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Executive summary
The Japanese Government has identified the space industry as one of the priority growth areas and has decided to launch a US$6.4b Space Strategy Fund for the Japan Aerospace Exploration Agency (JAXA) to support private entities and universities to develop and commercialize advanced space technology.
This Alert explains what the stated objectives of the Space Strategy Fund are, what technology development policies are in place and what technology development themes have been identified.
The last section of the Alert provides an overview of funding opportunities expected to be available for private entities, including funding for research and development (R&D) expenses and various subsidies related to the various technology development schemes.
Background
Human activity in space is expanding and initiatives to use space technology to solve Earth's problems are becoming fully fledged projects. Space exploration and exploitation are driving change in the planet's socioeconomic landscape.
As more countries place greater emphasis on space exploration, the advancement of innovative technology is propelled forward. With competition over space utilization showing no signs of slowing down, technical innovation and reinforcing wider technological capabilities have emerged as urgent challenges for Japan.
The Cabinet of Japan approved the Basic Plan on Space Policy1 on 13 June 2023, with its Implementation Plan announced on 22 December 2023 by the Outer Space Development Strategy Headquarters, a Cabinet organization established by the Basic Space Law.
As the Japanese government aims to improve the nation's economic growth rate through enhanced productivity and production capacity, outer space and the world's oceans are positioned as new territories for expanding markets and driving inbound investment. As part of the "Comprehensive Economic Measures to Break Completely Away from Deflation,"2 approved on 2 November 2023, the Cabinet announced its intention to expedite the submission of a bill to establish the Space Strategy Fund, a 10-year R&D fund for the JAXA. The objective of the fund is to support private entities and universities over several years to develop, demonstrate and commercialize advanced space technology. During the initial phase, budgets will be prioritized to cover the running costs of the fund, but the government intends to rapidly scale up the fund to reach US$6.4b (approximately equivalent to JPY1t if US$1 = JPY156). A series of space projects will be conducted in collaboration with the Japanese Defense Ministry and with the full support of the Japanese government, which has identified the space industry as the country's priority growth sector. Particular focus is being placed on the development and launch of H3 Launch Vehicles (rockets) for establishing satellite constellations, participation in the Artemis Program, establishment/R&D of constellations consisting of satellites for Quasi-Zenith Satellite System (QZSS), and development of a next-generation meteorological satellite.
The Cabinet of Japan, Ministry of Internal Affairs and Communications (MIC), Ministry of Education, Culture, Sports, Science and Technology (MEXT) and Ministry of Economy, Trade and Industry (METI) have joined together to establish the Space Strategy Fund for JAXA, which will have broadened supervisory powers to manage the fund. Their collective goal is to accelerate space transformation by empowering private entities and universities to conduct planned R&D activity over the course of several years.
The fund is expected to function as a strategic yet flexible financial resource for private entities, universities and national research institutions, with a total of US$1.9b (US$154m from MIC, US$962m from MEXT and US$808m from METI) allocated from 2023 supplementary budgets. The Cabinet and each ministry published its respective basic and implementation policies for the fund on 26 April 2024.
Space Strategy Fund objectives
The fund is aimed at solving, accelerating or strengthening areas related to three goals: market expansion, solving social issues and frontier exploration.
- Expand the space industry by increasing the size of the commercial space market from JPY4t in 2020 to JPY8t by the early 2030s, in line with the Basic Policy on Space Policy.
- Solve global/social issues from space by leveraging space technology to provide solutions to global issues (e.g., energy, environment, agriculture, forestry, fishery, public health, water resources and climate change), achieve Sustainable Development Goals and contribute to national security.
- Cultivate knowledge of space and enhance essential technologies.
Technology development policies
The Space Strategy Fund aims to accelerate development of technology in the fields of space transportation, satellites and space exploration in line with the policies summarized in the chart below.
Technology development themes
On 28 March 2024, the Committee on National Space Policy approved the Space Technology Strategy,3 which specifies priority technology areas and timelines for space transportation, satellites, space science/exploration and shared technologies and provides guidelines to ministries for selecting technology development themes for the Space Strategy Fund. It also stipulates that the selected themes should ensure that private entities and universities (not JAXA) initiate the research to advance technology development more effectively.
The Ministry of Internal Affairs and Communications (MIC),4 Ministry of Education, Culture, Sports, Science and Technology (MEXT)5 and Ministry of Economy, Trade and Industry (METI)6 have allocated 2023 supplementary budgets to fund a total of 22 technology development themes selected in line with the Space Strategy Funds implementation policy.
Types of available funding
Private companies, universities, national R&D corporations7 and other organizations that have R&D and legal corporate status in Japan are eligible for funding.
