Japan

2023 Japan tax reform proposals

Individual income tax

Implementation new measures for significantly high individual income

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

1. Threshold: 22.5% x (standard taxable income - 330 million Japanese yen [JPY])
2. Income tax liability for the year.

This revision will apply to individual income tax for 2025 and beyond.

Taxation requirements of individuals as major shareholders holding shares in listed domestic corporations

These amendments are published in the 2022 tax reform and are effective for dividends payable by listed domestic corporations on or after 1 October 2023.

Dividends paid by listed domestic corporations to an individual shareholder are subject to separate taxation as financial income if the shareholder’s holding ratio is less than 3%, whereas an individual shareholder is subject to comprehensive taxation if their shareholding ratio is 3% or more.

Additionally, the following measures apply in cases where an individual shareholder directly holds less than 3% in a listed domestic corporation, but whose actual (indirect) holding ratio is 3% or more, due for example to investments made through other controlling corporations:

• Dividends paid by listed domestic corporations to a resident individual (hereinafter, the individual) will be subject to comprehensive taxation if the percentage of the total number of outstanding stocks, etc., held by the individual and any corporation that is considered a family corporation belonging to the individual’s family (the total shareholding ratio) is 3% or more.
• A listed domestic corporation that distributes dividends shall submit a report including the names, individual numbers (‘My Numbers’), shareholding ratios, and other matters pertaining to any individuals whose shareholding ratio is 1% or more on the dividend record date to the Japanese tax authority within one month from the date on which the payment is determined.

Inheritance tax and gift tax

The two revisions below will be applied 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 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 as of 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 will be available in addition to the previous special deductions 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 heir(s) 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 will be extended to seven years, and a deduction of JPY 1 million will be 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.