Tax credits
In Japan it is possible for foreign SMEs to receive tax credits for a variety of expenses such as R&D costs. JETRO provides an overview of incentives such as tax credits. A number of the fiscal measures available during FY 2019 are introduced below:
R&D tax credits
When various components are added together a maximum tax credit of 45% can be applied, for start-ups a maximum of 60% is a possible. Currently the tax credits consist of a Gross-amount tax credit and Open Innovation tax credits. There is an additional, but temporary (until 2021), increase of maximum credit in case where the R&D ratio expenses to sales exceeds 10% (For SMEs 8%).
Sources: EY, Japan Tax News Letter, 2019; SME Agency, SME Tax system 2019
Fiscal support for productivity improvement
SMEs that invest in new machinery and equipment that leads to increase in productivity can apply for a 3-year deferment of payment fixed asset taxes. Prior approval of the business plan needs to be obtained however.
SME Agency, SME Tax system 2019 (J)
Fiscal support for business performance improvement
Companies with an approved business improvement plan can receive tax credits on their investments (machinery, equipment, building improvements, software). This can be through immediate depreciation of assets or a tax credit of 10% the investment.
SME Agency, SME Tax system 2019 (J)
Support of capital investment for certain equipment
For certain investments in machinery, equipment, software and vehicles, SMEs can elect to apply a special depreciation of 30% of the investment amount or a 7% tax credit (tax credit is only for SMEs with capitalization of 30 mln JPY or single person businesses. This measure is in place until March 2021.
SME Agency, SME Tax system 2019 (J)
Fiscal support for retail and service businesses
To strengthen the fundamentals of retail and service business, investments by these kinds of companies are support fiscally. SMEs can elect to apply a special depreciation of 30% of the investment amount or a 7% tax credit (tax credit is only for SMEs with capitalization of 30 mln JPY or single person businesses. This measure is in place until March 2021.
SME Agency, SME Tax system 2019 (J)
Connected Industries tax system
Tax measures supporting introduction of systems, sensors, robots and so on necessary in efforts to boost productivity, through collaboration and utilization of data, and for which certain cybersecurity measures are taken
Target equipment: Software, apparatuses, equipment, machinery and devices
Tax measures: 30% special depreciation or 3% tax deduction. The tax credit rate is 5% in the case of a wage increases in which the rate of increased pay and allowance for employees is over 3% from the previous year. This measure is in place until March 2021.
Fiscal incentives for renewable energy and energy-saving investments.
Companies designated under the Energy-saving Act etc. can receive either a 30% immediate depreciation or a 7% tax credit on their investment for energy saving equipment and machinery. The measure is in place until March 2021.
SME Agency, SME Tax system 2019 (J)
Fiscal incentives for opening branch offices, business and research facilities outside of Tokyo.
Due to the strong economic pull of the Tokyo Metropolitan Area, fiscal measures have been in place for the past years to entice companies to relocate to areas outside of Tokyo. These include tax credits for hiring new employees and tax cuts for capital investment etc.
Regional and Prefectural Incentives
Tax incentives "for strengthening local business facilities" are available for companies opening or expanding headquarters functions (such as branch offices and research laboratories in local areas) outside of the Tokyo Metropolitan Area (with the exception of a few areas). Please visit the Incentives section of the JETRO website to consult the different types of local tax breaks and their prerequisites.
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.