Overview of Major Changes for High-Income Individuals and Multinationals
In the 2026 tax reform package, Japan introduced substantial modifications to taxation on very high incomes and international operations. These changes, passed by the Diet and implemented beginning FY 2026 and FY 2027, impact both resident individuals with large incomes and corporations operating across borders.(mof.go.jp)
Top Rate and Threshold Adjustments for Individuals
- The threshold for the top “special tax burden” (特定の基準所得金額の課税の特例) has been reduced from ¥330 million to ¥165 million.(mof.go.jp)
- The tax rate for incomes above that threshold rises from 22.5% to 30%.(mof.go.jp)
Changes in Other Individual Tax Provisions
- Blue Return Special Deduction (青色申告特別控除): Taxpayers who file using e-Tax, including submission of financial statements like balance sheets and profit/loss statements, can claim a ¥650,000 deduction. Other taxpayers receive less.(mof.go.jp)
- Expansion of child custody deductions, increase in one-parent deduction amounts, and adjustments to basic exemptions and salary income deductions following inflation.(mof.go.jp)
International Tax and Corporate Reforms
- Expanded enforcement of Global Minimum Tax: For companies with overseas deferred tax assets or liabilities, Japan clarifies how to adjust under the international minimum tax rules.(mof.go.jp)
- Revisions to the Foreign Subsidiary Aggregation Rules (Foreign-Related Entities Tax Regime) including stricter “substance over form” tests, such as higher asset thresholds for “paper company” classifications.(mof.go.jp)
Effective Dates and Practical Strategy Tips
| Change | Effective From | Who Must Act |
|---|---|---|
| Top rate increase / threshold ↓ | FY 2026 income (filing in 2027) | High-income residents must model with new bracket |
| Blue Return Deduction via e-Tax | FY 2026 | Small business / self-employed beans move to e-filing and maintain required documents |
| Global minimum tax and foreign subsidiary reforms | Corporations with accounting periods starting after April 1, 2026 | Multinational corporations should re-assess structure, deferred tax assets liabilities, and ensure compliance |
Example Scenarios
- Individual example: A resident individual with taxable income of ¥200 million will now hit the new special top rate of 30% for income exceeding ¥165 million. The extra result: higher tax payable, so prepayments or filings need adjustment.
- Corporate example: A corporation with affiliates abroad must revisit deferred tax assets/liabilities. If certain foreign tax credits or adjustments were handled under earlier thresholds, you’ll need to recompute under new global minimum tax rules.
Actionable Advice
- High-income individuals should consult with tax advisors to forecast liability under new rates and consider income shifting or investment timing before year-end.
- Elect e-Tax early to benefit from higher deductions and ensure documentation is ready.
- Corporations must revisit international subsidiaries, update transfer pricing documentation, and ensure structures comply with new foreign entity aggregation tests.
This reform underscores Japan’s shift to enhance tax fairness for very high-income earners and tightens transparency around international tax avoidance. Staying informed is key.