Act on Special Measures Concerning Taxation

Where an individual who files a blue return carries out the acquisition, etc. (meaning acquisition (limited to the acquisition of that which has not been used for business since its manufacture or construction; hereinafter the same applies in this paragraph) or manufacture or construction, and, for a building, including acquisition or construction through work for renovation (meaning extension, reconstruction, repair or remodeling); hereinafter the same applies in this paragraph and paragraph (3)) of machinery and equipment, tools, furniture and fixtures, buildings, building fixtures, structures and software specified by Cabinet Order that constitute production or similar equipment, which fall under specified productivity-improving equipment, etc. prescribed in Article 2, paragraph (20) of the Act on Strengthening Industrial Competitiveness (limited to that for which the individual has obtained the confirmation under paragraph (20) of that Article within the period from the date of enforcement of the Act Partially Amending the Act on Strengthening Industrial Competitiveness, etc. to Achieve the Sustainable Development of Corporate Business Activities in Light of Changes in Economic and Social Conditions (Act No. 29 of 2026) to March 31, 2029 (referred to in paragraph (4) as the "designated period"); referred to in paragraph (4) and paragraph (5) as "specified productivity-improving equipment, etc."), and which are of a scale specified by Cabinet Order (hereinafter referred to in this Article as "specified machinery and equipment, etc."), if, during the period from the day on which the individual obtained that confirmation to the day on which five years have elapsed from that day, the individual carries out the acquisition, etc. of the specified machinery and equipment, etc. and puts it to use for the individual's business in Japan (excluding the case where it is put to use for leasing; the same applies in paragraph (3)), the amount to be included in necessary expenses as the depreciation allowance for that specified machinery and equipment, etc. in calculating the amount of business income of the individual for the year that includes the day on which it was put to use for the business (excluding the year that includes the day on which the business was discontinued; referred to in paragraph (3) and paragraph (10) as the "year of commencement of use"), notwithstanding the provisions of Article 49, paragraph (1) of the Income Tax Act, is the amount calculated by the individual as necessary expenses, up to the sum of the amount of depreciation allowance calculated for that specified machinery and equipment, etc. pursuant to the provisions of that paragraph (hereinafter referred to in this paragraph as the "ordinary depreciation amount") and the special depreciation limit (meaning the amount equivalent to the amount obtained by deducting the ordinary depreciation amount from the acquisition cost of that specified machinery and equipment, etc.) (referred to in the following paragraph as the "total depreciation limit"); provided, however, that it may not be less than the amount to be included in necessary expenses as the depreciation allowance for that specified machinery and equipment, etc. pursuant to the provisions of paragraph (1) of that Article.

Where the amount included in necessary expenses as the depreciation allowance for the specified machinery and equipment, etc. pursuant to the provisions of the preceding paragraph is less than its total depreciation limit, the amount to be included in necessary expenses as the depreciation allowance for that specified machinery and equipment, etc. in calculating the amount of business income for the year following the year in which it was put to use for the business may, notwithstanding the provisions of Article 49, paragraph (1) of the Income Tax Act, be the amount equivalent to the sum of the amount to be included in necessary expenses as the depreciation allowance for that specified machinery and equipment, etc. pursuant to the provisions of that paragraph and the amount calculated by the individual as necessary expenses, up to the amount of the shortfall.

Where an individual who files a blue return carries out the acquisition, etc. of specified machinery and equipment, etc., if, during the period from the day on which the individual obtained the confirmation prescribed in paragraph (1) for that specified machinery and equipment, etc. to the day on which five years have elapsed from that day, the individual carries out the acquisition, etc. of that specified machinery and equipment, etc. and puts it to use for the individual's business in Japan, the sum of the amounts equivalent to 7 percent (for buildings, building fixtures and structures, 4 percent) of the acquisition cost of that specified machinery and equipment, etc. put to use for the business (hereinafter referred to in this paragraph and paragraph (5) as the "maximum tax credit") is deducted, pursuant to the provisions of Cabinet Order, from the amount of income tax on the amount of gross income for the year of commencement of use, except where the provisions of that paragraph are applied to that specified machinery and equipment, etc. In this case, where the maximum tax credit of the individual for the year of commencement of use exceeds the amount equivalent to 20 percent of the income tax on business income before adjustment (meaning the income tax on business income before adjustment prescribed in Article 10, paragraph (8), item (iv); the same applies in the following paragraph) of the individual for that year of commencement of use, the amount to be deducted is limited to the amount equivalent to that 20 percent.

