What was decided, when, and by whom

The FY2024 Outline of Tax Reform is the government outline approved by Cabinet on December 22, 2023. Its opening states the priorities.

To ease burdens on people whose wage growth has not kept pace with prices and achieve sustained wage increases well above inflation, fixed income and individual inhabitant tax reductions and stronger wage increase incentives will be introduced. To strengthen supply capacity through capital accumulation and productivity, domestic production incentives for strategic sectors and an innovation box regime will be created, alongside measures to fundamentally strengthen the startup ecosystem.

Beyond the main Part I are Part II, Review of Dependent Deductions and Related Measures, and Part III, Tax Measures to Secure Funding for Stronger Defense Capabilities. For how to read the outline, see Key points of the FY2026 tax system revision outline Please see

Main pillars of the outline

Part I contains seven chapters, followed by Parts II and III.

The accompanying estimate of revenue changes from FY2024 domestic tax reform totals a JPY 2.901 trillion reduction in a full year and JPY 2.353 trillion in the initial year. For adjacent years, see FY2023 and FY2025 Please see

Deduct JPY 30,000 of Income Tax and JPY 10,000 of Individual Inhabitant Tax per Person

A fixed special income tax credit applies for 2024 to residents with total income of JPY 18.05 million or less. It equals JPY 30,000 for the taxpayer plus JPY 30,000 for each spouse sharing a livelihood or dependent relative, limited to the income tax amount.

Methods differ. Employees deduct it from withholding on their first salary payment on or after June 1, 2024, with remaining amounts deducted from later salary withholding. Business income earners and similar taxpayers deduct it from the first estimated tax installment in July, then the second in November.

Individual inhabitant tax also changes for FY2024: JPY 10,000 for the taxpayer and each eligible spouse or dependent is deducted from the income-based levy. For salary withholding, no amount is collected in June 2024; one-eleventh of the post-credit amount is collected monthly from July 2024 through May 2025. Revenue falls by JPY 2.302 trillion in national tax and approximately JPY 3.284 trillion including individual inhabitant tax and related taxes.

Restructuring Wage Increase Credits by Company Size

The first corporate tax pillar is achieving structural wage increases. The measure for all corporations is extended by three years, while the standard credit rate falls from 15% to 10%. Additional credits are 5 percentage points for continuing employee pay growth of at least 4%, 10 points for at least 5%, and 15 points for at least 7%. Meeting training expenditure requirements adds 5 points, and Platinum Kurumin or Platinum Eruboshi certification adds another 5 points.

A new measure applies to corporations with no more than 2,000 regularly employed staff. For fiscal years beginning from April 1, 2024 through March 31, 2027, pay growth of at least 3% qualifies for a credit of 10% of eligible increased employee pay, with another 15 points for growth of at least 4%. Credits are capped at 20% of current-year corporation tax. The SME measure is extended three years and allows unused credits to be carried forward for five years. Estimated full-year revenue reduction is JPY 346 billion.

Revising the Scope of Size-Based Enterprise Tax

The chapter's local tax section revises size-based enterprise tax. The existing capital threshold above JPY 100 million remains. For the time being, previously covered corporations with capital of JPY 100 million or less but combined capital and capital surplus exceeding JPY 1 billion remain covered. Certain wholly owned subsidiaries of corporations and similar entities with that combined amount above JPY 5 billion are also added if their own capital is no more than JPY 100 million and combined amount exceeds JPY 200 million. Effective dates are April 1, 2025 and April 1, 2026.

Tax Incentives for Domestic Production and Patent Income

The second pillar promotes domestic investment for productivity and supply capacity, introducing two regimes. Subject to amendment of the Industrial Competitiveness Enhancement Act, the strategic sector domestic production incentive applies to corporations with approved business adaptation plans between the amendment's effective date and March 31, 2027 that install or expand equipment producing qualifying industrial competitiveness products for domestic business use. For fiscal years within ten years of approval, they may claim the lower of an amount based on quantities sold and an amount based on asset acquisition costs.

