On October 1, 2013, the Japanese government officially announced that the consumption tax will increase from 5% to 8% effective from April 1, 2014. The Japanese government also approved an economic stimulus package which is expected to mitigate the impact of the new consumption tax rate.
The economic stimulus package includes the following provisions:
1. Rate of Corporate Income Tax
The proposal indicates that the corporate income tax will be reduced by abolishing the Special Reconstruction Corporation tax one year earlier than scheduled. If the Special Reconstruction Corporation tax is abolished in December 2013, the effective corporate tax rates will be as followed:
- Corporation Tax: 25.500%
- Special Local Corporate Tax: 4.292%
- Business Tax: 3.260%
- Prefectural and Municipal Tax: 5.280%
The effective tax rate would be 35.640% after the deductibility of the Special Local Corporate tax and business tax is taken into account, and the Tokyo tax rate applied to a company whose paid-in capital is over JPY 100 million.)
2. Tax Credit for salary growth (Blue-Return Filer)
The tax credit for salary growth introduced for the period April 2013 to March 2016 would be extended for 2 years and will apply until March 31, 2018. The percentage increase required over the base year depends on the tax year to which it relates.
3. Tax incentives for investment in production facilities (Blue-Return Filer)
When the company acquires and puts into use productivity improvement facilities before March 31, 2017, the company may be entitled to either special depreciation or tax credit.
- The company can elect special accelerated depreciation of 50% of the qualified manufacturing equipment and 25% for the cost of factory buildings and fixtures or tax credit of 4% of the cost of qualified manufacturing facilities and 2% of the cost of factory building and fixtures. (Capped at 20% of corporate tax liability.)
- For qualified facilities purchased between the Industrial Competitiveness Enhancement Act and April 1, 2016, the company would be allowed to deduct 100% of the cost or 5% of tax credit.
- Small and medium-sized companies with capital of 30 million yen or less are allowed to deduct total acquisition cost or tax credit of 10% of the acquisition cost.
4. Tax credits for R&D expenditure
The additional tax credit for R&D would be extended for 3 years up to a maximum tax credit of 30% of tax liability.
5. Tax incentive for venture capital investment
Investment in specified business ventures under the Industrial Competitiveness enhancement Act are entitied to a deduction of the reserve in the year of investment. The deductible amount would be up to 80% of the book value of the shares in specified business venture.
6. Tax incentive for business reorganization
Taxpayers are allowed a deduction of up to 70% of the acquisition cost for an investment in a qualified corporation which has a certification of a specified business reorganization plan under Industrial Competitive Enhancement Act.
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