The minimum tax imposes additional income tax, on top of ordinary income tax, on individuals with exceptionally high annual income. Its formal basis isArticle 41-19 of the Act on Special Measures Concerning Taxation: Special Provisions for Taxation of Specified Reference Income; the statute does not use the term minimum tax. Introduced in the FY2023 reforms, it applies toincome tax for 2025 onward.

The national income tax rate on gains from listed and unlisted shares is fixed regardless of the gain's size: 15% under separate taxation. As separately taxed income forms a larger proportion of total income, the average income tax burden can fall. This system setsa minimum floorfor that burden.

This System Can Have a Direct Impact in the Year You Sell Your Company.Gains on unlisted shares, including an owner's M&A share sale, enter reference income just as gains on listed shares do. The calculations here assume an M&A sale of unlisted shares.

The System Changes Substantially from 2027.The threshold halves and the multiplier rises. That is this article's main focus.

Calculation Formula

Paragraph (1) Provides as Follows for the Rules Applicable Through 2026.

An individual whose reference income for the year exceeds JPY 330 million, referred to in paragraph (4) as a person subject to the special provision, is subject to income tax equal to 22.5% of that excess less the reference income tax amount for the year.

(Reference Income − JPY 330 Million) × 22.5% − Reference Income Tax = Additional Income Tax

A positive result is added to the tax; a negative result produces no additional tax. Both the deduction and multiplier are specified directly in the statute, rather than delegated to Cabinet Order.

Reference Income (Paragraph (2))

The year's aggregate income calculated as if the optional non-filing rules did not apply. Paragraph (2) lists nine categories.

Item (i): total income, retirement income, and forestry income / (ii): dividends and similar income from listed shares / (iii): business and similar income from transfers of land / (iv): long-term capital gains / (v): short-term capital gains / (vi): gains and similar income from general shares / (vii): gains and similar income from listed shares / (viii): permanent establishment without a Non-resident from share transfers by such persons domestic source income/ (ix): miscellaneous and similar income from futures transactions.

There Are Three Key Points.

• Income Omitted Under Optional Non-Filing Rules Still Counts.Dividends settled through withholding and gains in withholding-enabled specified accounts are included in this test.
• The Amount Is Before Personal Income Deductions.Neither the basic deduction nor the social insurance deduction is subtracted here.
• Loss Offsets and Loss Carryforwards Have Already Been Reflected.Each item refers to the income amount after those offsets.

Gains on unlisted shares fall underitem (vi), gains and similar income from general shares,while listed shares fall under item (vii). Both have a 15% rate (Articles 37-10(1) and 37-11(1) of the Act on Special Measures).

Reference Income Tax (Paragraph (3))

The year's income tax calculated as if this special provision did not exist. It is the amount before the credit for foreign tax equivalents adjusted at distribution under Article 93 of the Income Tax Act and foreign tax credit under Article 95, ancillary tax and excludesSurtaxes Are Then Added.

• Through 2026: Income Tax + Special Income Tax for Reconstruction(substitution table in Article 33(1) of the Reconstruction Financing Act)
• From 2027: Income Tax + Special Defense Income Tax ＋ Special Income Tax for Reconstruction(substitution table in Article 5-31(1) of the Defense Financing Act, applied instead of the reconstruction-side substitution)

The Structure: Calculate Additional Income Tax, Then Apply Surtaxes

The Order of Calculation Matters.

Additional Income Tax = (Reference Income − Threshold) × Multiplier − Reference Income Tax (Zero If Negative)

The reference income tax subtracted here includes ordinary income tax calculated without this special provision and its related surtaxes. After calculating additional income tax,the reconstruction surtax applies to income tax including that additional amount.From 2027, the defense surtax also applies.

Thus, for someone subject to additional tax, total liability is not merely (reference income − threshold) × multiplier. It also includesthe surtaxes generated by the additional income taxwhere no credit for foreign tax equivalents adjusted at distribution or foreign tax credit applies.

