Act on Special Measures Concerning Taxation

If an individual who files a blue return pays salary or other wages to domestic employees in any year from 2025 to 2027 (excluding, for an individual who started business in 2025 or later, the year that includes the date on which the individual started the business, and the year that includes the date on which the individual discontinued the business) and falls under a specified individual as of December 31 of that year, and the ratio of the amount obtained by deducting the individual's comparative amount of salary or other wages paid to continuing employees from the individual's amount of salary or other wages paid to continuing employees for that year to that comparative amount of salary or other wages paid to continuing employees (referred to as the "rate of increase in salary or other wages paid to continuing employees" in item (i)) is 4 percent or more, the amount calculated by multiplying the individual's credit-eligible increase in salaries, etc. paid to employees for that year by 10 percent (if the individual meets the requirements listed in the following items in that year, the rate obtained by adding to 10 percent the rate specified in each of those items (if the individual meets all of the requirements listed in the following items in that year, the sum of the rates specified in those items)) (hereinafter referred to as the "maximum tax credit" in this paragraph) is deducted, pursuant to the provisions of Cabinet Order, from the amount of income tax on the amount of gross income of the individual for that year. In this case, if the maximum tax credit exceeds the amount equivalent to 20 percent of the individual's income tax on business income before adjustment for that year (meaning income tax on business income before adjustment prescribed in Article 10, paragraph (8), item (iv); the same applies in the following paragraph and paragraph (3)), the amount to be deducted is limited to the amount equivalent to that 20 percent.

the rate of increase in salary or other wages paid to continuing employees being 5 percent or more: 5 percent (15 percent if the rate of increase in salary or other wages paid to continuing employees is 6 percent or more);

any of the following requirements being met: 5 percent.

falling under a specially certified general employer prescribed in Article 15-3, paragraph (1) of the Act on Advancement of Measures to Support Raising Next-Generation Children (Act No. 120 of 2003) as of December 31 of that year;

having obtained the certification referred to in Article 9 of the Act on the Promotion of Women's Active Engagement in Professional Life (Act No. 64 of 2015) in that year (limited to the case specified by Order of the Ministry of Finance as one in which the status of the provision of opportunities relating to professional life to female workers referred to in Article 4 of that Act and of the improvement of the employment environment referred to in that Article is particularly good);

falling under a specially certified general employer prescribed in Article 13, paragraph (1) of the Act on the Promotion of Women's Active Engagement in Professional Life as of December 31 of that year.

If a small and medium sized business operator prescribed in Article 10, paragraph (8), item (vi) who files a blue return (hereinafter referred to as a "small and medium sized business operator" in this paragraph) pays salary or other wages to domestic employees in any year from 2019 to 2027 (excluding a year for which the provisions of the preceding paragraph are applied, and, for a small and medium sized business operator that started business in 2019 or later, the year that includes the date on which it started the business, and the year that includes the date on which it discontinued the business), and the ratio of the amount obtained by deducting the small and medium sized business operator's comparative amount of salaries, etc. paid to employees from its amount of salaries, etc. paid to employees for that year to that comparative amount of salaries, etc. paid to employees (referred to as the "rate of increase in salaries, etc. paid to employees" in item (i)) is 1.5 percent or more, the amount calculated by multiplying the small and medium sized business operator's credit-eligible increase in salaries, etc. paid to employees for that year by 15 percent (if the small and medium sized business operator meets the requirements listed in the following items in that year, the rate obtained by adding to 15 percent the rate specified in each of those items (if it meets all of the requirements listed in the following items in that year, the sum of the rates specified in those items)) (hereinafter referred to as the "maximum credit for small and medium sized business operators" in this paragraph and paragraph (4), item (ix)) is deducted, pursuant to the provisions of Cabinet Order, from the amount of income tax on the amount of gross income of the small and medium sized business operator for that year. In this case, if the maximum credit for small and medium sized business operators exceeds the amount equivalent to 20 percent of the small and medium sized business operator's income tax on business income before adjustment for that year, the amount to be deducted is limited to the amount equivalent to that 20 percent.

