News| Japan plans 10-year tax breaks for electric cars and chip production

The Japanese government plans to offer tax incentives for 10 years to promote mass production in five areas, including electric vehicles and semiconductor equipment.

The ruling Liberal Democratic Party will include the measures in its framework for tax reform for fiscal year 2024, to be finalised as early as this week.

They will be part of a package aimed at domestic production in strategic sectors. The scale of the disruption will be proportional to the production and sales of qualified products.

Other areas to receive ten-year tax incentives include sustainable aviation fuels, green steel made with renewable energy, and green chemicals made from plants and recycled waste. The electric vehicle category also includes batteries.

For semiconductors, companies will receive a reduction in corporate income tax of up to 20% each fiscal year. The cap for other categories will be set at 40 per cent.

If a business suffers a loss during the reporting period, the unused tax relief can be carried forward to the next reporting period. This applies for up to three years in the semiconductor field and up to four years in other fields.

The tax breaks include 400,000 yen ($2,749) per electric vehicle, 30 yen per liter of sustainable aviation fuel and 20,000 yen per ton of green steel.

The incentives will last for 10 years, starting when the business plan is authorized. The administration will require companies to submit plans by the end of fiscal 2026.

Policymakers also decided on specific details of "innovation box" tax incentives to attract R&D centers to Japan.

The income from the transfer and licensing of patents, Copyrights and Copyrights shall be deducted from the taxable income at the rate of 30%. This will apply to Copyrights and patents acquired from April 2024 onwards, with incentives set to expire seven years after April 2025.

The government is also revising the formula for the prefectural corporate tax system, which taxes companies based on their size. The changes will prevent companies from reducing their tax bill by reducing capital.

Lawmakers also extended the deadline to apply for tax breaks to facilitate small businesses moving to younger generations. From the current deadline of March 2024, the application deadline is March 2026.

Data reference:

Source: NIKKEI ASIA

Link: [https://asia.nikkei.com/]

Page title: [Japan plans 10-year tax breaks for EV and chip production]