Japan’s Ministry of Finance has released the legislative proposals submitted during the 217th session of the National Diet (parliament) – which includes the draft tax reform bill for 2025 and related materials – on 4 February 2025.

The key tax measures of the draft tax reform bill for 2025 are as follows:

Corporate income tax

Extended tax relief for SMEs: The legislation proposed extending the reduced 15% corporation tax rate for SMEs by two years on taxable income up to JPY 8 million, provided their total taxable income is under JPY 1 billion. For taxable income above JPY 1 billion, the reduced rate will increase to 17%.

Incentives for SME growth: Incentives have been extended to support SMEs, including special depreciation and tax credits for acquiring machinery and assets.

Special defense surtax: A 4% special defence corporation tax (surtax) from 1 April 2026 has been proposed. It will be levied on corporation tax without income tax credits, foreign tax credits, and certain other credits, with a JPY 5 million basic deduction.

Pillar 2: QDMTT & UTPR: The bill proposes introducing the Pillar 2 qualified domestic minimum top-up tax (QDMTT) and undertaxed payment/profits rule (UTPR) from 1 April 2026. The Pillar 2 income inclusion rule (IIR) is already in effect from 1 April 2024.

Personal income tax

The draft bill proposes increasing the basic income tax deduction by JPY 100,000, from JPY 480,000 to JPY 580,000. It also proposed raising the minimum employment income deduction by JPY 100,000 from JPY 550,000 to JPY 650,000.