Key Points of the FY2026 (Reiwa 8) Tax Reform in Japan
— Revisions Related to Corporate Taxation —
- Overview of the 2026 Tax Reform Outline
- Revisions Related to Corporate Taxation
- Individual Income Tax Related Matters
- Consumption Tax Related Matters
- International Taxation
On December 26, 2025, the Japanese government approved the FY2026 Tax Reform Outline.
In this article, we will explain the revised provisions related to Corporate Taxation that are relevant to many multinational companies in Japan.
(1) Special Provisions for Document Retention in Intercompany Transactions
(i) Overview
In cases where transactions are conducted between related parties (such as parent companies, subsidiaries, and affiliated companies), transaction-related documents that state the consideration amount and the basis for its calculation must be obtained and properly retained.
(ii) Covered Transactions
- Transfer or lease of industrial property rights, copyrights, software, etc.
- Provision of services (R&D, advertising, asset maintenance/management, business management/instruction, and other similar services).
(iii) Parties Subject to the Rule
Domestic corporations that receive claims from related parties for covered transactions and make payments.
(iv) Definition of Transaction-Related Documents
Documents received or issued in relation to transactions, such as purchase orders, contracts, delivery notes, receipts, quotations, and other equivalent documents, which are required to be retained under the Corporation Tax Act.
(v) Penalty
If the retention of documents is not recognized as compliant with legal requirements, it may constitute grounds for revocation of blue form tax return approval.
(vi) Effective Date
Applies to transactions conducted on or after April 1, 2026.
(2) Revision of the Wage Increase Tax Incentive
Large enterprises and mid-sized enterprises will move toward abolition and stricter requirements, while the system for small and medium-sized enterprises will be maintained as is.
| Category | Conditions | From April 1, 2026 Onwards |
| Large Enterprises | Capital over JPY 100 Million and more than 2,000 employees | Abolished |
| Mid-Sized Enterprises | Capital over JPY 100 Million and less than 2,000 employees | Partially abolished and tightened |
| SMEs | Capital of JPY 100 Million or less | Maintained |
- Applies to fiscal years beginning on or after April 1, 2026.
- Therefore, fiscal years beginning on January 1, 2026 are not eligible.
Note: A corporation is not treated as an SME but as a large enterprise if more than 50% of its shares are held by a corporation that has a wholly controlling relationship and whose capital exceeds JPY 5 Billion.
- Large Enterprises: abolition will occur one year earlier than initially planned.
- Mid-Sized Enterprises: the required increase in continuing employee compensation is raised from 3% to 4%, and the system will be abolished in 2027; the additional measure for training expenses will be abolished
- SMEs: the additional measure for training expenses will be abolished
(3) Introduction of the Tax Incentive for Investment in Specified Productivity-Enhancing Equipment
(i) Overview
For all industries, if certain investment profitability thresholds and minimum investment amounts in production equipment are met, immediate depreciation or a tax credit of 7% (4% for buildings, building attachments, and structures) will be allowed.
- Investment return: expected annual average of 15% or more
- Total investment amount: JPY 500 Million or more for SMEs; JPY 3.5 billion or more for others
(ii) Eligible Assets
Production equipment is eligible. Office equipment, headquarters buildings, welfare facilities, etc., which do not fall under production equipment, are not eligible.
- Machinery: acquisition cost of JPY 1.6 Million or more per unit
- Tools and equipment: JPY 1.2 Million or more, or JPY 400,000 or more per unit with total of at least JPY 1.2 Million
- Buildings: acquisition cost of JPY 10 Million or more
- Building attachments: JPY 1.2 Million or more, or JPY 600,000 or more per unit with total of at least JPY 1.2 Million
- Structures: JPY 1.2 Million or more
- Software: JPY 700,000 or more
(iii) Eligibility – Two of the following conditions should be met
- Corporations filing a blue return that have obtained confirmation from the relevant METI regional bureau for the investment plan relating to the assets.
- The assets must be acquired and used for business within a period from the date of confirmation to five years thereafter.
(4) R&D Tax Incentive – Introduction of the Strategic Technology Area – Type R&D Tax Incentive
(i) Overview
In order to provide focused support for investments in nationally important technologies such as AI, quantum, and semiconductors, a separate tax credit framework will be established within the R&D tax system as the “strategic technology area type.”
A tax credit of 40% will be granted for R&D conducted by the taxpayer in these strategic areas.
(Reference: Ministry of Economy, Trade and Industry, “FY2026 Tax Reform Related to METI,” December 2025)
(ii) Eligible Areas
AI, advanced robotics, quantum, semiconductors/communications, bio/healthcare, fusion energy, space
Details of Tax Credit
- Applicable to corporations filing a blue return that have received certification for a key R&D plan under the Industrial Competitiveness Enhancement Act
- Applicable to fiscal years including the period up to March 31, 2029
- Tax credit of 40% of the amount of specified industrial technology R&D expenses
※ In the case of joint R&D with or outsourcing to a designated organization, the rate is 50%
- Up to 10% of corporate tax liability
- Excess credits may be carried forward for 3 years
(5) Overall Picture of Other Revisions to the R&D Tax System
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