On 26 March 2021, Japan’s 2021 tax reform bills were passed by the Japanese National Diet. The Bill generally follows the tax reform outline announced by Japan’s coalition leading parties in December 2020. The amendments generally apply to taxable years beginning on or after 1 April 2021 unless otherwise specified. Key tax measures under the tax bill summarized below:
- New tax measure to promote Digital Transformation (DX)-Establish a measure to allow tax credit (5%, 3%) or accelerated depreciation (30%) for companies which transform their business by developing a “connectable” digital environment (e.g. cloud computing).
- Reform of R&D tax credit to maintain active R&D-For companies which increase R&D investment even under an adverse business environment, the upper limit of tax credits will be raised. The tax credit rate will be reformed to increase incentives for R&D, and the lower limit of the tax credit rate will be lowered.
- Tax reform to spur wage hike-In response to the deteriorated employment environment during the pandemic, tax incentive for wage hike and investment will be replaced in consideration of facilitating expansion of employment and education/training supports.
- Special provision on the deduction limit for loss carryforwards-For companies which make investments in the area of Carbon Neutral (CN), DX, business restructuring/reorganization, etc. even under an adverse business environment, allow tax deduction for loss carryforwards, up to the amount of such investments, of maximum 100% of their income, for up to 5 years.
