R&D Tax credits

In Japan it is possible to receive tax credits for R&D expenses. In April 2015 a number of changes were made to the program.  The limit on total tax credits available for R&D expenses will remain the same at 30% of the corporate tax liability. The tax credit rate for SMEs will also remain the same at 12% (8-10% for larger companies). 

Changes however concern the limit on tax credit for general R&D expenses which is lowered to 25% of the corporate tax liability (was: 30%).  Tax credit for special R&D expenses is raised if it concerns joint research with special R&D institutions or universities to 30% and if it concerns other R&D 20% (Was 12% for both categories). The limited on the tax credit available for special R&D expenses will be 5% of the corporate tax liability of each fiscal year, separate from the limit on the total tax credit available and the one available for SMEs. 

Source: Ernst & Young Tax Co. Japan tax newsletter (2 February 2015), p. 5

 

Incentives for Asian Site Location

Under the Act for Promotion of Japan as an Asian Business Centre, the Japanese government offers several key support measures for certified global companies who establish an R&D Centre or Asian headquarters in Japan. The incentives offered are as follows:

  1. Corporate tax breaks: 20% income deduction, equivalent to a corporate tax rate reduction of around 7%
  2. Income tax breaks: deferral of taxation when exercising stock options granted by parent companies abroad until the shares are sold
  3. Assistance for fundraising: applicable to SMEs
  4. Acceleration of patent examinations: according to FY 2011, the average wait was 2 months for accelerated patents (compared to the normal wait of 22 months)
  5. Reduction of patent fees: 50% reduction in examination and patent fees
  6. Shortened investment procedures:  2 week examination time for prior notification for inward direct investment in regulated industries (compared to the normal 30 day wait)
  7. Acceleration of status of residency examinations: applicable to foreign nationals wishing to work in Japan.

Ministry of Economy, Trade and Industry, Act for Promotion of Japan as an Asian Business Centre, 2013

 

Incentives regarding Special Zones

Companies planning to expand or invest in areas classified as Special Zones for Reconstruction may be entitled to special arrangements for deregulation and reduced procedures in addition to support relating to tax, budgets and finance. [1]

Tax breaks are particularly generous for businesses establishing themselves in these areas. Businesses may benefit from:

  • Special depreciation tax credit
  • Special corporate tax credit (equivalent to 10% of the combined salaries and other payments for employees from severely affected areas)
  • Taxation to promote establishment of new business facilities (immediate depreciation or inclusion in deductible expenses of reserve funds)
  • Tax breaks for R&D. [2]

[1] Reconstruction Agency of Japan, Overview
[
2] Reconstruction Agency of Japan, Outline of Special Zones for Reconstruction, 2012  

 

National strategy special zones

The national strategy special zones (kokka senryaku tokku) are part of the Abe government’s drive to attract foreign investment to Japan.  Within these zones deregulation measures are scheduled to be introduced and some of these zones have already announced that they will introduce lower local corporate tax rates.  It is still unclear how these measures will work out in practice, as they are still under deliberation. 

In May 2014 the following cities and regions were designated as special zones:

  • Tokyo area: 9 Wards in Tokyo (Chiyoda, Chuo, Minato, Shinjuku, Bunkyo, Koutou, Shinagawa, Ota and Shibuya), Kanagawa prefecture and Narita-city (Shiba prefecture)
  • Kansai area: Osaka, Hyogo prefecture and Kyoto
  • Niigata-city
  • Hyogo prefecture, Yabu-city
  • Fukuoka-city
  • Okinawa Prefecture

Source: Kantei, Cabinet decision May 1st 2014

 

Regional and Prefectural Incentives

Japan’s prefectures and major cities offer their own subsidies and incentives programmes to attract foreign investment.

A full description of prefectural support to foreign companies relocating to Japan can be found in our Regions & Prefectures pages.

JETRO also provides an in-depth presentation of regional and prefectural support in their website section entitled Regional Information.

For more information about FDI incentives in Japan please consult the related reports, which you can find on our "About Foreign Direct Investment" page.

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