Relevant Period:This article covers the FY2022 Outline of Tax Reform approved by Cabinet on December 24, 2021. Amounts and scheduled application dates reflect that time, not the current system.

What was decided, when, and by whom

The FY2022 Outline of Tax Reform is the government outline approved by Cabinet on December 24, 2021. Beneath its title appears only Cabinet Decision, December 24, 2021. The year's starting points were supporting wage increases and restructuring housing loan deductions, as expressed in the preamble.

To achieve a virtuous cycle of growth and distribution, wage increase tax measures will be fundamentally strengthened to encourage stakeholder-conscious management and active pay rises, alongside measures promoting open innovation between startups and established businesses. Housing loan deductions and related measures will be revised with carbon neutrality and other objectives in mind. To support economic recovery, measures will soften abrupt changes under land property tax burden adjustments. Specific reforms follow.

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

Main pillars of the outline

The text has seven chapters. Their names and decisions are as follows.

The accompanying estimate of revenue changes from FY2022 domestic tax reform totals a JPY 153 billion reduction in a full year and JPY 74 billion in the initial year. For adjacent years, see FY2021 Outline of Tax Reform and FY2023 Outline of Tax Reform Please see

Fundamentally Strengthening Wage Increase Tax Measures

The largest item, at the start of corporate taxation, concerns wages. A system focused on pay for new hires shifts to growth in pay for continuing employees.

The new-hire element of the credit for increased payroll is restructured. Blue-return corporations paying domestic employees in fiscal years beginning from April 1, 2022 through March 31, 2024 may credit 15% of eligible increased employee pay where continuing employee pay grows at least 3% against the comparison amount.

Growth of at least 4% adds 10 percentage points, and training expenditure growth of at least 20% adds another 5 points. Credits are capped at 20% of current-year corporation tax. Corporations with capital and similar amounts of at least JPY 1 billion and at least 1,000 regularly employed staff must notify the Minister of Economy, Trade and Industry of published wage increase policies and related matters.

The SME income expansion incentive is extended one year with revised enhancements: pay growth of at least 2.5% adds 15 points, and training expenditure growth of at least 10% adds 10 points. Conversely, conditions for retaining access to R&D and certain other incentives become stricter. Certain large corporations require continuing employee pay growth of at least 1%, or 0.5% for fiscal years beginning from April 1, 2022 through March 31, 2023.

Startup measures also change. Open innovation incentives are extended two years, and the minimum expected holding period for specified shares falls from five years to three years from acquisition.

Restructuring Housing Loan Deductions

The special income tax credit for housing loans is extended four years through December 31, 2025. The credit rate becomes 0.7%, with borrowing limits and credit periods differentiated by housing type and occupancy year. For occupancy from 2022 through 2025, the terms are as follows.

The figures above cover new construction and purchases of previously unused homes and similar cases. Under the outline at that time, existing certified and similar homes had a JPY 30 million borrowing limit; other existing homes and renovations had a JPY 20 million limit. Both had ten-year credit periods.

Eligibility also changes. The income ceiling falls from JPY 30 million to JPY 20 million. Existing-home age requirements are abolished and replaced by compliance with new earthquake-resistance standards. Certain homes receiving building approval on or after January 1, 2024 that fail prescribed energy standards cannot qualify for new-construction and similar relief.

Housing Acquisition Gifts and Land Tax Burden Adjustments

Gift Tax Exemption Limits of JPY 10 Million and JPY 5 Million

The gift tax exemption for housing funds from lineal ascendants is extended two years through December 31, 2023. Regardless of contract date, the limit is JPY 10 million for earthquake-resistant, energy-efficient, or barrier-free homes and JPY 5 million for others. Existing-home age requirements are replaced by new earthquake-resistance standards, and the recipient age requirement falls from 20 to 18.

A Measure for Commercial Land Limited to FY2022

A one-year FY2022 measure adjusts land property tax burdens. For commercial and similar land with a burden level below 60%, the FY2022 taxable base is the FY2021 base plus 2.5% of FY2022 appraised value, instead of 5%. The result is capped at 60% of appraised value and floored at 20%.

Revising Invoice System Registration

The outline establishes registration procedures and transitional measures for the qualified invoice system. Tax-exempt business registration is treated as follows.

A tax-exempt business registering as a qualified invoice issuer during a taxable period containing dates from October 1, 2023 through September 30, 2029 may become an issuer from its registration date.

Businesses becoming taxable from registration under this rule cannot use the business exemption threshold from the next taxable period through the period containing the date two years after registration. This excludes businesses registering during the taxable period containing October 1, 2023.

Tax Administration Measures for Books and Records

Higher Additional Tax for Failure to Produce Books

Enhanced underreporting and nonfiling additional taxes are introduced. Failure to present or submit specified books when requested by tax officials, or seriously inadequate sales recording, adds 10% of the omitted income, corporation, or consumption tax to ordinary additional tax. Inadequate recording adds 5%. The two categories are distinguished as follows.

Seriously inadequate recording means omission of at least half of sales or business revenue required to be recorded; inadequate recording means omission of at least one third.

Covered books include journals and general ledgers that blue-return taxpayers must retain.

Two-Year Transitional Measures for Electronic Transaction Records

For electronic transactions from January 1, 2022 through December 31, 2023 by persons required to retain records for self-assessed income tax or corporation tax, transitional measures apply. Where the competent tax office director recognizes unavoidable circumstances and the taxpayer can present or submit printed records upon an authorized inspection request, retention is permitted notwithstanding ordinary requirements.

Assets and Liabilities Statements Required for Assets of JPY 1 Billion or More

The assets and liabilities statement regime is revised to add residents holding total assets worth at least JPY 1 billion on December 31 to existing filers. The deadline moves from March 15 to June 30 of the following year, as does the foreign assets statement deadline.

To determine if it relates to you

• Corporations planning pay rises should review corporate taxation. Continuing employee pay growth thresholds are 3% and 4%, and the SME threshold is 2.5%.
• Those planning to acquire and occupy housing from 2022 should review personal income taxation. Borrowing limits and credit periods depend on energy performance and occupancy year, and the income ceiling falls to JPY 20 million.
• Those receiving housing funds from parents or grandparents should review asset taxation. Exemption limits are JPY 10 million or JPY 5 million depending on housing performance.
• Businesses with sales should review consumption taxation and tax administration. These cover qualified invoice registration and enhanced additional taxes for failure to produce books.
• Those holding assets worth at least JPY 1 billion on December 31 should review tax administration; they become required to file an assets and liabilities statement.

Source

• FY2022 Outline of Tax Reform, Cabinet Decision of December 24, 2021