The Japanese approved the extension of the duration of the reduced corporation tax for small and medium-sized enterprises (SMEs) by an additional two years on 27 December 2024, as part of the resolution regarding the 2025 Tax Reform Outline.
The 15% reduced rate will continue to apply to taxable income up to JPY 8 million, provided that the total taxable income does not surpass JPY 1 billion. For taxable income exceeding JPY 1 billion, the reduced rate will be raised by two percentage points to 17%.
As part of the reform, an introduction of a 4% special defense corporation tax (surtax) will also be applied to corporation tax, without income tax credits, foreign tax credits, and specific other credits. This surtax includes a basic deduction of JPY 5 million, leading to an estimated increase in the effective tax rate of around 0.9% for companies that are subject to size-based taxation, and approximately 0.85% for those that are not subject to such taxation.
Other measures of the 2025 Tax Reform Outline include measures related to personal income tax, consumption tax, international taxation, and others.
