2021 Tax Reform Proposals - Announced

Japan Tax & Legal Inbound Newsletter 25 December 2020, No.64

On 10 December 2020, proposals for the 2021 tax reform were announced by the Liberal Democratic Party (“LDP”) and the New Komeito Party and were posted on the LDP’s website.

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.

This newsletter highlights some of the key items that may affect foreign headquartered 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) Establishment of tax incentives for investments in digital transformation
(2) Establishment of tax incentives for investments in becoming carbon neutral
(3) Temporary removal of limitations on NOL utilization
(4) Revision of R&D tax credits
(5) Revision of tax credits for wage and investment increases
(6) Extension of disallowance of R&D and certain other tax incentives for large companies by three years
(7) Relaxation of requirements on deductibility of certain profit-linked director compensation to promote Japan as a financial hub
(8) Introduction of the tax provisions for promoting newly introduced share acquisition regime using equity considerations under the revised Companies Act

2.  International Tax

(1) Revisions to earnings stripping rules
(2) Revision of calculation of non-deductible interest on debt allocable to a Japanese permanent establishment

3.  Consumption Tax

(1) Integrated resorts related taxation

4.  Individual Income Tax

(1) Preferential measure & Re-examination of credit limitation on housing loan credit
(2) Tax exemptions to aid child-rearing
(3) Tightened measure of taxation on retirement income
(4) Additional tax settlement obligation from mutual legal assistance borne on recipients of overseas assets without compensation
(5) Clarifying taxation of carried interest on partnerships
(6) Integrated resorts related taxation

5. Inheritance Tax

(1) Exemption on overseas assets transferred to foreigners residing in Japan

6. Tax administration

(1) Amendments to the obligation to affix seals in tax-related documents
(2) Amendments to the electronic preservation system for books and records
(3) Expansion of the tax representative system

(727KB, PDF)

* 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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