What’s New for High-Income Individuals in the 2026 Reform
Japan’s 令和8年度税制改正の大綱 (Fiscal Year 2026 Tax Reform Outline) introduces several major changes for very high-income taxpayers: thresholds for additional tax burdens have been lowered, tax rates raised, and special surtaxes introduced. (mof.go.jp)
Significant Changes
| Measure | Before | After |
|---|---|---|
| Basis income threshold for additional tax burden’s special deduction | ¥330,000,000 | ¥165,000,000 (mof.go.jp) |
| Tax rate above threshold | 22.5% | 30% (mof.go.jp) |
| Introduction of “防衛特別所得税” (Special Income Tax for Defense) | None | 1% surtax on base income tax (mof.go.jp) |
Practical Implications & Example
- If your 基準所得金額 (base income) exceeds ¥165 million and your tax burden was calibrated at 22.5%, you’ll now face a 30% rate.
- The defense surtax adds another layer: an extra 1% on income tax for many taxpayers starting FY2026. This is permanent “for the time being.” (fsa.go.jp)
- For example, someone earning ¥200 million would see significant increases: earlier, excess beyond ¥330 million taxed at higher rate; now, the excess beyond ¥165 million is taxed at 30%, plus the new surtax.
What to Do: Tax Planning Strategies
- Timing income recognition: Bringing forward income into years before FY2026 might help if your income was expected to cross the new threshold.
- Maximize deductions and credits: Especially among incomes close to ¥165 million, making full use of available deductions or credits can reduce your taxable base below the threshold.
- Restructure compensation: If feasible, shift compensation into longer-term capital gains or dividends, though be mindful of Japan’s separate taxation of those and treaty rules.
- Use of income splitting or entity planning: Under Japanese law, where possible, with legal entities or trusts; but high-earners must beware anti-abuse rules.
Related Changes and Fairness Measures
- The 献金税額控除や研究開発税制の強化, including key expansions in R&D credit for strategic technologies like AI, quantum or biotechnology. (mof.go.jp)
- Base exemptions and standard deductions are being increased in light of inflation, benefiting lower/middle incomes. (mof.go.jp)
Actions You Should Take Now
- Estimate your taxable income for FY2026 to see whether you cross new thresholds.
- Consult with a tax advisor to identify deductions or credits you may not be utilizing.
- If you receive large income at one time (e.g. bonuses, capital gains), consider deferring or spreading them when possible.
- Review your compensation mix—salary vs dividends vs deferred compensation—to see which is most tax-efficient under the new regime.
By understanding and proactively planning for these reforms, high-income individuals can mitigate their increased tax burden. The key is acting before changes take full effect.