What’s Changing for Ultra-High Earners
Under the 2026 tax reform in Japan (令和8年度税制改正大綱), one of the most significant changes is the overhaul of the “特定の基準所得金額の課税の特例” — a special taxation rule for extremely high incomes. The special deduction floor is lowered from ¥330 million to ¥165 million and the surcharge rate on income above that floor is raised from 22.5% to 30%. (mof.go.jp) These changes take effect for income in 令和9年分 (fiscal year 2026 for calendar-year taxpayers).
Who’s Affected & How It’s Calculated
- You’re subject to the surcharge if your 基準所得金額 (standard income amount) exceeds ¥165 million per year.\
- The surcharge only applies to the portion exceeding ¥165 million.\
- For comparison, under the previous rule, the threshold was ¥330 million, with surcharge above that at 22.5%. (mof.go.jp)
Examples to Illustrate
| Situation | Annual Standard Income | Old Surcharge | New Surcharge |
|---|---|---|---|
| Person A – Income: ¥200 million | Exceeds ¥165 million by ¥35 million | No surcharge (below old ¥330M floor) | ¥35 million × 30% surcharge (¥10.5 million) |
| Person B – Income: ¥500 million | Exceeds both thresholds | (¥500M-¥330M)=¥170M × 22.5% = ~¥38.25M | (¥500M-¥165M)=¥335M × 30% = ~¥100.5M |
| Person C – Income: ¥160 million | Below both thresholds | None | None |
Strategic Takeaways ─ Tax Planning Tips
- Shift income timing: If your income is projected to cross the ¥165 million threshold in a year, see whether certain income (bonuses, asset sales, etc.) can be deferred into a later year.
- Diversify income types: Since “standard income amount” includes most personal income streams (business, dividends, capital gains), exploring investments or income classified under separable taxation might help (depending on treaty and regime rules).
- Offset through deductions: Ensure you fully utilise available deductions (life insurance, medical expenses, etc.), though note these won’t exempt you from the surcharge once above threshold.
- Tax-efficient investment vehicles: NISA expansions, tax credit-oriented research investments, and other special vehicles may help soften the net burden. The reform package promotes options here. (mof.go.jp)
Points to Monitor
- Effective date: Applies starting with income earned in fiscal year 2026 (令和9年分所得税). (mof.go.jp)
- Ensure accurate calculation of 基準所得金額, including all qualifying income categories.
- Check for any updates to related deductions, exemptions, or credits — the reform also expands NISA, adjusts baseline deductions, and tweaks payroll deductions. (mof.go.jp)
Bottom line: The net tax burden on ultra-high incomes is steeply increasing. For those close to or exceeding the new threshold of ¥165 million, early planning is essential to mitigate surprises.