Act on Special Measures Concerning Taxation

If an individual who files a blue return and who has received, within the period from the date on which the Act Partially Amending the Industrial Technology Enhancement Act (Act No. 41 of 2026) comes into effect to March 31, 2029 (referred to as the "designated period" in the following paragraph), the certification under Article 22, paragraph (1) of the Industrial Technology Enhancement Act (Act No. 44 of 2000) (referred to as "certification" in the following paragraph and paragraph (4)) for a priority research and development plan prescribed in that paragraph (referred to as a "priority research and development plan" in the following paragraph and paragraph (4), item (i)) has, for an applicable year pertaining to that certification (excluding the year that includes the date on which the individual discontinued the business), an amount of priority industrial technology experimental research expenses (if the provisions of Article 10, paragraph (1) or (4) or paragraph (1) of the preceding Article are applied for that applicable year, excluding the amount of priority industrial technology experimental research expenses that served as the basis for the calculation of the amount to be deducted pursuant to those provisions from the amount of income tax on the amount of gross income for that applicable year), the sum of the amounts equivalent to 40 percent (or 50 percent, for the portion for which the amount of priority industrial technology experimental research expenses serving as the basis for the calculation of the amount of credit-eligible priority industrial technology experimental research expenses for that applicable year falls under the amount of special priority industrial technology experimental research expenses) of the amount of credit-eligible priority industrial technology experimental research expenses for that applicable year (if the provisions of Article 10, paragraph (1) or (4) or paragraph (1) of the preceding Article are applied for that applicable year, excluding the amount of credit-eligible priority industrial technology experimental research expenses that served as the basis for the calculation of the amount to be deducted pursuant to those provisions from the amount of income tax on the amount of gross income for that applicable year) (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 applicable year. In this case, if the maximum tax credit exceeds the amount equivalent to 10 percent of the individual's income tax on business income before adjustment prescribed in Article 10, paragraph (8), item (iv) for that applicable year, the amount to be deducted is limited to the amount equivalent to that 10 percent.

If, for an applicable year (excluding the year that includes the date on which the individual discontinued the business) pertaining to the certification of an individual who files a blue return and who has received certification for a priority research and development plan within the designated period, the amount of experimental research expenses (meaning the amount of experimental research expenses prescribed in Article 10, paragraph (8), item (i); the same applies hereinafter in this Article) exceeds the amount of experimental research expenses for the year preceding that applicable year (if the individual commenced the business in the year preceding that applicable year, the amount calculated by multiplying the amount of experimental research expenses for the year preceding that applicable year by 12 and dividing the product by the number of months of the period during which the individual carried on the business in the year preceding that applicable year), and the individual has a carried-over excess of the tax credit limit, the amount equivalent to that 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 applicable year. In this case, if the individual's carried-over excess of the tax credit limit for that applicable year exceeds the amount equivalent to 10 percent of the individual's income tax on business income before adjustment prescribed in item (iv) of that paragraph for that applicable year (if there is an amount to be deducted from the amount of income tax on the amount of gross income for that applicable year pursuant to the provisions of the preceding paragraph in that applicable year, the remaining amount after deducting that amount), the amount to be deducted is limited to the amount equivalent to that 10 percent.

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

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

applicable year: A year that includes a day within the applicable period (meaning the period from the day on which the individual received the certification to the day on which five years have elapsed from that day (in the case where the certification is revoked by that day or in any other case specified by Cabinet Order, the period specified by Cabinet Order)) of an individual who has received certification for a priority research and development plan;

amount of priority industrial technology experimental research expenses: Out of the amount of experimental research expenses, the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to research and development (meaning research and development prescribed in Article 27, paragraph (1) of that Act; the same applies in item (iv)) conducted by an individual who has received certification in accordance with the certified priority research and development plan prescribed in Article 23, paragraph (2) of the Industrial Technology Enhancement Act pertaining to that certification (referred to as the "certified priority research and development plan" in item (iv));

amount of credit-eligible priority industrial technology experimental research expenses: Out of the amount of priority industrial technology experimental research expenses, the sum of the following amounts:

the amount equivalent to 50 percent (or 70 percent, for 2027 and prior years, and 60 percent, for 2028) of the amount of priority industrial technology experimental research expenses pertaining to experimental research outsourced abroad prescribed in Article 10, paragraph (8), item (ix);

the amount of priority industrial technology experimental research expenses pertaining to experimental research other than experimental research outsourced abroad prescribed in Article 10, paragraph (8), item (ix).

