Japan: National Diet passes tax reform measures for 2021

30 March, 2021

On 26 March 2021, the National Diet (Parliament) passed the bill tax reform proposals for 2021 providing the following tax measures.

A digital transformation-related investment under a certified business adaptation plan made by 31 March 2023 up to JPY30 billion (US$300 million) will be eligible for 30% special depreciation or a 3% to 5% tax credit (capped at 20% of corporate income tax payable together with the carbon-neutral investment incentives).
Any investment related to digital transformation under a certified business adjustment plan that is up to JPY 30 billion (US $ 300 million) by 31 March 2023 will be eligible for 30% special depreciation or a 3% to 5% tax credit (capped at 20% of corporate income tax payable together with the carbon-neutral investment incentives).
Under the current law, qualified R&D expenses can receive a 6% to 14% tax credit. The 2021 reform will change the credit rate to 2% to 14% (usually limited to 25% of the corporation tax payable).
The existing measures for certain small and medium-sized enterprises (SMEs) and for special R&D expenditures will be refined.
Under current law, NOL carried forward can only protect up to 50% of taxable income for the current year (with the exception of certain SMEs). As part of the reform of 2021, an increased NOL limit is provided for eligible NOL, which extends up to the “outstanding amount of cumulative qualified investments” for the respective fiscal years.
For carbon neutral-related investment under a certified environmental adaptation plan up to JPY 50 billion (USD 500 million) by 31 March 2024, will be eligible for 50% special depreciation or a 5% to 10% tax credit (capped at 20% of corporate income tax payable together with the digital transformation investment incentives).
The majority of tax-related documentation (including tax returns) will no longer need to be physically stamped.

The reform measures will generally apply from 1 April 2021, although the new rules for deferring the taxation of capital gains or losses will come into force on 1 March 2021 and the stricter rules for tax representatives will apply from 1 January 2022.