The government and ruling parties are considering a new tax regime that would allow companies to defer corporate tax on gains from selling non-core businesses when the proceeds are used for acquisitions and investment in growth sectors. They plan to finalize the details of the regime by December and include it in the FY2027 tax reform requests.
The government and ruling parties are considering introducing a new tax incentive that would allow companies to defer corporate tax on gains from selling non-core businesses, provided the proceeds are used for acquisitions and investment in growth sectors. The Ministry of Economy, Trade and Industry plans to include the establishment of a tax incentive for promoting business portfolio transformation and strengthening in its FY2027 tax reform requests, and to reflect the detailed design of the regime in the year-end tax reform outline.
According to multiple sources familiar with the matter, the proposal would allow companies to defer indefinitely the approximately 30% corporate tax on gains from sales, provided they reinvest the proceeds from selling shares in subsidiaries or businesses within several years in acquisitions related to their core businesses and commit to investing in the acquired businesses after the acquisitions. The reinvestment is expected to include growth investments such as wage increases and capital expenditure. The permitted period between the sale and acquisition, among other details, will be determined later.
The proposal reflects the government’s concern that many Japanese companies hold low-return businesses and are unable to redirect capital to growth sectors. According to data from the Ministry of Economy, Trade and Industry, only 35% of capital is allocated to business units that generate value above their cost of capital. The proposal is modeled on a similar German tax regime and aims to encourage the unwinding of cross-shareholdings and business restructuring.
If implemented, the new tax regime could accelerate the sale of low-return businesses and the reallocation of capital to growth sectors. The focus will be on the details of the regime, which will determine its effectiveness, including the permitted period between a sale and an acquisition, the scope of eligible reinvestments and how investment commitments will be verified. The Ministry of Economy, Trade and Industry is also considering expanding tax incentives to encourage wage increases at small and midsize companies, extending special tax measures and creating new tax reduction programs.