What was decided, when, and by whom

On December 19, 2007, the Ministry of Finance published the Outline of the FY2008 Tax Reform. The document opens with the date and the ministry's name.

A tax reform outline is not legislation itself. It lists proposed changes by field, explaining what will change, how, and when. Its contents reflect decisions at that time, and amounts and percentages must be read within that context.

The year's outline opens with the following aims.

In light of economic and fiscal conditions, appropriate measures will be taken in corporate, SME, financial and securities, and land and housing taxation to support sustained economic and social vitality. To promote privately undertaken public interest activities, tax measures will respond to public interest corporation reform and revise donation taxation.

More recent years are summarized in Key points of the FY2026 tax system revision outline. The preceding year is FY2007, and the following year is FY2009 Please see

Main pillars of the outline

What Happens to Reduced Rates on Listed Shares?

Section III, financial and securities taxation, significantly affects individuals. The outline abolishes the reduced 7% rates on listed-share disposal gains and dividends on December 31, 2008, replacing them from January 1, 2009 with 15%, or 20% including inhabitant tax.

However, transitional measures accompany abolition. For listed shares sold during 2009–2010, the first JPY5 million of annual disposal gains receives a 7% rate, or 10% including inhabitant tax. Dividend withholding remains 7%, or 10% combined, during the same two years, and the first JPY1 million of dividends elected for separate self-assessed taxation receives the same treatment.

Offsetting Losses Against Dividends

A new special rule permits listed-share disposal losses from the current year or preceding three years to be deducted from listed-share dividends elected for separate taxation. A related rule allows withholding accounts to deduct disposal losses before calculating withholding tax.

How Is Business Succession Taxation Structured?

A significant item for those inheriting unlisted companies appears near the end as a note.

Following enactment of the provisional Act on Facilitation of Business Continuity for SMEs, FY2009 reform will introduce an inheritance tax deferral system for unlisted shares and similar interests for business successors, based on the following framework.

A business successor heir acquiring shares from the deceased and continuing management may defer inheritance tax corresponding to 80% of the taxable value of voting shares acquired. Eligible holdings, including shares already owned before inheritance, are limited to the portion bringing ownership to two-thirds of outstanding voting shares and similar interests.

Deferred tax is forgiven if the shares are held until death or certain other conditions are met. If certification is revoked within five years of the statutory inheritance tax filing deadline, for example because the heir ceases to be representative, the full deferred amount is payable. Disposals after that period require payment in proportion to the shares disposed of, together with interest tax. Generally, all qualifying shares must be provided as security.

The outline also states that, alongside this system, changing inheritance tax to an acquisition-based method will be considered.

Revisions to Corporate Equipment and R&D Taxation

Corporate taxation revises depreciation. Asset categories, particularly machinery and equipment, are reorganized around actual usage periods and statutory useful lives revised. The changes apply to fiscal years beginning on or after April 1, 2008, including existing depreciable assets. Coverage of equipment already held is a key feature.

The additional credit on incremental R&D expenses is restructured into a choice between two special measures. Credits under this system are capped at 10% of current-year corporation tax, separately from the general total R&D expense credit and related systems.

For SMEs, the minimum aggregate acquisition cost under the IT infrastructure strengthening incentive falls from JPY3 million to JPY700,000 for corporations with capital of JPY100 million or less and similar entities. The education and training expense credit is limited to SMEs and restructured to apply where training costs are at least 0.15% of labor costs, using a credit rate of 8–12% according to that ratio.

Housing and Land Measures

Section IV introduces incentives for energy-saving home renovations. Certain qualifying residents who renovate their own homes and occupy them between April 1 and December 31, 2008 may credit a percentage of renovation loan balances up to JPY10 million against income tax. The period is five years, with 2% on the portion corresponding to specified energy-saving work costs capped at JPY2 million and 1% on the remainder.

Eligible work comprises replacement of all windows in living spaces, or that work together with floor, ceiling, or wall insulation. Renovated parts must meet at least the 1999 energy standards, the home's overall performance must improve by at least one equivalent grade, and total work costs must exceed JPY300,000.

Reduced registration and license tax on ownership transfers from land sales is extended by three years with staged revisions. Rates are 10 per 1,000 from April 1, 2008 through March 31, 2009, 13 per 1,000 for the following year, and 15 per 1,000 from April 1, 2010 through March 31, 2011.

Public Interest Corporation Reform and Donation Taxation

Tax treatment is reorganized by entity category under the new public interest corporation system. Public interest incorporated associations and foundations are taxed on profit-making business income, excluding certified public interest activities from that category. General incorporated associations and foundations meeting specified requirements are taxed on profit-making business income; those meeting none are treated as ordinary corporations.

For donations to specified public benefit corporations and similar entities, the income-based component of the corporate deduction limit rises from 2.5% to 5% of income. Certified NPO rules also revise the public support test and extend certification validity from two to five years.

What Is the Special Local Corporation Tax?

Section VIII addresses disparities in regional fiscal capacity.

As a temporary measure pending fundamental reform of the tax system, including consumption tax, part of corporate enterprise tax will be separated into a special local corporation tax as follows.

Taxpayers are those liable for the income- or revenue-based corporate enterprise tax component, and the base is that component calculated at standard rates. The rate is 148% of the income component for corporations subject to combined value-added, capital, and income taxation, and 81% for those taxed only on income or revenue. Prefectures assess and collect it alongside corporate enterprise tax, applying from fiscal years beginning on or after October 1, 2008.

All revenue is transferred to prefectures according to population and other criteria through the special local corporation transfer tax.

To determine if it relates to you

• Listed-share and investment trust holders should see Section III. Key points are the end of reduced rates and the JPY5 million and JPY1 million transitional thresholds.
• If you have incurred share disposal losses, review the new offsetting rules against dividend income.
• Unlisted-company owners considering share succession should see the business succession taxation note.
• Corporations using substantial machinery and equipment should see depreciation in Section I.
• If considering window or insulation work at home, see energy-saving renovation incentives in Section IV.
• If planning land transactions, check the year-by-year registration tax rate changes in Section IV.
• Those involved with public interest corporations or certified NPOs should see Section V. Taxable scope differs by entity category.

Source

• Ministry of Finance: Outline of the FY2008 Tax Reform (December 19, 2007)