Japan

2024 Tax Reform

On 28 March 2023, the 2024 Tax Reform Act was approved by the Diet, and, on 30March 2024, the 2024 Tax Reform Act, and related Enforcement Orders and Regulations were promulgated. In principle, these are effective for corporate tax years beginning on or after 1 April 2024.
In line with the “New Capitalism” outlined in the government’s recent economic plans, the 2024 Tax Reform Act explicitly states that “wage increases are not a cost but an investment and an engine of growth”. Achieving wage increases is therefore a top priority of the 2024 Tax Reform Act, however, they also include measures to improve the investment environment, to strengthen the start-up ecosystem, to raise productivity and increase potential growth, and to improve the taxation mechanism for a more digitalized economy.

These include:

• Tax credits to promote domestic production in strategic sectors
• Establishment of an “innovation box” and changes to R&D credit requirements
• Tax credits to promote wage increases
• Introduction of platform taxation.

In order to fund increased defence spending, the 2024 Tax Reform Act clarified in its supplementary provisions measures to secure tax revenue. These include amendments to individual income tax, corporate income tax as well as tobacco tax. The timing of these amendments have not been clarified but future legislative changes are anticipated.
The 2024 Tax Reform Act also includes changes to the provisions relating to enterprise tax, which are described in the section Enterprise tax (and special corporate business tax).

Consumption tax

A new Qualified Invoice System (‘QIS’) was introduced as part of Japan’s 2016 Tax Reform, which is effective from 1 October 2023. Under the QIS, a consumption taxpayer (a ‘taxpayer’, who files consumption tax returns and pays or receives a refund of consumption tax), can in principle only take an input tax credit if such taxpayer receives a ‘qualified invoice’ from a seller that is registered as both (i) a consumption taxpayer and (ii) a qualified issuer (‘QII’). Effectively, the new system will require sellers to include their QII number in invoices so that the purchaser receiving such invoice will be able to take the input credit for the consumption tax included in the invoice. The requirement is similar to that of a seller to include its VAT number on an invoice in the European context.

Businesses (other than exempt entities) must file an application with their tax office to become a QII in order to be able to issue qualified invoices.

A new platform taxation system (“the platform taxation system”) was introduced as part of Japan’s 2024 Tax Reform Act and will be effective from 1 April 2025. Under the platform taxation system, platform operators, as designated by the Japanese National Tax Agency (NTA), will be obligated to report and remit consumption tax on the cross border provision of digital services on behalf of foreign operators providing such services to Japanese customers (“qualified platform operators”). Please refer to “Other Taxation” for more details.