Key Facts
• Japan’s Ministry of Economy, Trade and Industry (METI) plans a new tax incentive for capital investment.
• The measure will be a five-year temporary policy starting in fiscal year 2026.
• METI aims to introduce tax credits based on a percentage of investment amounts.
• The policy will target both large and small companies across various industries.
• Eligible investments include manufacturing machinery, software, factory buildings, and large-scale projects like automotive and semiconductor plants.
• METI also proposes “immediate depreciation,” allowing full cost deductions in the first year.
• The U.S. and Germany recently enacted similar measures, including permanent immediate depreciation and corporate tax cuts.
• Japan’s government targets ¥200 trillion in domestic public-private investment by 2040.
• Domestic investment in Japan lags behind overseas investment, risking economic stagnation.
• Political challenges include the ruling coalition’s loss of a majority in the July election, requiring opposition support for tax reforms.
Summary
Japan’s Ministry of Economy, Trade and Industry (METI) is considering a new tax incentive policy to boost domestic capital investment. The proposed five-year measure, starting in fiscal year 2026, includes tax credits and immediate depreciation for investments in machinery, software, and factory infrastructure. This initiative aims to enhance Japan’s economic competitiveness amid global trends, as the U.S. and Germany have recently implemented similar policies. The government seeks to achieve ¥200 trillion in domestic investment by 2040, addressing concerns over Japan’s slower domestic investment growth compared to overseas. However, political hurdles, including the ruling coalition’s loss of a majority, may complicate the policy’s implementation.