In addition, the principal researcher from the representative organization and a co-researcher from an affiliated organization must be residents of Japan.8
The amount of indirect expenses to conduct R&D can be up to 30% of direct expenses, and the amount of subsidies for private companies can be up to 10% of direct expenses, depending on the nature of each R&D theme, as well as the purpose of the expenses and scale of the relevant organization.
Expenses for (i) the application of intellectual property rights, (ii) appropriate information management, and (iii) rocket procurement and satellite frequency adjustment may be direct expenditure provided their need and suitability have been confirmed previously by JAXA.
The funding support period is limited to a maximum of 10 years and the implementation policies define the criteria for each technology development theme. The support funds are provided to private companies, universities and other organizations in the form of funds for a project commissioned or subsidized by JAXA. As the funding agency, JAXA will commission projects for specific themes that are preferably managed by JAXA, such as technology development where the benefits to the user are intangible or are difficult to predict (e.g., technology development that is currently difficult to monetize), innovative technology development where the technology is not yet mature and commercialization would take substantial time, or technology development in the form of a collaborative/essential domain that greatly benefits Japanese industries.
However, projects will be subsidized where there is a substantial expected benefit to users, including (future) commercialization by private companies.
The distinction between commissioned projects and subsidized projects is defined for each technology development theme, and the upper limit of the subsidy rate for subsidized projects is specified for each type of technology development theme, as shown in Table 3, below.
"SMEs" refers to small and medium-sized enterprises as defined in Article 2, Paragraph 14 of the Basic Act on Science, Technology and Innovation. "Startups" refers to SMEs as defined in Article 2, Paragraph 14 of the same Act that have been established within the previous 15 years, barring some exceptions, and includes J-Startup and regional J-Startup Selected Startups.
Article 2-2-2-8 of the same Act also covers technical research associations in which more than two-thirds of the direct or indirect members are SMEs.
Given the objectives of the fund, JAXA will select technology development projects aligned with the following points. The evaluation criteria for each technology development theme are also defined in the Implementation Policy.
- The project should have a plan that is feasible and effective for the creation and commercialization of technologies that can materially contribute to achieving the targets and related indicators for the project, and the performance targets for each technology development theme.
- The project should be advanced and unique in respect of domestic and international technology development trends aiming at commercialization of such technology development theme in the near future). The project is also positioned in the management strategies of the organization that conducts it, and there is a commitment from management for market development. In addition, the project is expected to have future potential for raising private funding, including valuation by financial institutions offering venture capital.
- The project has an effective system relative to the technology development resources of the overall space industry in Japan. In addition, the principal researcher and co-researcher on the project should be able to exercise leadership and management to achieve the project goals.
- The project possesses a framework that can utilize technology development results, technology development data, intellectual property rights, etc. The project has the necessary plans and systems in place to manage information related to technology development.
In the interest of strengthening industrial competitiveness, situations that are expected to particularly benefit to Japan, such as by setting off positive ripple effects for domestic industries, the organization receiving support may conduct international joint research and demonstrations with allies and like-minded countries. These activities may be undertaken provided that JAXA and each Ministry are consulted beforehand and (i) the activities provide sufficient added value to domestic industries, (ii) sufficient consideration is given to the use of technology development results and the risk of technology information transfer to overseas, and (iii) appropriate technical information management and intellectual property management are in place.
Project management structure
JAXA has announced that it will establish a third-party assessment body, composed of external experts, to conduct rigorous and fair examinations and evaluations and to implement technology development management that leverages its own advanced and specialized knowledge and experience.
JAXA will establish a steering committee to manage the overall fund, appointing a chairperson who will be titled the Program Director (PD). In addition, there will be a Program Officer (PO) for each R&D theme (space transportation, satellite, space exploration, etc.). For each project, the PO will have final decision on the adoption of each R&D theme, stage gate evaluations, project suspensions, reviews, project acceleration and overall coordination.
JAXA will set milestones according to technology development themes and technology development issues, confirm progress through stage gate evaluations, measure the feasibility of social implementation, and review the technology development issues (including changes in budget allocations and cancellations) as necessary.
What's next
JAXA will invite applications from the public sector for each technology development theme as stipulated in the Implementation Policy of the Space Strategy Fund Basic Policy. Each company should come with an understanding of the Implementation Policy of the Space Strategy Fund Basic Policy and prepare its submission of a technology development theme by carefully examining its own space business development plans, establishing systems that facilitate technology development (such as collaborative research with other organizations) and securing funds for out-of-pocket expenses that exceed the maximum subsidy rate.
Contact Information |
For additional information concerning this Alert, please contact: Ernst & Young Tax Co., Tokyo
Ernst & Young LLP (United States), Japanese Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
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Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert. |