amount of special priority industrial technology experimental research expenses: Out of the amount of priority industrial technology experimental research expenses, the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to research and development conducted jointly with, or research and development entrusted to, a priority industrial technology joint research and development institution prescribed in Article 29, paragraph (4) of the Industrial Technology Enhancement Act (hereinafter referred to as a "priority industrial technology joint research and development institution" in this item), conducted by an individual who has received certification in accordance with the certified priority research and development plan pertaining to that certification;

carried-over excess of the tax credit limit: The sum of the amounts, out of the maximum tax credit prescribed in paragraph (1) of an individual for each year within the three years before the applicable year (limited to each year in which the individual has filed blue returns continuously up to that applicable year), that could not be fully deducted even after the deduction under that paragraph (if there is an amount already deducted, pursuant to the provisions of paragraph (2), from the amount of income tax on the amount of gross income for each year within the two years before that applicable year, the remaining amount after deducting that amount).

The provisions of paragraph (1) apply only if a document stating the amount of credit-eligible priority industrial technology experimental research expenses, the amount of priority industrial technology experimental research expenses and the amount of special priority industrial technology experimental research expenses, the amount to be deducted, and the details of the calculation of that amount, which are subject to the deduction under that paragraph, is attached to the final return (including an amended return or written request for reassessment, if one is filed to increase the amount to be deducted pursuant to the provisions of that paragraph). In this case, the amount of credit-eligible priority industrial technology experimental research expenses serving as the basis for the calculation of the amount to be deducted pursuant to the provisions of that paragraph is limited to the amount of credit-eligible priority industrial technology experimental research expenses stated in the document attached to the final return.

The provisions of paragraph (2) apply only if a written statement of the carried-over excess of the tax credit limit is attached to the final return for each year from the applicable year in which the provisions of paragraph (1) 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 (2), is attached to the final return for the applicable year for which the application of the provisions of paragraph (2) is sought (including an amended return 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 (3) through the preceding paragraph, the calculation of the amount of experimental research expenses for the year preceding the applicable year in the case where the individual seeking the application of the provisions of paragraph (2) is a person who succeeded, by inheritance or universal legacy, to a business that is to generate business income, and other necessary matters concerning the application of the provisions of paragraphs (1) and (2) 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 where the provisions of paragraph (1) or (2) are applied with respect to income tax for a year, the phrase "Chapter III (Calculating the Amount of Taxes)" in that item is deemed to be replaced with "Chapter III (Calculating the Amount of Taxes) and Article 10-2-2, paragraphs (1) and (2) of the Act on Special Measures Concerning Taxation (Special Income Tax Credit Where Priority Industrial Technology Experimental Research Is Conducted)".

the provisions of Article 10-2-2, paragraph (1) or paragraph (2): the amount obtained by deducting, from the maximum tax credit prescribed in paragraph (1) of that Article, the amount that remains undeducted even after the deduction under the provisions of that paragraph, or the amount obtained by deducting, from the carried-over excess of the tax credit limit prescribed in paragraph (2) of that Article, the amount that remains undeducted even after the deduction under the provisions of that paragraph, respectively;

Special Corporation Tax Credit Where Priority Industrial Technology Experimental Research Is Conducted

No English for the wording before the change.

