Japan’s Cabinet has submitted the 2026 tax reform package to the Diet, proposing Side-by-Side Safe Harbour rules for the global minimum tax, revisions to income tax deductions, crypto-asset rules and updates to consumption tax and R&D incentives.
Japan’s Cabinet has submitted the 2026 tax reform package to the National Diet of Japan, proposing amendments to global minimum tax rules, income tax provisions and consumption tax regulations.
The bill updates Japan’s global minimum tax legislation to implement the Side-by-Side Safe Harbour. Under the proposal, a multinational enterprise group whose ultimate parent entity is located in a jurisdiction designated by the Japanese Finance Minister will be deemed to have a zero topup tax liability for purposes of both the Income Inclusion Rule (IIR) and the Under Taxed Profits Rule (UTPR). The measure will apply to fiscal years beginning on or after 1 January 2026.
The package also extends the Transitional Country-by-Country-Reporting (CbCR) Safe Harbour for one year and introduces the Ultimate Parent Entity (UPE) Safe Harbour, but does not include the Simplified Effective Tax Rate (ETR) Safe Harbour.
In addition, the draft revises basic and salary income deductions, updates withholding tax tables, and formally incorporates crypto-assets into the tax framework by defining them under the Financial Instruments and Exchange Act, introducing rules on transfer income and loss offsets. Consumption tax reforms establish a framework for “Specified Small Assets” (goods valued at JYP 10,000 or less sold via digital platforms), requiring seller registration and creating “Type 2 Platform Operators” responsible for large-scale transactions. The measures also expand R&D tax incentives, extend housing loan tax credits prioritising energy-efficient homes, introduce a 1% Defense Special Income Tax from 2027, strengthen electronic tax data powers, and maintain relief measures for victims of the Great East Japan Earthquake.
Earlier, Japan’s Cabinet adopted a decision of 23 January 2026 to bring the country’s Pillar 2 global minimum tax framework in line with the OECD’s Side-by-Side Package released on 5 January 2026.
