CFO Insights 2022 February

2022 Japan Tax Reform Proposals

CFO Insights is a monthly publication that delivers an easily digestible and regular stream of perspectives on the challenges confronting CFOs. In this month’s edition, we pick-up a few tax proposals which could be of interest to foreign companies doing business in Japan.

Stimulating domestic economy and modernizing the workforce, has been the cornerstone of recent Japanese legislations. The new Japanese prime minister – Mr. Fumio Kishida - had based his 2021 election campaign on promises of wealth redistribution and inducing a ‘New capitalism’ in the society. With these overarching themes, the 2022 tax reform was announced by the coalition of ruling parties and has now been submitted for approval before the Diet.

In this article, we pick-up a few tax proposals which could be of interest to foreign companies doing business in Japan.1

Tax reforms impacting corporations

1. Revisions in tax credits for wage increase

Large companies which increase the wages of their continuously employed employees by at least 3% (as compared to previous financial year) can get tax credits ranging from 15% to 25% of the total wage payment increase. Small/Medium sized enterprises (“SME’s”) on the other hand can get similar tax credits up to 30%. These tax credit percentages may further increase by 5% to 10%, if the companies undertake additional investment towards training their employees.

With an aim to promote accountability and demonstrate change, large companies exceeding certain size must announce their policies on wage increase and other specified items online.

The aforesaid incentive is temporary and only available for the fiscal years beginning from 1 April 2022 until 31 March 2024.

2. Revisions to disallowance of R&D and certain other tax incentives for large companies

After the 2018 tax reform, large companies were prohibited from claiming R&D tax credit and certain other tax credits if they did not raise the wages of their continuously employed employees, as compared to the base of previous financial year.

Under 2022 tax reform, this provision is proposed to be further tightened. The minimum percentage rise in wages has now been stipulated at 0.5% for fiscal years beginning 1 April 2022 to 31 March 2023 and 1% thereafter. The new provision is aimed at those large companies which are unwilling to increase the wages of their employees, despite increase in their corporate profits.

3. Revisions to tax incentives for promoting open innovation

The tax incentive program for promoting open innovation, which allows a tax deduction for investments made in venture companies, was set to expire on 31 March 2022. This program will be extended by 2 more years, I.e. up to 31 March 2024. Certain other aspects of this incentive program have also been relaxed.


4. Expansion of the scope of earnings stripping rules

The scope of earning stripping rules for foreign corporations (both having a PE or not having a PE in Japan) is proposed to be expanded. These rules will now apply to all Japan sourced income which is subject to Japanese corporate tax, regardless of whether it is attributable to PE or not. Consequently, rental income derived by foreign corporations from Japanese real estate etc. could also be subject to earning stripping rules.

5. Revisions of withholding tax for dividend income from 100% owned domestic subsidiaries etc.

Dividend received on or after 1 October 2023 from wholly owned domestic subsidiaries and domestic affiliated companies, whose (at least) one third outstanding shares are directly owned, would no longer be subject to withholding tax.

6. Transitional measures for preservation of electronic transaction records.

In a recent CFO Insight article titled “Updates to Japan’s document preservation rules may require companies to retool their record retention processes” , we highlighted the requirement for companies retain electronic documents electronically by 1 January 2022 to be compliance with new electronic record retention rules. However, the 2022 tax reform provides a transition period until 31 December 2023 (under certain conditions) to allow companies more time to comply with these rules.


Revisions to assets and liabilities report for individual taxpayers

While the filling due date will be extended, the scope of taxpayers who are obliged for filing an assets and liabilities report will be expanded to taxpayers who own high-value assets regardless of their taxable income even if their taxable income amount is not high.

Also, for reports related to 2023 and after, the safe harbor rule for late filing will be limited to the cases where the taxpayer files the reports before he/she is notified of the tax investigation.


The new rules proposed to be introduced by 2022 Japan tax reform are aimed to encourage the creation of new business industries and allow existing businesses to innovate.

However, some of the proposal may narrow privilege with additional requirements especially for large companies or persons who own high-value assets. As such, companies should appropriately correspond to the new rules, depending on their situation.

Although the 2022 Japan tax reform does not include specific details, the government intends to introduce measures related to digital taxation and global minimum taxation, which are currently being worked by the OECD and the G20, in the future.

As the proposal includes a wide range of new rules, and future revisions are also expected, we recommend that companies seek advice from their tax advisors for analyzing a company’s particular needs in connection with such new rules and developing an action plan before the new rules take effect.



1. For additional detail on the various measures introduced in the 2022 tax reform proposal, please refer to our Tax & Legal Inbound newsletter.


If you would like more information, please speak to Jun Tamura ( or Brian Douglas (

Additional resources

2021 Tax Reform Proposals - Announced

As part of its 2021 tax reform package, the Japanese government has introduced 2021 Tax Reform Proposals - Announced
With the background of economic recovery from COVID-19, this year’s proposals include the establishment of tax incentives for investments in digital and green technologies, both areas of focus which the Japanese government has identified going forward. In addition, R&D tax credits, tax administrative procedures, and certain financial industry related provisions, among others, will be amended.
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