If a corporation that files a blue return and that has received, within the period from the date on which the Act Partially Amending the Industrial Technology Enhancement Act (Act No. 41 of 2026) comes into effect to March 31, 2029 (referred to as the "designated period" in the following paragraph and paragraph (3), item (i)), the certification under Article 22, paragraph (1) of the Industrial Technology Enhancement Act (referred to as "certification" in the following paragraph and paragraph (5)) for a priority research and development plan prescribed in that paragraph (hereinafter referred to as a "priority research and development plan" in this Article) has, for a business year of application pertaining to that certification (excluding a business year that includes the date of dissolution (excluding dissolution due to a merger) and each business year during liquidation), an amount of priority industrial technology experimental research expenses (if the provisions of Article 42-4, paragraph (1) or (4) or paragraph (1) of the preceding Article are applied for that business year of application, excluding the amount of priority industrial technology experimental research expenses that served as the basis for the calculation of the amount to be deducted pursuant to those provisions from the corporation tax before adjustment (meaning the corporation tax before adjustment prescribed in Article 42-4, paragraph (19), item (ii); the same applies hereinafter in this Article) on income for that business year of application), the sum of the amounts equivalent to 40 percent (or 50 percent, for the portion for which the amount of priority industrial technology experimental research expenses serving as the basis for the calculation of the amount of credit-eligible priority industrial technology experimental research expenses for that business year of application falls under the amount of special priority industrial technology experimental research expenses) of the amount of credit-eligible priority industrial technology experimental research expenses for that business year of application (if the provisions of Article 42-4, paragraph (1) or (4) or paragraph (1) of the preceding Article are applied for that business year of application, excluding the amount of credit-eligible priority industrial technology experimental research expenses that served as the basis for the calculation of the amount to be deducted pursuant to those provisions from the corporation tax before adjustment on income for that business year of application) (hereinafter referred to as the "maximum tax credit" in this paragraph) is deducted from the corporation tax before adjustment on the corporation's income for that business year of application. In this case, if the maximum tax credit exceeds the amount equivalent to 10 percent of the corporation tax before adjustment on the corporation's income for that business year of application, the amount to be deducted is limited to the amount equivalent to that 10 percent.

No English for the wording before the change.

If, for a business year of application (excluding a business year that includes the date of dissolution (excluding dissolution due to a merger) and each business year during liquidation) pertaining to the certification of a corporation that files a blue return and that has received certification for a priority research and development plan within the designated period, the amount of experimental research expenses (meaning the amount of experimental research expenses prescribed in Article 42-4, paragraph (19), item (i); the same applies hereinafter in this Article) exceeds the amount of experimental research expenses for the business year that includes the day before the first day of that business year of application (hereinafter referred to as the "previous business year" in this paragraph) (if the number of months in that previous business year differs from the number of months in that business year of application, the amount calculated by multiplying that amount of experimental research expenses by the number of months in that business year of application and dividing the product by the number of months in that previous business year), and the corporation has a carried-over excess of the tax credit limit, the amount equivalent to that carried-over excess of the tax credit limit is deducted from the corporation tax before adjustment on income for that business year of application. In this case, if the corporation's carried-over excess of the tax credit limit for that business year of application exceeds the amount equivalent to 10 percent of the corporation tax before adjustment on the corporation's income for that business year of application (if there is an amount to be deducted from the corporation tax before adjustment on income for that business year of application pursuant to the provisions of the preceding paragraph in that business year of application, the remaining amount after deducting that amount), the amount to be deducted is limited to the amount equivalent to that 10 percent.

The provisions of the preceding two paragraphs apply to a group tax sharing corporation as follows:

the certification prescribed in the preceding two paragraphs of a group tax sharing corporation is to include the certification prescribed in paragraph (1) that another group tax sharing corporation that has a group tax sharing full controlling interest with the group tax sharing corporation on the date of the end of the relevant business year of the group tax sharing corporation (limited to a business year ending on the date of the end of the business year of the group tax sharing parent corporation pertaining to the group tax sharing corporation) has received for a priority research and development plan within the designated period, and the business year of application of the group tax sharing corporation is to include, among the business years of the group tax sharing corporation, a business year that includes a day within the applicable period prescribed in paragraph (5), item (i) of that other group tax sharing corporation;

The number of months referred to in the preceding two paragraphs is calculated in accordance with the calendar, and any fraction of less than one month is counted as one month.

