2026 Japan tax reform outline - Translation of Japan tax newsletter which was issued on 21 Jan 2026

Japan tax newsletter 3 March 2026

On 19 December 2025, Japan’s ruling party (a coalition comprised of the Liberal Democratic Party and Japan Innovation Party) released the 2026 Tax Reform Outline (below “the Outline”). This newsletter provides an overview of the major amendments and revisions contained in the Outline.

This will be the first set of tax reforms that the Takaichi administration will be involved in, which set sail under a new coalition with the Japan Innovation Party.

In response to high prices and inflation, a mechanism will be established to raise basic deductions in conjunction with rising costs, and the starting threshold for income tax burdens for all taxpayers will be raised to JPY1.78 million in consideration of low- and middle-income earners. In addition, to support the realization of a “strong economy,” tax measures will be implemented to encourage bold capital investment, including the strengthening of the R&D tax system.

As part of efforts to create an environment that ensures fair and smooth tax compliance, various tax systems including those related to cross-border transactions, the valuation methods for rental real estate under the inheritance tax, and transitional measures associated with the introduction of the qualified invoice system will be reviewed, and a new special income tax for national defense (tentative name) 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. Establishment of a tax incentive system to promote investment in specified productivity‑enhancing equipment and facilities
2. Revision of R&D tax rules
3. Revision of tax measures to promote wage increases
4. Strengthening of non-applicability measures of specified tax credit rules
5. Revision of tax incentive to promote open innovation
6. Mandatory document retention for transactions within corporate groups
7. Revision of the investment book value adjustment system
8. Revision of partial spin‑off tax rules
9. Other

International taxation

1. Aligning with global minimum tax rules
2. Revision of Japanese Controlled Foreign Company (“JCFC”) rules
3. Revision of special provisions for taxation on foreign partners of investment partnership

Individual income taxation

1. Revision of the so‑called “annual income barrier”
2. Expansion of NISA scope and duration
3. Creation of special individual income tax for national defense (tentative name)
4. Revision/extension of the housing loan tax credit
5. Revision of the taxation rules pertaining to crypto asset transactions
6. Revision of measures for the optimization of the tax burden of high‑net‑worth individuals
7. Revision of the blue return special deduction
8. Other

Asset taxation

1. Revisions to valuations of rental real estate and fractionalized real estate products
2. Other

Consumption taxation

1. Revisions to consumption tax on cross‑border e‑commerce
2. Revision of qualified invoice system
3. Other

Tax administration and other items