the rate of increase in salaries, etc. paid to employees being 2.5 percent or more: 15 percent;

any of the following requirements being met: 5 percent.

having obtained the certification referred to in Article 13 of the Act on Advancement of Measures to Support Raising Next-Generation Children in that year (limited to the case specified by Order of the Ministry of Finance as one in which the status of the implementation of measures to support raising next-generation children prescribed in Article 2 of that Act is good);

falling under a specially certified general employer prescribed in Article 15-3, paragraph (1) of the Act on Advancement of Measures to Support Raising Next-Generation Children as of December 31 of that year;

having obtained the certification referred to in Article 9 of the Act on the Promotion of Women's Active Engagement in Professional Life in that year (limited to the case specified by Order of the Ministry of Finance as one in which the status of the provision of opportunities relating to professional life to female workers referred to in Article 4 of that Act and of the improvement of the employment environment referred to in that Article is good);

falling under a specially certified general employer prescribed in Article 13, paragraph (1) of the Act on the Promotion of Women's Active Engagement in Professional Life as of December 31 of that year.

If, in a year (excluding the year that includes the date on which the individual discontinued the business), the amount of salaries, etc. paid to employees of an individual who files a blue return exceeds the individual's comparative amount of salaries, etc. paid to employees, and the individual has a carried-over excess of the tax credit limit, the amount equivalent to the carried-over excess of the tax credit limit is deducted, pursuant to the provisions of Cabinet Order, from the amount of income tax on the amount of gross income for that year. In this case, if the individual's carried-over excess of the tax credit limit for that year exceeds the amount equivalent to 20 percent of the individual's income tax on business income before adjustment for that year (if there is an amount deducted from the amount of income tax on the amount of gross income for that year pursuant to the provisions of the preceding two paragraphs in that year, the remaining amount after deducting that amount), the amount to be deducted is limited to the amount equivalent to that 20 percent.

In this Article, the meanings of the terms listed in the following items are as prescribed respectively in those items:

domestic employee: An employee of an individual (excluding a person who has a special relationship with the individual specified by Cabinet Order) who falls under the employees working at a business establishment of the individual in Japan as specified by Cabinet Order;

salary or other wage: A salary or other wage prescribed in Article 28, paragraph (1) of the Income Tax Act;

specified individual: An individual whose number of regular employees is 2,000 or less;

amount of salary or other wages paid to continuing employees: The amount specified by Cabinet Order as the amount of salary or other wages paid for the applicable year to continuing employees (meaning domestic employees specified by Cabinet Order as having received payment of salary or other wages from the individual for each month of each year of the individual (hereinafter referred to as the "applicable year" in this paragraph) and of the year preceding the applicable year; the same applies in the following item) (if there is an amount received from another person (including, where the individual is a nonresident, a place of business or similar place prescribed in Article 161, paragraph (1), item (i) of the Income Tax Act) to cover the salary or other wages (excluding the amount of subsidies paid as the program listed in Article 62, paragraph (1), item (i) of the Employment Insurance Act received from the State or a local government and other similar amounts, and amounts received as consideration for the provision of services; hereinafter referred to as the "amount received to cover" in this item), the amount obtained by deducting the amount received to cover; the same applies hereinafter in this paragraph);

comparative amount of salary or other wages paid to continuing employees: The amount specified by Cabinet Order as the amount of salary or other wages paid for the year preceding the applicable year to the continuing employees of the individual referred to in the preceding item;

credit-eligible increase in salaries, etc. paid to employees: The amount obtained by deducting an individual's comparative amount of salaries, etc. paid to employees from the individual's amount of salaries, etc. paid to employees (if that amount exceeds the individual's adjusted increase in salaries, etc. paid to employees (meaning the amount obtained by deducting the amount listed in (b) from the amount listed in (a)), that adjusted increase in salaries, etc. paid to employees);

the amount of salaries, etc. paid to employees (if there is an amount of employment stabilization subsidies (meaning the amount of subsidies paid as the program listed in Article 62, paragraph (1), item (i) of the Employment Insurance Act received from the State or a local government and other similar amounts; the same applies hereinafter in this item) to cover the salary or other wages serving as the basis for the calculation of that amount of salaries, etc. paid to employees, the amount obtained by deducting that amount of employment stabilization subsidies);

the comparative amount of salaries, etc. paid to employees (if there is an amount of employment stabilization subsidies to cover the salary or other wages serving as the basis for the calculation of that comparative amount of salaries, etc. paid to employees, the amount obtained by deducting that amount of employment stabilization subsidies).

