Japan Corporate Tax Reduction to Attract Foreign Investment

Osaka – Saturday, October 23, 2010




Nikkei, Japanese leading newspaper specialized in business and economy reported on October 21 that the Japanese government started to study corporate tax reduction for foreign capitals entering Japanese market. Effective tax ratio which is currently 40% including local tax is being studied to be lowered by 10 – 15 % exclusively for the first 5 years.



The ruling party has already started studying to cut by 5% to activate businesses in Japan, and this will be the additional measure targeting foreign capitals as incentive to attract their investment in Japan. The government is shortly to develop action plan, targeting to implement from 2011.



1. What is the background of corporate tax reduction of new foreign capitals?



It is the fact that the government had stated that “promoting foreign capitals doing business in Japan” in the new growth strategy developed in June this year. Based on this policy, discussion on how to promote investment in Japan among government, public and private sectors (chairperson = Economy, Trade and Industry Minister) has been ongoing and comprehensive “Programme to promote investment in Japan” will be announced in the middle of November. The pillar of the programme is to be preferential treatment of corporate tax.



2. What is the detail of the preferential treatment of corporate tax?



Effective corporate tax rate for foreign capitals that newly establish Asia Pacific headquarter and R&D site will be reduced to 25 – 30 %, which would be on par with those of China, Korea and other Asian countries for the first 5 years in operation. The Japanese government has already started studying cutting corporate tax by 5%, but aims to implement additional preferential treatment to decrease burden of foreign investment in Japan.



Details such as what kind of preferential treatment is to be applied in a M&A case in which a foreign capital has acquired a Japanese company will be discussed and decided.



3. What other incentives are being studied?

1) Give subsidy for a plant construction

Subsidy is to be given to assist environment-related investment in constructing a plant/factory.



2) Promote mobility of human resources



Procedure of executives and engineers with high level skills obtaining visa is to be simplified. Also, requirement of accepting domestic servants will be made less strict.



3) Give subsidy to development sites for overhaul



Subsidy is to be given to large scale equipment overhaul involving mock-ups and mass production trials.



4) Simplify administrative procedure



Speed-up audits of new medicine and medical devices.



4. What kind of companies does the Japanese government want to attract?



The government would like to attract companies with high level technologies and skills in high tech, healthcare and bio that wants to enter Japan market for the first time or to transfer site(s) from abroad to Japan.



5. How are Asian counterparts?



Other countries have been competing to attract foreign capitals to their country. Korea exempts income tax of non-Korean engineers. China has established an exclusive preferential taxation system to manufactures with high level technologies.