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

business year of application: Each business year that includes a day within the applicable period (meaning the period from the day on which the corporation received the certification to the day on which five years have elapsed from that day (in the case where the certification is revoked by that day or in any other case specified by Cabinet Order, the period specified by Cabinet Order)) of a corporation that has received certification for a priority research and development plan;

amount of priority industrial technology experimental research expenses: Out of the amount of experimental research expenses, the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to research and development (meaning research and development prescribed in Article 27, paragraph (1) of that Act; the same applies in item (iv)) conducted by a corporation that has received certification in accordance with the certified priority research and development plan prescribed in Article 23, paragraph (2) of the Industrial Technology Enhancement Act pertaining to that certification (referred to as the "certified priority research and development plan" in item (iv));

amount of credit-eligible priority industrial technology experimental research expenses: Out of the amount of priority industrial technology experimental research expenses, the sum of the following amounts:

the amount equivalent to 50 percent (or 70 percent, for a business year beginning before April 1, 2027 (for the eligible business year prescribed in Article 42-4, paragraph (8), item (ii) as applied mutatis mutandis pursuant to paragraph (3), item (ii) of a group tax sharing corporation referred to in item (iii) of paragraph (8) of that Article as applied mutatis mutandis pursuant to paragraph (3), item (ii), the eligible business year prescribed in that item of the group tax sharing corporation ending on the date of the end of a business year of the group tax sharing parent corporation pertaining to the group tax sharing corporation beginning before that date), and 60 percent, for a business year beginning during the period from that April 1 to March 31, 2028 (for the eligible business year prescribed in Article 42-4, paragraph (8), item (ii) as applied mutatis mutandis pursuant to paragraph (3), item (ii) of a group tax sharing corporation referred to in item (iii) of paragraph (8) of that Article as applied mutatis mutandis pursuant to paragraph (3), item (ii), the eligible business year prescribed in that item of the group tax sharing corporation ending on the date of the end of a business year of the group tax sharing parent corporation pertaining to the group tax sharing corporation beginning within that period)) of the amount of priority industrial technology experimental research expenses pertaining to experimental research outsourced abroad prescribed in Article 42-4, paragraph (19), item (xiv);

the amount of priority industrial technology experimental research expenses pertaining to experimental research other than experimental research outsourced abroad prescribed in Article 42-4, paragraph (19), item (xiv).

amount of special priority industrial technology experimental research expenses: Out of the amount of priority industrial technology experimental research expenses, the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to research and development conducted jointly with, or research and development entrusted to, a priority industrial technology joint research and development institution prescribed in Article 29, paragraph (4) of the Industrial Technology Enhancement Act (hereinafter referred to as a "priority industrial technology joint research and development institution" in this item), conducted by a corporation that has received certification in accordance with the certified priority research and development plan pertaining to that certification;

carried-over excess of the tax credit limit: The sum of the amounts, out of the maximum tax credit prescribed in paragraph (1) of a corporation for each business year that began within three years before the first day of the business year of application (limited to each business year in which the corporation has filed blue returns continuously up to that business year of application), that could not be fully deducted even after the deduction under that paragraph (if there is an amount already deducted from the corporation tax before adjustment, pursuant to the provisions of paragraph (2), in those business years, the remaining amount after deducting that amount).

The provisions of paragraph (1) apply only if a document stating the amount of credit-eligible priority industrial technology experimental research expenses, the amount of priority industrial technology experimental research expenses and the amount of special priority industrial technology experimental research expenses, the amount to be deducted, and the details of the calculation of that amount, which are subject to the deduction under that paragraph, is attached to the final return, etc. (including an amended return or written request for reassessment, if one is filed to increase the amount to be deducted pursuant to the provisions of that paragraph). In this case, the amount of credit-eligible priority industrial technology experimental research expenses serving as the basis for the calculation of the amount to be deducted pursuant to the provisions of that paragraph is limited to the amount of credit-eligible priority industrial technology experimental research expenses stated in the document attached to the final return, etc.

The provisions of paragraph (2) apply only if a written statement of the carried-over excess of the tax credit limit is attached to the final return prescribed in Article 2, item (xxxi) of the Corporation Tax Act for each business year from the business year of application in which the provisions of paragraph (1) 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 (2), is attached to the final return, etc. for the business year of application for which the application of the provisions of paragraph (2) is sought (including an amended return or written request for reassessment, if one is filed to increase the amount to be deducted pursuant to the provisions of that paragraph).

The provisions of Article 42-4, paragraphs (23) and (24) apply mutatis mutandis to the case where the provisions of paragraph (1) or (2), or the provisions of paragraph (14) of that Article as applied mutatis mutandis pursuant to paragraph (3), item (ii), apply. In this case, the phrase "paragraphs (1), (4), (7) and (14)" in paragraph (23) of that Article is deemed to be replaced with "Article 42-5, paragraphs (1) and (2) and paragraph (14) as applied mutatis mutandis pursuant to paragraph (3), item (ii) of that Article".

