2017 Tax Reform
On 27 March 2017, the 2017 Tax Reform Act was approved by the Diet, and, on 31 March 2017, the 2017 Tax Reform Act, the Enforcement Orders, and Regulations were promulgated, which are effective for corporate tax years beginning on or after 1 April 2017, in principle.
The 2017 Tax Reform Act includes measures to support the Japanese economy through innovation and workstyle changes taking into account a slowdown in the world economy and political changes such as the recent United States (US) election and Brexit.
To support the overall economy and to combat deflation, amendments are proposed to modify the research and development (R&D) credit to increase the competitiveness of Japanese corporations and to increase credits for increasing employee salaries. In addition, measures to enhance corporate governance through more flexible tax filings and to allow for greater flexibility in corporate reorganisations and directors compensation are included.
To enhance Abenomics at a national level and to continue the economic expansion, measures are included to support the expansion of Japanese companies into foreign markets and, at the same time, to reduce international tax avoidance by enacting the base erosion and profit shifting (BEPS) agreements into the domestic law. By the 2017 Tax Reform Act, the controlled foreign company (CFC) rules were fundamentally revised in compliance with the BEPS Final Report.
Japan - Taiwan agreement on tax matters
On 26 November 2015, the de facto diplomatic organisations representing both Japan and Taiwan completed negotiations on a comprehensive income tax agreement. Along with treating residents and domestic corporations the same in each jurisdiction, residency tie-breaker rules, non-taxable income to Taiwan residents, arbitration measures for transfer pricing, and information exchange measures were also agreed to.
The above treatment will take effect on taxes levied on or after 1 January 2017.
Due to a tax amendment, the consumption tax increase that was originally scheduled to rise to 10% on 1 April 2017 was delayed to 1 October 2019; however, concessions have been introduced with lower rates for selected goods to lessen the burden for the lower income tax brackets. To cope with the multiple consumption tax rates, an invoicing method will be introduced, although not until 1 April 2023, with transitional measures in place for the three-year and six months interim.