TOKYO – Companies in Japan could soon leverage up to 40% of their research and development (R&D) investments for tax credits, as part of a proposed tax reform by the Economy, Trade and Industry Ministry, set to take effect in 2026. This initiative is designed to stimulate corporate investment in six key “national strategic technologies” deemed essential for the country’s economic security and industrial growth.
Earlier this month, a Cabinet Office expert panel identified the critical areas requiring strategic support: artificial intelligence and robotics; semiconductors and communications; space; quantum technologies; fusion energy; and biotechnology and health care. The proposal aims to expand the existing R&D Tax Credit System, which currently allows companies to deduct a percentage of their R&D expenses from corporate taxes.
Under the reform, up to 50% of expenses incurred through recognized joint research with universities or institutions could qualify for credits, provided the research is considered superior. Presently, companies can deduct up to 14% of total R&D expenses, or up to 30% for joint or contract research, commonly referred to as “open innovation.” In fiscal 2023, around ¥950 billion was deducted under this system, reflecting its significance in promoting corporate R&D.
As global competition intensifies in these critical technology sectors, other nations are ramping up their support. In 2024, the United States identified AI, semiconductors, and space as pivotal areas, augmenting investments in these domains. Similarly, Germany announced a new strategy focusing on core technologies like quantum, AI, and energy. South Korea has also implemented a 40% tax credit specifically for investments in semiconductors and batteries.
Despite the potential benefits of the expanded R&D tax credits, some voices within the government and ruling parties are calling for a reassessment of such measures. They argue that scaling back tax relief could help secure additional revenue, especially as the provisional gasoline tax surcharge is set to expire. Ongoing discussions will focus on the ministry’s proposal, although negotiations are expected to be complex.
This push towards enhancing the R&D Tax Credit System is part of a broader effort to ensure Japan maintains its competitive edge in technology and innovation on the global stage. With nations worldwide investing significantly in emerging technologies, Japan’s strategy reflects a critical response to the rapidly evolving landscape of global technological advancement. As the government weighs its options, the implications of these reforms could shape the future of Japan’s industrial landscape and its role in the global economy.
For further information on Japan’s strategic technology initiatives, visit the Ministry of Economy, Trade and Industry website. For insights into the global tech landscape, check the White House for updates on U.S. technological strategies.
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