Coronavirus Tax Relief Measures – For Individuals, Homeowners and Small Businesses in Japan

Many households and companies in Japan have been hit by a sharp drop in income as a result of official requests for companies to suspend operations and for individuals to exercise self-restraint in leaving their homes.

To deal with the resulting economic fallout, the Japanese government has enacted a slew of financial support measures to aid individuals and companies, both short- and longer-term. The most well-known is the ¥100,000 one-time payment to all registered residents of Japan.

In this article, we summarize the tax relief measures enacted on April 30th in the Emergency Tax Measures law, designed to support individual and corporate tax payers financially impacted by the coronavirus counter-measures.

One-year tax deferment on national taxes

Who qualifies: Individuals and Corporations

Individuals and corporations may be eligible to defer, for up to a year, all national taxes (such as income tax, corporate tax, and consumption tax, in the case of small and medium-sized enterprises) due from February 2020 to January 2021.

To be eligible for this deferment, your income (whether individual or corporate) must have fallen by 20% year-on-year, for more than a month since February this year due to the effect of the coronavirus, making it difficult for you to meet your tax obligations. Income qualifying for this deferment includes ordinary income, such as sales for corporations, business income, salaried income, and real estate rental income for individuals.

Extension on tax deduction for mortgage loan balance

For an overview of tax deductions available to homeowners in Japan, please see these articles:

Who qualifies : People building or purchasing a new home with a housing loan

Currently, if you take out a loan to build or buy a a new home in Japan, you are eligible to deduct 1% of the loan balance from income and resident tax.

To be eligible for the current deduction, you have to move into your new home within six months of the completion of construction or purchase. To help support the housing market, when the consumption tax was raised in October last year, the government also allowed homebuyers moving in by December 31, 2020 to claim the deduction for up to 13 years (a three-year extension on the regularly allowed 10-year period).

However, due to widespread delays in housing construction due to the nationwide coronavirus-countermeasures, some homebuyers may not be able to move in by December 31st this year.

The government has therefore extended the deadline for the move-in date to December 31, 2021 if you meet certain requirements.

Tax deduction for purchase of tickets for events cancelled due to the coronavirus

Who qualifies: Individuals and corporations

This tax deduction is meant to mitigate loss of income for event organizers and to give some tax relief for people who purchased tickets for events that have been shut down due to coronavirus countermeasures.

If you have already bought a ticket to an event that has been cancelled and choose to forgo a cash refund for the ticket, you will be eligible to deduct up to ¥200,000 from your income tax. To apply for the deduction, the event organizer has to first apply to the Cultural Affairs Agency for a tax deduction certificate on your behalf. The organizer will then send you the certificate, which you can then attach to your income tax filing to get the deduction.

Deductions for small businesses

If you own a small business in Japan, you may be eligible for the following deductions and mitigation measures included in the April 30th emergency tax law.

Tax refund through carrying back loss for SMEs in the red

Who qualifies: Small and Medium Enterprises

Small and medium enterprises (SMEs) with capital of 100 million yen or less that submitted a “blue tax return” (青色申告書) last year with a net profit but which have a net loss this year (due to the impact of the coronavirus) may carry back a portion of this loss for a corporate tax refund.

As an exception this year only, companies with capital of more than 100 million yen but less than 1 billion yen are also eligible to use this measure to get a refund by carrying back loss.

Support for SMEs introducing telework

Who qualifies: Small and Medium Enterprises

This tax deduction is meant to encourage small and medium enterprises, which have lagged overall in allowing their employees to telework, to invest in equipment for telecommuting.

SMEs that make capital investments in telecommuting-related equipment may immediately amortize the entire amount or 7% of the amount may be deducted from corporate tax. For corporations with capital of less than 30 million yen, 10% may be deducted from corporate tax.

Selecting whether to be counted as a taxable enterprise

Who qualifies: Small and Medium Enterprises

If a corporation has capital of 10 million yen or more or if sales in the previous two quarters exceeded 10 million yen, consumption tax must be declared and paid. Small and medium-sized enterprises that do not fit these criteria can choose whether to file and pay taxes.

When changing a company’s sales tax status, the notification form must be submitted before the tax period begins (which is the calendar year for individuals and fiscal year for individuals).

Under the emergency tax measure, if a company’s sales have declined significantly, the notification form may be filed even after the start of the tax period.

If your company’s sales have fallen below the amount you paid for inventory, due to a sudden drop in sales, it may be more advantageous for you to declare and pay consumption tax.

Exemption on stamp tax for special loans

Who qualifies: Businesses applying for coronavirus-related loans

Businesses applying for interest-free and unsecured loans being given to companies affected by the coronavirus are not required to pay stamp tax on their loan applications.

Exemption from local property (fixed asset) tax

Who qualifies: SMEs with depreciable assets

Small and medium enterprises which are experiencing financial hardship due to the coronavirus and which have depreciable assets (such as machinery) or real estate (such as offices, factories, and stores) will be exempt from property tax and city planning tax for the 2021 fiscal year at the following rates:

  • If sales have fallen for a three month period between February and October this year more than 30% but less than 50% year-on-year ==> 50% exemption
  • If sales have fallen for a three month period between February and October this year more than 50% year-on-year ==> 100% exemption

Source: Mainichi newspaper, May 17, 2020 (in Japanese)