What was decided, when, and by whom

The Outline of the FY2015 Tax Reform is the government's outline approved by the Cabinet on January 14, 2015. Beneath the original title, it simply states “Cabinet decision of January 14, 2015.” It was adopted after the new year rather than at year-end. The opening preamble summarizes its aims.

In light of current economic conditions, growth-oriented corporate tax reform and measures to stimulate the housing market through earlier transfers of assets from older to younger generations will help secure an end to deflation and economic revitalization. Measures will strengthen regional corporate bases and support marriage and child-rearing to promote regional revitalization. To balance economic recovery with fiscal consolidation, the timing of the consumption tax increase to 10% will also be changed.

For how to read recent tax reform outlines, see Key points of the FY2026 tax system revision outline Please also see.

Main pillars of the outline

The text is divided into seven chapters.

Estimated internal tax revenue changes total a decrease of JPY108 billion in a full year. The corporation tax rate reduction is the largest decrease, at JPY669 billion, while revisions to loss carryforward deductions are estimated to increase revenue by JPY397 billion. Reading this alongside the preceding year's Outline of the FY2014 Tax Reform and the following year's and the Outline of the FY2016 Tax Reform shows the priorities of this year's changes.

Lowering Corporation Tax Rates and Broadening the Tax Base

The corporate taxation chapter begins with growth-oriented corporate tax reform. Lower rates are combined with narrower deductions and an expansion of size-based taxation.

The Rate Falls to 23.9%, While Loss Deduction Limits Decline in Stages

The corporation tax rate falls to 23.9% from 25.5%, applying to fiscal years beginning on or after April 1, 2015. The special reduced rate for small and medium corporations—15% rather than 19% on the first JPY8 million of annual income—is extended by two years.

Loss carryforward deduction limits decline in stages. For fiscal years beginning between April 1, 2015 and March 31, 2017, the limit is 65% of income before the deduction, down from 80%; for fiscal years beginning on or after April 1, 2017, it is 50%. Existing limits remain for small and medium corporations and similar entities. Meanwhile, the carryforward period extends from nine to ten years, as do record retention and correction claim periods.

Four Dividend Exemption Categories Based on Ownership

The dividend exclusion system is reorganized into new categories.

Previously, ownership of at least 25% qualified for full exclusion, so the threshold is redrawn at more than one-third. Other shares and non-controlling portfolio shares are also removed from the interest expense offset rules.

Expanding Size-Based Taxation

For local taxes, standard corporate enterprise tax rates for ordinary corporations with capital exceeding JPY100 million will be restructured. The value-added rate rises from 0.48% to 0.72% in FY2015 and 0.96% from FY2016; the capital rate rises from 0.2% to 0.3% and then 0.4%. The income-based rate falls, with the rate on annual income exceeding JPY8 million declining from 7.2% to 6.0% and then 4.8%.

Moving the Consumption Tax Increase to 10% to April 1, 2017

The consumption taxation chapter begins by changing the timing of the increase.

The effective date of the increase in combined national and local consumption tax to 10% shall be April 1, 2017.

The designated date for transitional rates on construction contracts and similar agreements becomes October 1, 2016. Because the applicable rate depends on when a construction contract is signed, this date is the practical dividing line.

Taxing Cross-Border Services with Consumption Tax

Services supplied through telecommunications networks, such as e-books, music, and advertising, will be classified as electronic services. The test for whether a transaction is domestic shifts from the supplier's office location to the recipient's address or equivalent location. Services delivered from abroad to Japanese users therefore come within Japanese consumption tax.

The person liable depends on the recipient. Services clearly intended for businesses based on their nature or contract terms are business-to-business electronic services, for which liability shifts to the recipient business under the reverse-charge mechanism. For other, consumer-oriented electronic services, the foreign supplier is liable.