The provisions of Article 42-4, paragraphs (25) and (26) apply mutatis mutandis to the case where the provisions of Article 42-4, paragraph (8), item (vi), (b) or item (vii) as applied mutatis mutandis pursuant to paragraph (3), item (ii) apply. In this case, the phrase "Article 42-4, paragraph (8), item (vi), (b) and item (vii) (" in paragraph (25) of that Article is deemed to be replaced with "Article 42-4, paragraph (8), item (vi), (b) and item (vii) of that Act as applied mutatis mutandis pursuant to Article 42-5, paragraph (3), item (ii) (Special Corporation Tax Credit Where Priority Industrial Technology Experimental Research Is Conducted) (", the phrase "Article 42-4, paragraph (8), item (vi), (b) and item (vii)" that closes a quoted phrase is deemed to be replaced with "Article 42-4, paragraph (8), item (vi), (b) and item (vii) of that Act as applied mutatis mutandis pursuant to Article 42-5, paragraph (3), item (ii)" closing that quoted phrase, and the phrase "and" in paragraph (26) of that Article is deemed to be replaced with "and, as applied mutatis mutandis pursuant to Article 42-5, paragraph (3), item (ii),".

Beyond what is provided for in paragraph (4) through the preceding paragraph, the calculation of the amount of experimental research expenses for the previous business year prescribed in paragraph (2) in the case where the corporation seeking the application of the provisions of that paragraph is a merging corporation, a splitting corporation or a successor corporation in a company split, a corporation making a capital contribution in kind or a corporation receiving a capital contribution in kind, or a corporation making a distribution in kind or a corporation receiving a distribution in kind, special provisions on returns or refunds under the provisions of Part II, Chapter I, Section 3 of the Corporation Tax Act and other matters concerning the application of the provisions of that Act and the Local Corporation Tax Act in the case where the provisions of Article 42-4, paragraph (8), item (vi), (b) or item (vii) as applied mutatis mutandis pursuant to paragraph (3), item (ii) apply, and other necessary matters concerning the application of the provisions of paragraphs (1) through (3) are specified by Cabinet Order.

the provisions of Article 42-5, paragraph (1) or paragraph (2): the amount obtained by deducting, from the maximum tax credit prescribed in paragraph (1) of that Article, the amount that remains undeducted even after the deduction under the provisions of that paragraph, or the amount obtained by deducting, from the carried-over excess of the tax credit limit prescribed in paragraph (2) of that Article, the amount that remains undeducted even after the deduction under the provisions of that paragraph, respectively;

If an ordinary corporation or a cooperative, etc. has come to fall under the category of public interest corporation, etc., that public interest corporation, etc. is deemed to have been established on the day on which it came to fall under that category, and the provisions of Article 42-4, paragraphs (1), (4) and (7), Article 42-5, paragraph (2), Article 42-6, paragraph (3), Article 42-9, paragraph (2), Article 42-12-4, paragraph (3), Article 42-12-5, Article 42-12-6, paragraphs (4), (7) and (14), Article 42-12-7, paragraphs (3) and (8), and Article 42-13, paragraph (5) and other provisions specified by Cabinet Order apply.

If a foreign corporation that has no permanent establishment has come to have a permanent establishment (limited to the case where it had a permanent establishment in any business year before the business year that includes the day on which it came to have one), with regard to the calculation of the amount of income pertaining to the domestic source income listed in Article 141, item (i), (a) of the Corporation Tax Act of that foreign corporation, that foreign corporation is deemed to have been established on the day on which it came to have a permanent establishment, and the provisions of Article 42-4, paragraphs (1), (4) and (7), Article 42-5, paragraph (2), Article 42-6, paragraph (3), Article 42-9, paragraph (2), Article 42-12-4, paragraph (3), Article 42-12-5, Article 42-12-6, paragraphs (4), (7) and (14), Article 42-12-7, paragraphs (3) and (8), and Article 42-13, paragraph (5) and other provisions specified by Cabinet Order apply.