Japan’s 2026 tax reform, approved by the National Diet on 31 March, covers income, corporate, international, consumption, and vehicle taxes. It introduces a side-by-side safe harbour with the US, strengthens CFC rules, expands R&D and investment incentives, and adjusts personal income and consumption tax measures.
Japan’s National Diet approved the 2026 tax reform legislation on 31 March 2026, which has been published in the Official Gazette. The measures reflect proposals released in December 2025 and January 2026, covering income, corporate, international, consumption, and vehicle taxes.
International tax
Provisions align with the global minimum tax and strengthen the controlled foreign company (CFC) regime. Special measures apply to foreign partners of investment funds. Measures also include platform taxation for e-commerce and a review of the De Minimis Rule for low-value shipments, ensuring fair treatment for domestic and foreign businesses.
Side-by-side safe harbour
The reform introduces several safe harbour rules effective from 2026, including the side-by-side safe harbour (recognising the US), the ultimate parent entity (UPE) safe harbour, and the substance-based tax incentive safe harbour, all reducing or simplifying top-up tax exposure under the income inclusion rule (IIR) and undertaxed profits rule (UTPR).
The transitional country-by-country reporting (CbCR) safe harbour is extended to fiscal years from 1 April 2024 to 31 December 2027, while the simplified effective tax rate (ETR) safe harbour has not been introduced.
Corporate tax and incentives
The reform introduces measures to promote investment in productivity-enhancing facilities and domestic production in strategic fields, while fostering open innovation and proper documentation within corporate groups.
- R&D tax credit: A 40% credit applies to “strategic technologies” such as AI and quantum, with stricter requirements to encourage in-country research and gradually limit outsourcing overseas (excluding clinical trials).
- Wage increase incentives: Credits for large enterprises are abolished, extended for medium-sized companies under stricter conditions, and maintained for SMEs, with a review planned in FY2027.
- Capital investment incentives: Largest-ever credits for high value-added investments across industries, including immediate depreciation and a 7% tax credit (4% for buildings), with up to three-year carry-forward for approved plans.
Personal income tax
To address rising prices, basic exemptions and the minimum guaranteed deduction for employment income will be adjusted every two years in line with the CPI. The minimum taxable income threshold is set at JPY 1.78 million, providing relief for low- and middle-income earners.
The income tax basic deduction has been raised by JPY 40,000, moving from JPY 580,000 to JPY 620,000, applicable to individuals whose total income does not exceed JPY 23.5 million.
New regulations establish separate taxation for gains from certain crypto-assets traded via registered operators, applying a flat 20% tax rate (15% income tax plus 5% local tax). Losses can be carried forward for three years, while gains from other crypto-assets continue to be taxed under the progressive comprehensive income tax rates.
Support is expanded for second-hand housing, raising borrowing limits, providing additional credits for households with children, and relaxing floor size requirements.
Equity and fairness
The tax rate for extremely high-income earners rises from 22.5% to 30%, while deductions fall from JPY 330 million to JPY 165 million, expanding coverage from roughly 200 to 2,000 taxpayers.
Investment and asset management
The NISA basic investment plan (NISA scheme allows under-18s to make regular mutual fund investments from 2027, aiming to support education savings and accelerate the shift from household savings to investment.) will be extended to children aged 0–17, with an annual limit of JPY 600,000 and a total limit of JPY 6 million, promoting long-term savings and investment.
Vehicle and environmental taxes
Eco-Car tax breaks will require higher fuel efficiency standards. Private-use EVs, currently exempt from fuel taxes, will face a new tonnage tax in FY2027 to address road wear.
Consumption tax and transitional measures
Self-employed individuals can pay 30% of output tax in 2027–2028 regardless of input tax. Special input tax credits on purchases from tax-exempt suppliers are extended by two years, with a lower annual cap (JPY 100 million per supplier) to prevent tax avoidance.
Earlier, Japan’s Ministry of Finance (MoF) has released the highlights of the tax reform proposals for the fiscal year 2026.
