Japan

Individual income tax

Introduction of a minimum tax for high-income individuals

From tax year 2025, an additional tax is imposed on individuals with exceptionally high income. Specifically, if the minimum tax threshold amount calculated based on the following formula (i) is greater than the individual’s income tax liability for the year (ii), such excess (i.e. [i] minus [ii]) is added to the individual income tax liability for the that tax year:

Minimum tax amount: 22.5% x (standard taxable income - 330 million Japanese yen)

For example, where income in a given year is consists solely of capital gains of JPY 3 billion (subject to separate taxation at a rate of 15.315% including surtax), the excess amount of JPY 140 million (i.e., JPY 600 million minus JPY 460 million, as illustrated below) is imposed as an additional income tax liability.

1. (JPY 3 billion - JPY 330 million) x 22.5% = approximately JPY 600 million
2. JPY 3 billion × 15.315% = approximately JPY 460 million

This minimum tax may apply even if an individual is a non-resident of Japan. For example, a non-resident shareholder of a Japanese company who meets the relevant ownership threshold and disposes of shares in a Japanese company may be subject to this minimum tax if the disposal gives rise to Japanese income tax liability.

This revision applies to individual income tax for tax year 2025 onwards.

Under the 2026 tax reform, the rate will be increased from 22.5% to 30%, and the deduction amount will be decreased from JPY 330 million to JPY 165 million. The formula has been updated to the following:

Proposed minimum tax amount: 30% x (standard taxable income - 165 million Japanese yen [JPY])

This revision applies to individual income tax for tax year 2027 onwards.

Introduction of separate taxation for gains from crypto-asset transactions

Gains derived from crypto-asset transactions are currently taxable to individuals as miscellaneous income at graduated rates up to 55%.

Under the 2026 tax reform proposals, gains from the transfer of certain crypto-assets (limited to those registered with financial instruments business operators, referred to as “specified crypto-assets”) through crypto-asset exchange service providers will be subject to separate taxation at a flat rate of 20.315% (15% national income tax, 2.1% surtax and 5% local inhabitant tax). A three-year loss carryforward will also be available for losses that cannot be fully offset in the year incurred.

Note that the amendments have not yet been enacted, and the new rule will apply to transfers of specified crypto-assets made on or after 1 January of the year following the year in which the amended Financial Instruments and Exchange Act comes into force.

Inheritance tax and gift tax

The following two revisions apply to the inheritance tax on assets acquired by gift on or after 1 January 2024.

Revision to the taxation system for settling gift taxes at the time of inheritance

Under the current rules, if assets are gifted to an heir and the special measures for settlement at the time of inheritance apply, the value of the gifted assets at the time of the gift is added to the value of inherited assets and is subject to the inheritance tax. The gift tax already paid at the time of the gift is deducted from the inheritance tax. Under this special measure, a special deduction of JPY 25 million is allowed in calculating the taxable amount of the gift tax.

Under the 2023 tax reform, an additional special deduction of JPY 1.1 million is available in addition to the existing special deduction of JPY 25 million.

Add-back period for gifts received prior to inheritance

Under the current inheritance tax law, the value of the assets acquired by heirs by way of gift from the decedent within three years prior to the inheritance should be added back to the taxable amount of the inheritance.

Under the 2023 tax reform, the add-back period of three years is extended to seven years, and a deduction of JPY 1 million is available in calculating the taxable amount of the inheritance. Note that if the assets are acquired by gift within three years prior to the inheritance, this deduction of JPY 1 million is not applicable.