Where an individual who files a blue return and who is a certified business adaptation business operator prescribed in Article 21-23, paragraph (1) of the Act on Strengthening Industrial Competitiveness pertaining to a certification under Article 21-22, paragraph (1) of that Act granted within the designated period (limited to one whose certified business adaptation plan prescribed in paragraph (2) of that Article (limited to one concerning business adaptation to drastic changes in international economic conditions prescribed in Article 21-20, paragraph (2), item (iii) of that Act; hereinafter referred to in this paragraph and the following paragraph as a "certified business adaptation plan for drastic changes in international economic conditions") states that specified productivity-improving equipment, etc. is to be introduced as a measure for business adaptation to drastic changes in international economic conditions prescribed in that item to be carried out in accordance with that certified business adaptation plan for drastic changes in international economic conditions) has an excess carried-forward tax credit amount in a year (excluding the year that includes the day on which the business was discontinued, and limited to each year for which it has been certified, as specified by Order of the Ministry of Finance, that the individual has been continuously and steadily carrying out business adaptation to drastic changes in international economic conditions prescribed in Article 21-20, paragraph (2), item (iii) of that Act in accordance with that certified business adaptation plan for drastic changes in international economic conditions, from the year that includes the first day of the implementation period prescribed in Article 21-22, paragraph (3), item (ii) of that Act pertaining to that plan to the year for which the individual seeks the application of the provisions of this paragraph, and other matters), the amount equivalent to that excess carried-forward tax credit amount 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, where the excess carried-forward tax credit amount of the individual for that year exceeds the amount equivalent to 20 percent of the income tax on business income before adjustment of the individual for that year (where there is an amount to be deducted from the amount of income tax on the amount of gross income for that year pursuant to the provisions of the preceding paragraph for specified machinery and equipment, etc. put to use for the business in that year, the balance after deducting that amount), the amount to be deducted is limited to the amount equivalent to that 20 percent.

The excess carried-forward tax credit amount prescribed in the preceding paragraph means the sum of the amounts of the maximum tax credit (limited to that pertaining to specified machinery and equipment, etc. that is specified productivity-improving equipment, etc. stated in the certified business adaptation plan for drastic changes in international economic conditions of the certified business adaptation business operator referred to in that paragraph) of the individual for each year within the three years preceding the relevant year (limited to each year where the individual has continuously filed blue returns up to the relevant year) that remain undeducted even after the deduction under the provisions of paragraph (3) (where 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 the two years preceding the relevant year, the balance after deducting that amount).

The provisions of paragraph (1) do not apply to specified machinery and equipment, etc. that an individual has acquired through a lease transaction without transfer of ownership.

The provisions of paragraph (1) and paragraph (2) apply only where the tax return contains a statement regarding the inclusion in necessary expenses of the amount to be included in necessary expenses pursuant to those provisions, and has attached to it a written statement concerning the calculation of the amount of depreciation allowance for the specified machinery and equipment, etc. (including, where the provisions of paragraph (9) do not apply because all of the requirements listed in the items of that paragraph are met, a document clarifying that all of the requirements listed in those items are met).

The provisions of paragraph (3) apply only where the tax return (including, where an amended return form or a written request for reassessment that increases the amount to be deducted pursuant to the provisions of that paragraph is submitted, that amended return form or written request for reassessment) has attached to it a document stating the acquisition cost of the specified machinery and equipment, etc. subject to the deduction under the provisions of that paragraph, the amount to be deducted and the details of the calculation of that amount (including, where the provisions of the following paragraph do not apply because all of the requirements listed in the items of that paragraph are met, a document clarifying that all of the requirements listed in those items are met). In this case, the acquisition cost of the specified machinery and equipment, etc. that forms the basis for calculating the amount to be deducted pursuant to the provisions of paragraph (3) is limited to the acquisition cost of the specified machinery and equipment, etc. stated in the documents attached to the tax return.

