Your company has raised JPY 20 million through J-KISS. Its bank balance has increased, but is the receipt taxable revenue? For an ordinary paid stock acquisition right issued for financing, the amount received is not simply recorded as sales or taxable income. Yet saying “J-KISS is tax-free” overlooks the investor’s position and the consequences of conversion, repurchase, and cancellation. Start by identifying the party and the event.

This general explanation is based on public materials checked as of October 31, 2026. It assumes financing by a Japanese stock company and is not a tax opinion on any particular agreement.

1. Identify whether the instrument is debt or a stock acquisition right

J-KISS is a convertible equity agreement template intended for future conversion into shares. Its Japanese structure uses stock acquisition rights; it is distinct from a loan or convertible bond. Review the agreement and issuance terms to establish what right the company issues in exchange for cash, what triggers conversion, and what happens on a sale of the company. Coral Capital’s official template and usage notes also require tax treatment to be checked against the actual contractual terms.

A provision specifying a period until the next financing does not by itself turn the instrument into a loan with a repayment date. Read what rights arise when the conversion deadline passes and whose consent is needed. If the standard form has been amended to add cash redemption, interest, a guarantee, or an exchange for services, those amendments become the starting point for tax analysis.

2. The issuer must separate receipt, conversion, and expiry

The first step is to distinguish financing receipts from operating revenue. For accounting purposes, amounts received for stock acquisition rights are generally presented in net assets. Accounting presentation and tax classification are not identical: an item in net assets does not automatically enter the tax measure of capital and similar amounts. Consult the ASBJ accounting treatment of stock acquisition rights and the Corporation Tax Act Enforcement Order’s capital rules for their respective purposes.

If paid financing rights expire without exercise, the issuer may recognize taxable income. Special rules for certain rights issued in consideration for employment or services cannot simply be applied to J-KISS. Assess each cause of extinguishment against the Corporation Tax Act’s provisions on stock acquisition rights. No taxation when the financing was received does not establish exemption at every later stage.

Conversion may increase capital-related amounts even if the additional cash payment is small. The dates used to test capital thresholds differ by tax rule, so update the annual tax forecast around conversion. The distinction between stated capital and capital surplus also connects to our explanation of size-based business tax and capital reductions.

3. Separate individual and corporate investors

An investor’s payment normally forms the acquisition cost of the right; it is not an amount freely deductible as a current-year expense. The outcome changes depending on whether this is an investment at fair value, a favorable grant conferring a benefit, or compensation for services. An absence of tax for the issuer does not imply an absence of tax for the investor.

For an individual, distinguish rights acquired at fair value as a financial investment from rights granted to directors, employees, or others on favorable terms or as compensation. The latter raise issues concerning taxation of the economic benefit on exercise or other events and the resulting acquisition cost. The NTA’s guidance on acquisition costs of transferred shares likewise distinguishes types of rights. Retain a clear pricing explanation particularly for issues to family members, directors, or related companies.

For a corporate investor, review acquisition cost, potentially taxable benefits from acquisition below fair value, and gains or losses on transfer, valuation, or extinguishment within the corporation tax framework. The individual angel tax incentive must not be described as a corporate investor’s deduction. An overseas investor requires separate consideration of residence, Japanese-source income, and tax treaties.

4. Conversion price and tax basis serve different purposes

The conversion price determines the number of shares under the contract. Tax basis determines the investor’s gain or loss on a future disposal. Multiplying the next round’s share price by the shares received does not automatically establish tax basis. The NTA’s circular on acquisition cost of shares obtained by exercising stock acquisition rights sets out a general calculation for individuals, excluding specified favorable grants and other rights.

If an angel tax incentive or another provision adjusts acquisition cost, this simplified calculation cannot determine the final disposal gain. Record the original subscription, additional payment, and incentive-related adjustments separately in the tax basis ledger, so the figures remain traceable when the shares are sold years after conversion.

5. Prepare a rights schedule before the next round

Keep the executed investment agreement, issuance terms, amendments, resolutions, and payment records under the same reference number. Then list the investor, individual or corporate status, issuance date, amount paid, valuation cap, discount, conversion events, conversion deadline, and transfer, acquisition, and expiry provisions. Where several J-KISS rounds coexist, preserve the differences between contracts.

When draft terms for the next financing are available, legal advisers establish the conversion steps, accountants check recognition and capital transfers, and tax advisers identify issues for both the issuer and investors. Investor communications should distinguish what has been established from what must be reassessed on conversion. The company need not guarantee an investor’s tax liability, but it should have a process for providing the agreement, payment, and conversion evidence needed for the investor’s filing decision.

For help organizing receipt, conversion, and year-end treatment based on your executed agreements, see our Japanese tax consultation service.