2018 Tax Reform Proposals - Announced

Japan:Inbound Tax Alert December 2017, No.26

On 14 December 2017, proposals for the 2018 tax reform were announced by the Liberal Democratic Party and the New Komeito Party. (Japan:Inbound Tax Alert December 2017, No.26)

Under this tax reform, among other changes, tax credits and incentives will be expanded for companies which increase wages and capital investment, while a measure to disallow certain incentives for companies which do not increase wages or capital investment will be implemented. Also, the definition of a permanent establishment (“PE”) will be expanded to align Japanese tax law with the definition under the OECD’s Base Erosion and Profit Shifting project. Also, significant revisions will be made to the individual income taxation.

Please see below for a list of some key items that may affect foreign companies doing business and individuals residing in Japan. It should be emphasized that these proposals have not been enacted and could change prior to becoming law.

1. Corporate Tax

(1) Revision of wage increase tax incentives
(2) Introduction of information collaboration tax incentives
(3) Disallowance of R&D and other tax incentives
(4) Revisions related to corporate reorganizations
(5) Clarification of revenue recognition rules

2. International Tax

(1) Revision to PE related provisions
(2) Amendments to the anti-tax haven rules (i.e. CFC rules)
(3) Revisions related to real estate rich companies

3. Individual Tax

(1) Revision of employment income deductions
(2) Revision of the public pension income deductions
(3) Revision of the basic exemption structure
(4) Revisions related to spousal, special spousal, and dependent deductions
(5) Deductions for income adjustment
(6) Revision of blue form tax return deductions

4. Inheritance/Gift Tax

(1) Revision of inheritance/gift tax obligations for foreign nationals after leaving Japan

5. Consumption Tax

(1) Revised place of supply rules for the transfer of securities, etc.
(2) Introduction of international tourist passenger tax

6. Other

(1) Mandatory e-filing
(320KB, PDF)
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