Combined with digital transformation investment credits and similar credits, the credit is capped at 40% of current-year corporation tax, or 20% for semiconductor production assets. Estimated full-year revenue reduction is JPY 219 billion.

The innovation box regime allows a deduction of 30% of an amount calculated under prescribed rules when specified patent rights and similar rights are transferred or licensed to unrelated parties in fiscal years beginning from April 1, 2025 through March 31, 2032. Qualifying rights are certain patents and copyrights in programs using AI-related technology acquired or developed on or after April 1, 2024. Estimated full-year revenue reduction is JPY 23 billion.

Transfer-Restricted Market Crypto Assets: Choose Cost or Market Value

The same pillar includes year-end valuation of corporate crypto assets. It covers market crypto assets subject to transfer restrictions and other conditions.

Year-end value is calculated using either the cost method or market value method elected by the corporation. However, self-issued assets continuously held from issuance use cost. Even for market crypto assets, qualifying transfer restrictions allow corporations to choose whether to mark them to market at year-end.

Eligibility depends on two requirements.

• Certain transfer restrictions must apply, such as technical measures preventing transfer to others.
• The holder or another relevant party must notify a crypto asset exchange or take similar steps so that an authorized payment service provider association publicly discloses the restriction.

The election procedure is also specified.

The valuation method must be selected separately for each type of crypto asset subject to transfer restrictions and other conditions and notified to the district director of the competent tax office by the final return deadline for the fiscal year of acquisition.

Without an election, year-end valuation uses cost. The relationship between transfer restrictions and year-end valuation is discussed in Transfer Restrictions Can Exclude Assets from Mark-to-Market Valuation, while the development of crypto asset taxation is discussed in The crypto asset tax system was created this way. for further details.

Crypto assets also appear in the international tax chapter under reporting for automatic exchange of nonresident crypto asset and similar transaction information. Persons conducting such transactions on or after January 1, 2026 must submit a notice including name, address, and country of residence.

Collecting Foreign Businesses' Consumption Tax from Platforms

The consumption tax chapter begins with appropriate taxation of foreign businesses, centered on platform taxation.

Electronic services supplied by a foreign business through a digital platform, excluding business-to-business electronic services, are deemed supplied by a designated platform operator where payment is received through that operator.

Designation is based on amount: the Commissioner of the National Tax Agency designates platform operators whose total consideration for covered services exceeds JPY 5 billion in the taxable period. This applies to services supplied on or after April 1, 2025.

Foreign businesses' access to exemption and simplified taxation is also narrowed. They can no longer use salary payments to determine eligibility under the special taxable-sales test for a specified period. Foreign businesses without a permanent establishment cannot use simplified taxation. Both apply to taxable periods beginning on or after October 1, 2024.

To determine if it relates to you

• Salary and pension recipients should review Fixed Income Tax and Individual Inhabitant Tax Reductions under personal income taxation.
• Corporations increasing pay or training expenditure should review Achieving Structural Wage Increases under corporate taxation.
• Corporations reducing capital to JPY 100 million or less and wholly owned subsidiaries of large corporations should review size-based enterprise tax under corporate taxation.
• Corporations holding transfer-restricted market crypto assets or issuing crypto assets should review year-end valuation under Promoting Domestic Investment for Productivity and Supply Capacity in corporate taxation.
• Those selling streaming and similar services from overseas should review Appropriate Consumption Taxation of Foreign Businesses under consumption taxation.
• Those with children under 19 and other qualifying persons acquiring or renovating housing during 2024 should review Child-Rearing Support Tax Measures under personal income taxation.
• Those considering tax deferral for unlisted shares or business assets should review the extension of plan submission deadlines under asset taxation.

Source

• FY2024 Outline of Tax Reform, Cabinet Decision of December 22, 2023 Ministry of Finance (Contents)