Our calculations proceed from ordinary income tax to additional income tax and then surtaxes. The combined surtax rate is 2.1% of income tax in all three years, but the 2027 changes to the threshold and multiplier increase both additional income tax and its surtaxes.

(The credits for foreign tax equivalents adjusted at distribution and foreign taxes are excluded when calculating reference income tax under paragraph (3), item (i); separate adjustments are necessary if they apply. See practical point ② below.)

A Three-Year Comparison: 2025, 2026, and 2027

The 2026 Rules AreExactly the Sameas 2025. We verified that all 3,353 characters of Article 41-19's text match word for word between the version effective January 1, 2025, and the current version.

The 2027 amendment is made by Act No. 12 of 2026. Article 47 of its Supplementary Provisions states that amended Article 41-19(1) applies to income tax for 2027 onward, while the previous rules continue for 2026 and earlier years.

Where Additional Tax Begins: The Main Point

Exceeding the Threshold Alone Does Not Trigger Additional Tax.The additional amount is the difference between the calculated line and reference income tax. If ordinary tax exceeds that line, the addition is zero.

Where income consists solely of share gains, whether listed or unlisted at the same 15% rate, additional tax starts at the following reference income amounts.

The Starting Point Falls from Over JPY 1 Billion to Around JPY 300 Million.That is the substantive effect of the 2027 reform. Reading only that the threshold falls from JPY 330 million to JPY 165 million and treating JPY 165 million as the tipping point would be mistaken.

(These amounts vary with the income mix. The higher the share of income subject to aggregate taxation, the less likely additional tax is to arise.)

Illustrative Calculations

The Following Calculations Are Our Own, Based on These Assumptions.

• resident（Nonpermanent residents: other than).Gains from Unlisted Shares (General Shares)and director remuneration of JPY 50 million are the only income. We assume an owner sells company shares to a third party through M&A.
• Employment income deduction: JPY 1.95 million (Article 28 of the Income Tax Act; the deduction for earnings over JPY 8.5 million is JPY 1.95 million in all three years, under paragraph (3), item (v), for 2025 and item (iv) from 2026).
• No Personal Income Deductions. The basic deduction is unavailable because total income exceeds JPY 25 million (Article 86(1)). Therefore the 2026 increase from JPY 580,000 to JPY 620,000 does not affect this case. Social insurance and similar deductions are also disregarded.
• Share gains are after acquisition costs and transfer expenses. For founder shares with a near-nominal cost basis, almost the entire transfer price becomes a gain.
• We assume no director retirement benefits, deemed dividends, or non-share consideration. Each can change reference income, as discussed below.
• Inhabitant tax, settlement of withholding and estimated tax payments, and rounding final liabilities down to the nearest JPY 100 are disregarded. Surtaxes are shown rounded down to whole yen. The effective rate is total liability divided by reference income.

Case B: JPY 500 Million Share Gain — Newly Affected from 2027

Someone unaffected through 2026 pays approximately JPY 21.6 million more from 2027, including additional income tax and the resulting surtaxes.

Case A: JPY 2 Billion Share Gain — Already Within the System

Additional income tax rises from approximately JPY 63.08 million to JPY 241.44 million,about 3.8 times as much. Total liability including surtaxes increases byapproximately JPY 182.1 million.

Reference income tax is identical in all three years at JPY 323,479,856 because the reconstruction surtax reduction offsets the new defense surtax. Without this special provision, the burden would have been identical throughout.The Entire Increase Results from the Article 41-19 Amendment.

Practical Points

① The Tax Savings from Personal Deductions Do Not Remain Unchanged.Reference income is before personal deductions. If social insurance deductions or hometown tax donations reduce ordinary income tax, reference income tax falls and additional income tax rises. In a year when this system applies,increasing deductions does not necessarily reduce total liability.The surtaxes on additional income tax must also be considered.