The provisions of paragraph (1) and paragraph (3) do not apply for a year in which an individual (excluding a small and medium sized business operator prescribed in Article 10, paragraph (8), item (vi); the same applies in item (i) and item (ii)) fails to meet any of the following requirements (excluding that year in the case specified by Cabinet Order as a case where the year is none of the year that includes the day on which the individual commenced business, the year that includes the day on which the individual succeeded to a business through inheritance or universal legacy, and the year that includes the day on which the individual transferred or took over a business, and the amount of business income for that year is equal to or less than the amount of business income for the year preceding that year).

the ratio of the amount obtained by deducting the individual's comparative amount of salary or other wages paid to continuing employees prescribed in Article 10-5-4, paragraph (4), item (v) (hereinafter referred to in this item and paragraph (12) as the "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 prescribed in paragraph (4), item (iv) of that Article (referred to in paragraph (12) as the "amount of salary or other wages paid to continuing employees") to that comparative amount of salary or other wages paid to continuing employees is 1 percent (or, where both of the following cases apply, 2 percent) or more:

where the number of employees regularly employed by the individual exceeds 2,000 as of December 31 of that year;

the case specified by Cabinet Order as a case where that year is none of the year that includes the day on which the individual commenced business, the year that includes the day on which the individual succeeded to a business through inheritance or universal legacy, and the year that includes the day on which the individual transferred or took over a business, and the amount of business income for the year preceding that year exceeds zero, or the case where that year is the year that includes the day on which the individual commenced business, the year that includes the day on which the individual succeeded to a business through inheritance or universal legacy, or the year that includes the day on which the individual transferred or took over a business;

the amount listed in (a) exceeds the amount equivalent to 30 percent (or, where both of the cases listed in (a) and (b) of the preceding item apply, 40 percent) of the amount listed in (b):

the total acquisition cost of domestic assets (meaning machinery and equipment and other assets specified by Cabinet Order that are put to use for the individual's business in Japan) for which the individual carried out an acquisition, etc. (meaning acquisition or manufacture or construction, excluding acquisition through inheritance, bequest, gift, exchange or a distribution in kind prescribed in Article 2, item (xii)-5-2 of the Corporation Tax Act and any other acquisition specified by Cabinet Order) in that year and which the individual holds as of December 31 of that year;

the total amount that the individual has included in necessary expenses as depreciation allowances for the depreciable assets the individual holds in calculating the amount of business income for that year.

The provisions of paragraph (4) apply only where the tax returns for the year of commencement of use and each subsequent year have attached to them a written statement of the excess carried-forward tax credit amount prescribed in that paragraph, and the tax return for the year for which the individual seeks the application of the provisions of that paragraph (including, where an amended return form or a written request for reassessment that increases the amount to be deducted pursuant to the provisions of that paragraph is submitted, that amended return form or written request for reassessment) has attached to it a document stating the excess carried-forward tax credit amount prescribed in that paragraph that is subject to the deduction under the provisions of that paragraph, the amount to be deducted and the details of the calculation of that amount.

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 paragraph (3) or paragraph (4) 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 10-5-6, paragraphs (3) and (4) (Special Income Tax Credit for Acquisition of Specified Productivity-Improving Equipment, etc.) of the Act on Special Measures Concerning Taxation".

Beyond what is provided for in paragraph (6) through the preceding paragraph, the determination of whether the requirement listed in paragraph (9), item (i) is met in the case where the amount of salary or other wages paid to continuing employees and the comparative amount of salary or other wages paid to continuing employees are zero, and other necessary matters concerning the application of the provisions of paragraphs (1) through (5) are specified by Cabinet Order.