tax rules
    

Consumption taxation

1. Introduction of platform taxation
2. Revision of tax-exempt enterprise system used by foreign businesses
3. Revision of simplified taxation rules
4. Revision of consumption tax exemption rules for foreign tourists (2025 tax reform)
5. Other
    

Asset taxation

1. Fixed asset tax
2. Business succession tax rules
    

Tax administration

1. Additions to heavy additional taxes
2. Secondary tax liability on representatives of companies committing fraud to avoid taxes
3. Other