What was decided, when, and by whom

The Outline of the FY2009 Tax Reform was published by the Ministry of Finance on December 19, 2008. The upper-right corner of the original title simply reads “December 19, 2008, Ministry of Finance.” The preamble clearly identifies the circumstances behind it.

In light of current economic and financial conditions, the following tax reforms will take necessary measures in housing and land, corporate taxation, SMEs, inheritance, financial and securities taxation, international taxation, vehicle taxation, and other areas to support economic recovery.

With recovery as its central aim, the outline contains very few burden-increasing measures. Its provisions directly affect spending and investment decisions. For how to read recent outlines, see Key points of the FY2026 tax system revision outline Please also see.

Main pillars of the outline

The outline has nine chapters. Their names and decisions are as follows.

The outline includes estimated revenue changes from FY2009 internal tax reform, totaling decreases of JPY685 billion in a full year and JPY469 billion in the first year. SME measures account for the largest full-year decrease, JPY222 billion, followed by housing and land measures at JPY177 billion. The preceding year's Outline of the FY2008 Tax Reform and the following year's Outline of the FY2010 Tax Reform shows the priorities of this year's changes.

Expanding the Housing Loan Credit and Introducing New Credits

The housing loan income tax credit is extended by five years. For homes occupied between 2009 and 2013, credit periods, year-end loan balance limits, and rates are set as follows.

Separate provisions apply to certified long-term quality homes newly built or otherwise acquired and occupied during the same period. The credit period is ten years, with loan limits of JPY50 million for 2009–2011, JPY40 million for 2012, and JPY30 million for 2013. Rates are 1.2% for 2009–2011 and 1.0% for 2012–2013.

Credits without borrowing are also introduced. New certified long-term quality housing qualifies for 10% of standard performance enhancement costs, capped at JPY10 million. Certain energy-saving renovations qualify for 10% of the lower of actual and standard costs, capped at JPY2 million or JPY3 million with solar generation. Certain accessibility renovations qualify for 10% of costs capped at JPY2 million. None applies in years with total income exceeding JPY30 million. Seismic renovation credits are also extended by five years.

Two Corporation Tax Relief Measures for SMEs

The first is the rate. The reduced rate on the first JPY8 million of annual income for small and medium corporations and similar entities falls from 22% to 18%, for fiscal years ending between April 1, 2009 and March 31, 2011. Where a cooperative or specified medical corporation is a consolidated parent, the rate on that income falls from 23% to 19%.

Eligible entities include ordinary corporations with capital or contributions of JPY100 million or less at fiscal year-end, public interest corporations and similar entities, cooperatives, and unincorporated associations and similar bodies.

The second is loss carryback refunds. Losses arising in fiscal years ending on or after February 1, 2009 qualify for small and medium corporations and similar entities, allowing refunds of corporation tax paid in the preceding fiscal year.

Introducing Tax Deferral for Succession to Company Shares

Inheritance and gift tax deferral is introduced for unlisted shares and similar interests. For inheritance, tax corresponding to 80% of the taxable value of qualifying voting shares acquired by the management successor is deferred. Eligible shares, including those already held before inheritance, are limited to the portion bringing ownership up to two-thirds of outstanding voting shares and similar interests.

Gift deferral differs. A successor confirmed by the Minister of Economy, Trade and Industry who receives all the former representative's shares, up to the two-thirds limit, and continues managing the company may defer all gift tax on the transfer. When the donor dies, the successor is deemed to inherit those shares, and inheritance tax is calculated using their market value at the gift date together with other inherited property.

The outline defines a management successor heir as the successor to a former representative of a qualifying unlisted company certified by the Minister under the Act on Facilitation of Succession of Management of Small and Medium Sized Enterprises.

Special Rules for Land Acquisitions and Disposals

A JPY10 million deduction from long-term capital gains is introduced for Japanese land acquired between January 1, 2009 and December 31, 2010 and later sold after being held for more than five years as of January 1 of the sale year. Corporations receive equivalent treatment.

A measure also addresses buying replacement land first. A business acquiring Japanese land during the same period and submitting a notification by the final return deadline for the acquisition year may use tax-deferred book-value reduction when other land is sold within ten years after that fiscal year-end. The limit is 80% of the disposal gain, or 60% for land acquired during 2010.

Registration and license tax rates are also held steady. The planned April 1, 2009 increase for ownership transfer registrations on land sales is postponed for two years, retaining 10 per 1,000 through March 31, 2011. The rate then becomes 13 per 1,000 from April 1, 2011 and 15 per 1,000 from April 1, 2012.

Excluding Foreign Subsidiary Dividends from Taxable Income

International taxation shifts to a new system. Dividends received by domestic corporations from foreign subsidiaries are excluded from taxable income. The indirect foreign tax credit is abolished with necessary transitional measures.

A foreign subsidiary here means a foreign corporation in which the domestic corporation directly holds at least 25% of outstanding shares or similar interests continuously for at least six months before the dividend payment obligation is fixed.

The excluded amount is the dividend less 5%. Foreign withholding taxes on the dividend are neither deductible nor creditable. The amendment applies to dividends received in domestic corporations' fiscal years beginning on or after April 1, 2009.

To determine if it relates to you

• If planning to build or acquire a home from 2009, see housing and land taxation. Loan limits and credit rates differ for certified long-term quality housing.
• If considering energy-saving, accessibility, or seismic renovations, see credits in the same chapter. Conditions apply to work type and cost.
• Managers of companies with capital of JPY100 million or less should see SME taxation. Reduced rates and carryback refunds have different start dates.
• If considering transferring unlisted shares to a successor, see inheritance taxation. Deferred tax is calculated differently for inheritance and gifts.
• Listed-share holders should see financial and securities taxation. Dividends and disposal gains from January 1, 2009 through December 31, 2011 receive a reduced 7% rate, or 10% including inhabitant tax.
• If considering replacing a vehicle, see vehicle taxation. Motor vehicle weight tax at new or renewal inspections between April 1, 2009 and April 30, 2012 is exempt for electric vehicles and certain others, or reduced by 75% or 50% according to environmental performance.
• Managers of companies with overseas subsidiaries should see international taxation. Dividend and foreign tax credit treatment changes for fiscal years beginning on or after April 1, 2009.

Source

• Ministry of Finance: Outline of the FY2009 Tax Reform (December 19, 2008)