Entity Setup
Entity Setup in Japan in Light of New Measures for High-Income Individuals & Global Minimum Tax
If you're considering setting up a business in Japan or a subsidiary, understanding the 2026 tax reforms—particularly for very high incomes and the global minimum tax—is essential to avoid surprises.
By NomadicTax Research Team • 5-8 min read • August 21, 2026
## Major Reforms for High-Income Individuals and Corporations
### 1. **Higher Rates for “Very High Income” Individuals**
- From **FY 2027 / tax year 2027 onwards**, individuals with **基準所得金額 (base income) exceeding ¥165 million** will see their **special deduction limit lowered**, and their applicable tax rate raised from **22.5% to 30%**. This expands the group to around 2,000 taxpayers, up from around 200 previously.([mof.go.jp](https://www.mof.go.jp/english/policy/tax_policy/tax_reform/08keyhighlight.pdf?utm_source=openai))
### 2. **Global Minimum Tax Adjustments**
- The global minimum tax framework (Pillar 2) under BEPS reforms is being refined. Japan will maintain provisions exempting certain foreign jurisdictions from the top‐up tax if they meet minimal tax rate thresholds and other conditions.([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/20260123kokusai.htm?utm_source=openai))
## Impacts for Business and Structures
- **Holding companies** or **personal service companies** used by high earners may need to reassess compensation levels and income allocation.
- Foreign corporations with Japanese subsidiaries may face different treatment under global minimum tax rules; optimum jurisdiction selection and profit repatriation strategies are more constrained.
## Practical Setup Tips
- Use deductions and deferred income plans (e.g., bonuses, royalties) to smooth income across years to avoid the higher bracket.
- Where possible, shift non-essential income to alternative vehicles with favorable treatment (e.g., family trusts or entities offshore), though watch for Japanese CFC rules and residency rules.
- Stay compliant with documentation: electronic bookkeeping, e-Tax filing, proper accounting of research & development credits, etc. Many preferential deductions are now tied to **electronic record-keeping** and **e-filing**.([mof.go.jp](https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_01.htm?utm_source=openai))
## Case Example
**TechCo**, a startup generating base income of ¥200 million per year via consulting. Under the new limits, its owner needs to choose between drawing full salary vs. retaining profits, to stay below the ¥165 million threshold. Using deferred payment or splitting income among family members or a holding entity may help—but be wary of CFC rules and attribution.
## Action Plan Before Setting Up
- Evaluate your anticipated taxable income a few years ahead—not just current year.
- Ensure your entity is set up with robust accounting capacity including **electronic books** and **proper systems** (many tax credits now require these).
- Consult local advisers to confirm which foreign jurisdictions might still qualify for exemptions under global minimum tax safe harbors.
## Conclusion
For entities formed by or for high-income individuals in Japan, the reforms mark a shift toward stricter thresholds and more documentation. But with careful planning, proper structures, and timing, it is still possible to optimize tax exposure while remaining compliant.