R&D Tax Relief Related Consulting Services
We, the Tohmatsu Group, offer optimal end-to-end consulting support related to various types of tax relief measures from business strategy development through handling of post-filing tax audits for clients aiming to improve corporate value by utilizing these measures.
- R&D Tax Relief (R&D Related Tax Credit)
- Tax Scheme for the Promotion of Investment in Productivity Improving Assets
- Tax Relief in Relation to Wage Increases
- Other Tax Relief Measures
- Related topics
R&D Tax Relief (R&D related Tax Credit)
1．Purpose of the R&D tax relief
The purpose of the R&D tax relief is to promote the creation of innovative industries and technologies that support the growth of Japan. The R&D relief measures are in place semi-permanently to achieve this specific political goal, since sufficient R&D investment cannot be expected if it is just left to market principles as investment risk is high.
2．Features of the R&D tax relief
The Japanese R&D tax relief measures only provide for a tax credit. Therefore, companies with no corporation income tax liability cannot benefit from this scheme. Also, although this system allows companies with larger R&D costs or a larger increase in R&D costs to claim greater tax credit, as the tax credit that may be claimed by companies is limited to 30% of corporate tax (and an additional 10% in certain cases), entities without sufficient corporate tax to be credited against cannot fully utilize this scheme. Furthermore, there are taxpayers who underreport the amount of tax credit because of the selection of disadvantageous R&D strategies based on insufficient analysis of the scope of R&D costs eligible for the tax relief.
Deloitte Tohmatsu Tax Co. offers various services in an effective and flexible manner based on requests of companies which are aiming to reduce the effective tax rate in Japan from the standard rate of 35.64% to 28.53%*.
* This is the rate where the standard rate is applied combined with only the conventional type of R&D tax relief. The effective tax rate could be further reduced by utilizing the consolidated tax system and/or other systems.
For example, we can offer proposals and/or support if your company is in such situations as the following:
• Your company is currently developing business strategy (i.e., R&D strategy) and wants to know the timing of the deduction for R&D costs and the implications on the amount of tax credit.
• As your company’s R&D projects have been outsourced over a long period of time, there is a time gap between the actual spending of R&D costs, the deduction of R&D costs, and the claim for a tax credit, and this delay in time negatively affects cash flow.
• No issues have been raised in tax audits, but your company wants to know if it (or your group) has fully utilized the R&D tax relief or if there is a concern that the scope of deductible R&D costs and the period of R&D for tax purposes applied by your company or group may be inappropriate.
• Adjustments were made based on the results of a tax audit, but your company is dissatisfied with these adjustments.
• Your company wants to know whether or not its (or your group’s) R&D costs may be eligible for the tax relief.
• Your company wishes to understand the implications of these R&D tax relief measures before implementing tax consolidation.
We can also offer services from a more global perspective, such as support for companies that are considering developing R&D plans based on an understanding of the implications of the R&D related tax measures not only in Japan but also for group companies in other countries.
Reference information: National Tax Agency’s website - “Overview of R&D tax relief” (in Japanese only)
Tax Scheme for the Promotion of Investment in Productivity Improving Assets
The purpose of this tax relief is to incentivize companies to increase capital investment to not only improve their productivity but also grow the Japanese economy.
The benefits of the system can be enjoyed by a diverse range of taxpayers because it allows them to select either taking an immediate write-off (or special depreciation) or claiming a tax credit for relevant assets.
There are two types of assets eligible for the scheme, as follows:
Type A assets - cutting-edge assets
Type A assets are tools, equipment, fixtures, buildings, equipment attached to buildings and software used for specified purposes or classified as specified types of assets that satisfy certain requirements, as well as machinery (“the qualified equipment”). Manufacturers selling the qualified equipment to companies are required to receive advance certification for such qualification from industrial associations, etc. Companies may utilize this tax scheme by receiving certification from the manufacturers by the time of the acquisition of the qualified equipment.
Type B assets – equipment that contributes to the improvement of production lines or operations
Type B assets are defined as machinery, tools, equipment, fixtures, buildings, equipment attached to buildings and software that satisfy certain requirements. Assets are classified as Type B assets only if companies obtain prior confirmation from certified public (tax) accountants as well as confirmation from the bureau of economy, trade and industry (“BETI”) for their investment plans (including the calculation of annual average return on investment). Type B assets require more timely and complicated scheduling and procedural management than Type A assets.
The Tohmatsu Group provides companies considering new capital investment with services tailored to suit each client’s requirements in an effective and flexible manner.
For example, we offer services and support in the following cases:
• Your company is looking for a certified public (tax) accountant who will issue prior confirmation for the designation of assets as Type B assets.
• Your company needs support regarding the preparation of investment plans, prior negotiations with the BETI, etc., to apply for the designation of assets as Type B assets.
• Your company is preparing investment plans (for Type A assets or Type B assets) and wants to perform a comparison analysis of tax saving effect between the special depreciation method (or immediate write-off) and the tax credit method.
• Your company needs advice on how to account for capital investment cost, the timing of recording losses from the disposal of replaced assets, etc.
Reference information: METI’s website “Tax relief for the promotion of investment that contributes productivity improving assets” (in Japanese only)
Tax Relief in Relation to Wage Increases
This tax relief was established to incentivize companies to increase personnel costs with the aim of expanding individual income through wage increases. The background to this relief is the political concept that wages must be raised to overcome deflation and improve the Japanese economy as the corporate tax rate has been decreasing in recent years, while individuals, i.e., ultimate consumers, suffer increasing tax burdens due to the recent hike of the consumption tax rate.
2．Features of the scheme
As this tax relief has adopted a tax credit method, companies without corporate tax liability cannot utilize the relief. When companies raise wages, the applicability of this relief is determined based on the prescribed requirements.
Deloitte Tohmatsu Tax Co. offers consulting support to companies which plan to increase wages in an effective manner.
Your company may be interested in our services and support in the following cases:
• Your company wants to develop wage increase plans to benefit from this tax relief.
• Your company wants to understand the implications of the tax relief before raising base salaries or bonuses.
• Your company has difficulty understanding how to calculate the amount of tax credit because of a number of intragroup transfers or personnel transfers due to corporate reorganization.
• Your company wants to efficiently gather the necessary documents to reflect the relevant information in the preparation of tax returns.
Reference information: METI’s website “Tax relief in relation to wage increases” (in Japanese only)
Other Tax Relief Measures
The Tohmatsu Group can support companies in other cases including the following:
• Your company wishes to develop or implement business strategy that benefit from the tax relief schemes regarding “National Strategic Special Zones” and “Comprehensive Special Zones.”
• Your company wants to effectively apply the accelerated depreciation (asshuku kichou) method for the replacement of assets upon the move of headquarters or plants, etc.
• Your company wants to understand tax relief for the promotion of environment related investment (i.e., special depreciation or tax credit for assets that reduce energy burden and environmental impact) before starting renewable energy related business (e.g., solar power generation) or initiatives for making energy use more efficient.
• Your company wants to confirm if any relief measures are available for the acquisition of assets categorized as “other assets.”
• Your company wants to consult experts with regard to other tax relief provided under the special tax measures law.