Transitional measures also apply. Input tax credits are temporarily unavailable for consumer-oriented services received from foreign suppliers. However, credits are permitted for services from foreign suppliers registered with the NTA Commissioner, subject to retaining invoices showing the registration number and meeting other conditions. These rules apply to transactions on or after October 1, 2015.

Taxing Departure with Securities Worth at Least JPY100 Million

Individual income taxation introduces special capital gains rules on departure. When a resident ceases to have both a domicile and residence in Japan while holding securities or unsettled derivatives and similar transactions, income is calculated as if those assets were disposed of or transactions settled at departure.

Residents must meet both conditions: the aggregate amount subject to deemed disposal and similar treatment is at least JPY100 million, and the total period of Japanese domicile or residence during the ten years before departure exceeds five years. Values are measured at departure if a tax agent notification is filed by the return submission date; otherwise, they are measured three months before the planned departure date.

Relief is available upon return. If the person returns within five years of departure and has continuously held the relevant securities and similar assets, the taxation can be canceled. A request for correction must be made within four months of returning.

Supporting Gifts for Marriage, Child-Rearing, and Housing

Two gift tax exemptions involving lineal ascendants are changing. The first is a new exemption for lump-sum gifts of marriage and child-rearing funds. Where a lineal ascendant contributes money or similar assets to a financial institution trust or comparable arrangement for a recipient aged at least 20 and under 50, up to JPY10 million per recipient is exempt. Marriage expenses are separately capped at JPY3 million. Eligible contributions must occur between April 1, 2015 and March 31, 2019.

Termination rules also apply. The management agreement ends when the recipient reaches age 50 or another specified event occurs. Any amount remaining after actual expenditure is treated as a gift on that date and subject to gift tax. If the donor dies during the term, the balance on that date is deemed acquired by inheritance or bequest and added to the inheritance tax base.

The second is an expansion of the exemption for gifts of housing acquisition funds. The period extends to June 30, 2019, with limits set according to the contract date. Where the acquisition consideration includes consumption tax at 10%, contracts between October 2016 and September 2017 qualify for limits of JPY30 million for high-quality housing and JPY25 million for other housing, with limits declining in later periods.

Revising Accounts, Donations, and Reporting

An exemption will be introduced for dividends and capital gains on small investments in listed shares and similar assets held in minor accounts. Each person may have one account, accepting up to JPY800,000 annually into its tax-exempt investment subaccount. Withdrawals are restricted: transfers to accounts other than the taxable minor account are prohibited until December 31 of the year before the year in which the individual is age 18 on March 31. The annual NISA limit also rises from JPY1 million to JPY1.2 million.

For hometown tax donations, the special credit limit rises from 10% to 20% of the income-based individual inhabitant tax amount. A one-stop exception is introduced for employees and others who do not file final returns, but does not apply if a return is filed or donations are made to more than five local governments.

For tax administration, the detailed statement of assets and liabilities is reorganized into a statement of assets and liabilities. In addition to income exceeding JPY20 million, filing requires either total assets of at least JPY300 million at December 31 or assets covered by the exit tax rules totaling at least JPY100 million. This applies to statements due on or after January 1, 2016.

To determine if it relates to you

• Managers of companies carrying forward losses should see the corporate taxation chapter. Deduction limits fall while the carryforward period extends to ten years.
• Managers of companies with capital exceeding JPY100 million should see the local tax section of the corporate taxation chapter. Value-added and capital-based rates rise in two stages.
• Those holding securities and considering moving abroad should see the individual income taxation chapter. JPY100 million in aggregate is the dividing threshold.
• Businesses receiving digital services from overseas suppliers should see the consumption taxation chapter. Liability changes depending on whether the services are business-to-business.
• Those planning to help children or grandchildren with marriage, childbirth, or child-rearing expenses should see the asset taxation chapter. Marriage expenses have a separate limit.
• Those with income exceeding JPY20 million or substantial assets should see the tax administration chapter. The scope of required reporting expands.

Source

• Outline of the FY2015 Tax Reform (Cabinet decision of January 14, 2015)