2023 Japan tax reform outline: Detailed review

Japan tax newsletter 23 March 2023

The ruling parties (a coalition comprised of the Liberal Democratic Party and Komeito) released an outline of the 2023 tax reforms (hereinafter, “Outline”) on 16 December 2022. This newsletter provides an overview of the major amendments and revisions contained in the Outline.

The 2023 tax reform signals a clear commitment from the Japanese government to unleash and ignite the latent potential of individuals, businesses, and local regions of Japan via the intentions embedded in this year’s revisions to tax frameworks. In order to ensure this “virtuous cycle of growth and distribution” continues to flourish, a tax system which encourages investment in the growth of markets, industries, and people must be strengthened across the board, and wide-ranging income redistribution policies must be enacted both in and outside of the tax arena.

The NISA investment scheme will be drastically expanded in scope and duration in an effort to achieve the Double Asset-based Incomes Plan for citizens. New tax incentives will be created, and existing tax incentives will be revised in order to significantly elevate the startup ecosystem and promote the creation and development of new industries. Revisions to R&D incentives will also facilitate an increase in investment activities. Lastly, Pillar 2’s global minimum tax (“GMT”) agreed upon in the OECD/G20 Inclusive Framework on BEPS will come into effect on 1 April 2024.

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

Contents

Corporate taxation

1. Revision of R&D tax rules
2. Revision of tax incentive to promote open innovation
3. Revision of spin-off tax rules
4. Revision of crypto asset mark-to-market valuation methodology
5. Other

International taxation

1. Introduction of global minimum tax
2. Revision of foreign subsidiary income inclusion tax rules (JCFC)
3. Other

Individual income taxation, asset taxation and consumption taxation

1. Expansion of NISA scope and duration
2. Revision of inheritance tax and gift tax
3. Revision of qualified invoice system
4. Creation of tax incentive to spur re-investment in startups
5. Extension of exercise period within stock option rules
6. Strengthened taxation on the income of high-net-worth individuals
7. Other

Tax administration and other items

1. Revision of the electronic book preservation act (e-retention) rules
2. Revision of penalties
3. Tax rules and measures to secure funds for national defense build-up
4. Eco-car tax incentives
5. Other topics