Act on Special Measures Concerning Taxation

If an individual who files a blue return has, for a year (excluding the year that includes the date on which the individual discontinued the business), an amount of special experimental research expenses (if the provisions of paragraph (1) or (4) of the preceding Article are applied for that year, excluding the amount of special experimental research expenses that served as the basis for the calculation of the amount deducted pursuant to those provisions from the amount of income tax on the amount of gross income for that year), the sum of the following amounts (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 10 percent of the individual's income tax on business income before adjustment for that year, the amount to be deducted is limited to the amount equivalent to that 10 percent.

the amount equivalent to 30 percent of the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to experimental research conducted jointly with a national experimental research institution, a university or any other person equivalent thereto (hereinafter referred to as a "special experimental research institution, etc." in this item) or experimental research outsourced to a special experimental research institution, etc., out of the amount of credit-eligible special experimental research expenses for that year (if the provisions of paragraph (1) or (4) of the preceding Article are applied for that year, excluding the amount of credit-eligible special experimental research expenses that served as the basis for the calculation of the amount deducted pursuant to those provisions from the amount of income tax on the amount of gross income for that year; the same applies in the following item and item (iii));

the amount equivalent to 25 percent of the amount specified by Cabinet Order as the amount of experimental research expenses pertaining to experimental research conducted jointly with another person or outsourced to another person which is innovative or which is conducted to put into practical use the results of research and development at a national research and development agency or any other person equivalent thereto, out of the amount of credit-eligible special experimental research expenses for that year;

the amount equivalent to 20 percent of the amount, out of the amount of credit-eligible special experimental research expenses for that year, other than the amounts specified by Cabinet Order prescribed in the preceding two items.

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

amount of special experimental research expenses: The amount specified by Cabinet Order as the amount of experimental research expenses pertaining to experimental research conducted jointly with a national experimental research institution, a university or any other person, experimental research outsourced to a national experimental research institution, a university or any other person, experimental research conducted under the establishment or licensing, by a small and medium sized enterprise (meaning a small and medium sized enterprise prescribed in Article 42-4, paragraph (19), item (vii)), of intellectual property rights held by it (meaning intellectual property rights prescribed in Article 2, paragraph (2) of the Intellectual Property Basic Act (Act No. 122 of 2002) and anything equivalent thereto in a foreign state), experimental research on pharmaceuticals whose target users are few in number, experimental research conducted by paying personnel expenses to persons who have advanced expertise, etc. (meaning specialized knowledge, technology or experience that is advanced), or any other experimental research specified by Cabinet Order;

amount of credit-eligible special experimental research expenses: The sum of the following amounts out of the amount of special experimental research expenses.

the amount equivalent to 50 percent (70 percent for a year of 2027 or earlier, and 60 percent for the year 2028) of the amount of special experimental research expenses pertaining to experimental research outsourced abroad;

the amount of special experimental research expenses pertaining to experimental research other than experimental research outsourced abroad.

The provisions of paragraph (1) apply only if a document stating the amount of credit-eligible special experimental research expenses, the amount of special 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 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 the provisions of that paragraph). In this case, the amount of credit-eligible special experimental research expenses serving as the basis for the calculation of the amount to be deducted pursuant to that paragraph is limited to the amount of credit-eligible special experimental research expenses stated in the document attached to the tax return.

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) 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, paragraph (1) of the Act on Special Measures Concerning Taxation (Special Tax Credit for Income Tax Where Special Experimental Research Is Conducted)".

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 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 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 tax 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 tax 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 tax return for the applicable year for which the application of the provisions of paragraph (2) 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 (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)".