2019 Tax Reform Proposals - Announced

On 14 December 2018, proposals for the 2019 tax reform were approved by the Liberal Democratic Party (“LDP”) and the New Komeito Party and were posted on the LDP’s website. (Japanese / PDF)

In terms of corporate tax, R&D tax credits will be revised to further promote innovation and tax relief programs for small and medium sized enterprises will also be amended to achieve sustainable growth.

In the area of international tax, revisions to the earnings stripping rules and the transfer pricing rules align with the OECD’s Base Erosion and Profit Shifting (“BEPS”) projects. Further, additional amendments have been proposed for Japan’s anti-tax haven regime (i.e. CFC rules).

This newsletter highlights some of the 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 general R&D tax credit
(2) Revision of the special R&D tax credit for open innovation
(3) Revision of the criteria for determination as an SME
(4) Extension of certain SME tax incentives
(5) Revisions related to corporate reorganizations
(6) Revisions to local taxes
(7) Treatment of cryptocurrency

2. International Tax

(1) Revision to earnings stripping rules
(2) Revisions to the anti-tax haven regime (i.e. CFC rules)
(3) Amendments to Japan’s transfer pricing rules

3. Individual Tax

(1) Special income tax credit for housing loans when acquiring qualified residences
(2) Establishment of environmental tax (tentative name)
(3) Re-examination of the information exchange policy based on Common Reporting Standards (CRS)

4. Inheritance/Gift Tax

(1) Review conducted following amendment to Civil Code

* This Article is based on the relevant Japanese or specific country’s tax law and other authorities in effect on the date of this Article. This Article would not be guaranteed updating if there are any changes in Japanese tax law, any other law, or interpretations by the courts or tax authorities thereof after the date of this Article.

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