② The Foreign-Tax-Equivalent Distribution Credit and Foreign Tax Credit Have Adjustments That Include Additional Income Tax.Under the substitution in paragraph (5), item (i), income tax for calculating credits under Articles 93 and 95 includes additional income tax. However, foreign tax credit limits depend on foreign-source income and other factors; the limit does not increase by the full additional tax. Distinguish these from the dividend tax credit under Article 92.

③ Optional Non-Filing Rules Become Unavailable (Paragraph (4)).Persons taxed under this provision cannot use optional non-filing rules for dividends under Article 8-5 or withholding-enabled specified accounts under Article 37-11-5. All income previously omitted under those rules must be included in the return.

④ If Director Retirement Benefits Are Received Alongside an M&A Sale, Review Capital Gains and Retirement Income Together.Paragraph (2), item (i), includes retirement income as well as total income in reference income. Retirement benefits received separately from the transfer price increase reference income to the extent taxable retirement income arises. If part of the transfer price is instead paid as reasonable retirement benefits, compare both the reduction in capital gains and increase in retirement income. Where the ordinary retirement income deduction and one-half calculation apply,reference income may decrease.The one-half calculation does not apply to specified officer retirement benefits attributable to officer service of five years or less, so service length and payment details must be checked. Deemed dividends from repurchases of unlisted shares also enter item (i) as dividend income subject to aggregate taxation.

⑤ Gains Qualifying for NISA Exemption Remain Outside Reference Income in 2027.The ordinary NISA exemption is not lost merely because additional tax arises.

Article 37-14(10) and (11), cited in amended paragraph (2), item (vii), and paragraph (4), concern non-filing rules for taxable income in minors' accounts arising from contract breaches and similar events. They differ from paragraph (1), which exempts ordinary gains. The amendment takes effect January 1, 2027, under Supplementary Article 1(v)(b).

⑥ Non-Residents May Also Be Covered.Paragraph (2), item (viii), and paragraph (3), item (iii), expressly mention non-residents. Moving abroad does not automatically remove you from the system.

⑦ Filing Uses the Ordinary Income Tax Return.Article 26-28-3-2(5) of the Enforcement Order substitutes the wording of Article 120(1) of the Income Tax Act, adding reference income to the information required on the return. There is no separate return. Estimated reference income is also incorporated into applications to reduce estimated tax payments under Article 111(4).

⑧ Crossing a Calendar Year-End Can Change the Result.The threshold and multiplier change from 2027. In Case B, a transfer during 2026 produces no additional tax; in 2027, additional income tax and related surtaxes total approximately JPY 21.6 million. A transfer of unlisted shares is generally recognized on delivery, although the taxpayer may elect to use the contract's effective date. For transactions structured to close around year-end, this difference can amount to tens of millions of yen. Timing is not determined by tax alone, however; this is one factor in the decision.

An individual determination requires confirmation of income composition, deductions, and timing.

Legal basis

• Article 41-19, Paragraphs (1)–(5), of the Act on Special Measures Concerning Taxation (Special Provisions for Taxation of Specified Reference Income)
• Article 37-10(1) (General Share Gains, 15%), paragraph (6), item (i) (Substitution for Total Income), item (v) (Substitution for Income Deductions), and Article 37-11(1) (Listed Shares, 15%) of the same Act
• Article 2(1)(xxx) (Total Income), Article 28(3) (Employment Income Deduction), Article 86(1) (Basic Deduction), Article 89(1) (Tax Rates), and Articles 93 and 95 of the Income Tax Act
• Article 26-28-3-2, Paragraph (5), of the Enforcement Order of the Act on Special Measures Concerning Taxation
• Articles 13 and 33(1) of the Act on Special Measures for Securing Financial Resources Necessary to Implement Reconstruction Following the Great East Japan Earthquake
• Articles 5-5, 5-6, 5-8, 5-9, and 5-31(1) of the Act on Special Measures for Securing Financial Resources Necessary for Fundamentally Strengthening Japan's Defense Capabilities and Related Measures
• Act No. 3 of 2023, Supplementary Article 36 / Act No. 12 of 2026, Supplementary Articles 1(v)(b), 3, 9, and 47