The Ministry of Economy, Trade and Industry has decided to request the establishment, as part of the fiscal 2027 tax reform, of a system that would defer tax on gains from the sale of a business on the condition that the sale and acquisition take place within a specified period. The reported aim is to promote acquisitions and strengthen companies' earnings power.
The Ministry of Economy, Trade and Industry has decided to request the establishment of a Business Structure Transformation and Strengthening Promotion Tax Incentive as part of the fiscal 2027 tax reform. The aim is to promote the acquisition of new businesses and strengthen companies' earnings power by deferring tax on gains from business sales. The ministry is reportedly considering incentives premised on domestic investment, aligned with the current administration's growth strategy.
Specifically, the proposed system would defer tax on gains from a sale when the sale and acquisition take place within a specified period. Continuing to hold the acquired business would effectively make the gain tax-free, while a subsequent sale would trigger a requirement to pay the deferred tax retroactively. The period is reportedly expected to be approximately 5 years.
Corporate tax and other taxes currently amount to approximately 30% of gains from business sales, and some have pointed out that the tax burden discourages companies from selling businesses. The stated intention is to encourage companies to select and concentrate on their core businesses through preferential treatment and thereby strengthen their earnings power.
The policy would require investment above a specified level in the acquired business and would be premised on investment in Japan. The Ministry of Economy, Trade and Industry expects the system to be used across industries, including manufacturing and retail. Advancing corporate restructuring in Japan could also help curb the outflow of technology overseas, some observers have noted.