The Impact of the 2024 Japan Tax Reforms for Inbound Businesses: Detailed Review

Japan tax newsletter 27 March 2024

The fiscal year 2024 tax reform outline was released on 14 December 2023. This year’s tax reform aims to promote growth, increased productivity, and sustainability. The corporate tax aspects of the reform include both immediate measures, such as measures to encourage wage growth, as well as measures to promote long term growth. Prime Minister Fumio Kishida says that these reforms will work in tandem with a stimulus package passed in November worth 17 trillion Yen (USD 119 billion) and will help “achieve a virtuous cycle in the economy.”

The immediate measures include further incentives to increase wages, building upon Kishida’s “new capitalism” program to encourage wealth re-distribution through higher wage growth in Japan.

The longer-term measures include tax credits for companies that produce or sell products that are critical for economic security and decarbonization, such as electric vehicles and semiconductors. The tax credits themselves are only available for 10 years (with a carry-forward period of 3 or 4 years), but the hope is that the additional investment in these sectors will promote longer term, sustainable growth in the Japanese economy. Another measure designed to support long-term growth is the proposed innovation box regime which will promote the development of intellectual property in Japan.

The tax reform also includes a series of changes to the Japanese consumption tax law. This includes a new requirement for platform operators to remit consumption taxes on behalf of foreign digital service businesses as well as other changes to reduce tax avoidance.

Preventing tax avoidance is one of the aims of another aspect of the tax reform – namely the changes to the scale based taxation component of Japan’s enterprise tax, one of the local taxes in Japan.

The focus of this year’s tax reform on stimulating the economy has led the government to delay planned tax increases on corporate, income, and tobacco taxes. These tax hikes were planned to fund increased defense spending (expected to reach 43 trillion yen for the 5-year period fiscal 2023 to fiscal 2027). But Yoichi Miyazawa, who chairs the Liberal Democratic Party’s tax panel, said in December that “under the current political circumstances, it is difficult to make a decision this year” on the timing of the tax hikes. He did express the hope, however, that the increase will begin in fiscal 2026.

It's important to note that some provisions of the proposed tax reform may be amended, deleted or added to during deliberations of the National Diet regarding the reform bill. The final tax reform legislation is expected to be passed by 1 April.

Contents

• Corporate taxation
• Consumption tax
• International taxation
• Individual income taxation
• Tax administration
• Mobility – Immigration