amount of salaries, etc. paid to employees: The amount of salary or other wages paid to domestic employees that is included in necessary expenses in calculating the amount of business income of an individual for the applicable year;

comparative amount of salaries, etc. paid to employees: The amount of salary or other wages paid to domestic employees that is included in necessary expenses in calculating the amount of business income of an individual for the year preceding the applicable year (if the number of months in the period during which the individual conducted business in the year preceding the applicable year differs from the number of months in the period during which the individual conducted business in the applicable year, the amount calculated pursuant to the provisions of Cabinet Order according to those numbers of months);

carried-over excess of the tax credit limit: The sum of the amounts, out of the maximum credit for small and medium sized business operators of an individual for each year within five years before the applicable year (limited to each year in which the individual has filed blue returns continuously up to the applicable year), that could not be fully deducted even after the deduction under paragraph (2) (if there is an amount already deducted, pursuant to the provisions of the preceding paragraph, from the amount of income tax on the amount of gross income for each year within four years before the applicable year, the remaining amount after deducting that amount).

The number of months referred to in item (viii) of the preceding paragraph is calculated in accordance with the calendar, and any fraction of less than one month is counted as one month.

The provisions of paragraphs (1) and (2) apply only if a document stating the credit-eligible increase in salaries, etc. paid to employees (including, if the application of the provisions of paragraph (1) is sought, the amount of salary or other wages paid to continuing employees and the comparative amount of salary or other wages paid to continuing employees), the amount to be deducted, and the details of the calculation of that amount, which are subject to the deduction under those provisions, is attached to the tax return (including an amended return form or written request for reassessment, if one is filed to increase the amount to be deducted pursuant to those provisions). In this case, the credit-eligible increase in salaries, etc. paid to employees serving as the basis for the calculation of the amount to be deducted pursuant to paragraph (1) or (2) is limited to the credit-eligible increase in salaries, etc. paid to employees stated in the document attached to the tax return.

The provisions of paragraph (3) apply only if a written statement of the carried-over excess of the tax credit limit is attached to the tax return for each year from the year in which the provisions of paragraph (2) were applied onward, and a document stating the carried-over excess of the tax credit limit, the amount to be deducted, and the details of the calculation of that amount, which are subject to the deduction under paragraph (3), is attached to the tax return for the year for which the application of the provisions of paragraph (3) is sought (including an amended return form or written request for reassessment, if one is filed to increase the amount to be deducted pursuant to the provisions of that paragraph).

Beyond what is provided for in paragraph (4) through the preceding paragraph, the calculation of the comparative amount of salaries, etc. paid to employees in the case where an individual seeking the application of the provisions of paragraphs (1) through (3) is a person who has succeeded to a business generating business income through inheritance or universal legacy, the determination of whether the requirements prescribed in those provisions are satisfied in the case where the comparative amount of salary or other wages paid to continuing employees or the comparative amount of salaries, etc. paid to employees is zero, and other necessary matters concerning the application of those provisions are specified by Cabinet Order.

With regard to the calculation of the amount of income tax listed in Article 120, paragraph (1), item (iii) of the Income Tax Act in the case where the provisions of paragraphs (1) through (3) are applied to income tax for the relevant year, the phrase "Chapter III (Calculation of Tax Amount)" in that item is deemed to be replaced with "Chapter III (Calculation of Tax Amount) and Article 10-5-4, paragraphs (1) through (3) (Special Income Tax Credit Where the Amount of Salary or Other Wages Paid Has Increased) of the Act on Special Measures Concerning Taxation".