The ruling Liberal Democratic Party of Japan accepted a tax reform package on 14 December 2017. Based on the draft, a tax reform bill (The Bill) will be drafted. The bill will be submitted to Parliament and is expected to enter into force by the end of March 2018.
According to the plan, the key measures are as follows:
- Under the proposal, the definition of a PE under Japanese domestic rules would be amended along the lines of language in BEPS Action Item 7, the OECD Model Convention and the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI). These provisions will take effect for income tax in 2019 (starting on 1 January 2019) and onwards, with respect to corporate income tax for fiscal years beginning on 1 January 2019 and onwards.
- Under the tax reform package, large companies that raise pay by 3% or more will qualify for a tax credit of up to 20% of the increased salary payments.
- Small and medium-sized companies will qualify for an even larger tax credit of up to 25% if they increase employee pay by over 2.5% and invest in human resource development.
- From October 2018, the tobacco tax will be raised by three yen per cigarette over a four-year period, while the tax on relatively new heat-not-burn tobacco products will also be increased in stages.
- Income taxes will rise from January 2020 for workers earning more than JPY8.5m (USD75, 118) per year, and tax deductions for company employees will be reduced.
- The tax reform package also provides that the scheduled consumption tax rate increase from 8% to 10% from 1 October 2019.
- Additionally, Japan will introduce a new “travel to a foreign country” tax of ¥1,000, applicable each time a person leaves Japan. This is payable by Japanese nationals or non-nationals, regardless of whether the trip is temporary or not. This is certain to raise revenues in light of Tokyo hosting the Olympics in 2020.
