Japan

Individual income tax                                                            Implementation of new measures for significantly high individual income (Minimum tax)

An additional tax burden is imposed on individuals who have a significantly high level of income. Specifically, if the minimum tax (threshold) calculated based on the following formula (1) is greater than the individual’s income tax liability for the year, such excess (i.e., (1) minus (2)) is added to (2), the income tax liability for the year: 

　(1)[Taxable income - JPY 330 million] x 22.5% 

　(2) Income tax liability for the year 

For example, where income in a given year is only capital gains in the amount of JPY 3 billion (subject to separate taxation at a rate of 15.315% including surtax), the excess of 150 million (JPY 600 million minus JPY 450 million, as illustrated below) is levied as an additional tax liability.

　　  　(1) (JPY 3 billion - JPY 330 million) x 22.5% =  approx. JPY 600 million

　　  　(2)  JPY 3 billion × 15.315% = approx. JPY 460 million

This minimum tax applies even if an individual is a non-resident of Japan. For example, an owner of a Japanese company with a certain ownership percentage who sells or disposes of shares in the company and thereby becomes subject to income tax in Japan will still be subject to this minimum tax.

This revision applies to individual income tax for tax year 2025 and on . 

Inheritance tax and gift tax

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

Under the current rule, if assets are gifted to an heir of a decedent 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 applied 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 previous special deductions of JPY 25 million.   

(2) Add-back period for gifts received prior to inheritance 

Under the current inheritance tax law, the value of the assets acquired by heir(s) by way of a 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 applied 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.) 

(3) The above two revisions are applied to the inheritance tax on assets acquired by gift on or after 1 January 2024.