Japan: Tax reform proposals approved
Japan’s 2020 tax reform bill has been approved. Some of the most important changes include:
New group relief system
A new group relief system will replace the current consolidated tax rule for tax years beginning on or after 1 April 2022. The new rules aim to simplify the income and loss off-setting mechanism. They allow the offset of income and losses for companies belonging to a wholly owned group.
Anti-avoidance for dividends and capital losses
Anti-avoidance rules have been introduced to help prevent tax avoidance by creating tax losses from the transfer of shares in a subsidiary. The new anti-avoidance rules generally apply from 1 April 2020.
For tax years beginning between 1 April 2020 and 31 March 2022, large companies with share capital that exceeds JPY 10 billion will no longer be allowed to claim deductions for meal entertainment expenses. For companies with share capital that does not exceed this threshold, the deduction of meal entertainment expenses will continue to be limited to 50 percent.
Open innovation tax incentives
An open innovation tax incentive has been introduced for investments in innovative technology venture companies, or start-ups. The incentive offers a 25 percent deduction of the amount invested. To qualify, the start-up must be less than 10 years old and the investment must be more than JPY 100 million for Japanese-based companies, and more than JPY 500 million for foreign start-ups.