Govt Plans 8％ Corporate Capital Investment Tax Credit

The Yomiuri Shimbun

14:45 JST, November 25, 2025

The government is planning to introduce a tax credit allowing businesses to deduct 8% of the value of their capital investments from their corporate tax liability as part of efforts to encourage more domestic corporate investment.

The government’s capital investment promotion tax system will be included in tax reforms for fiscal 2026.

The government will offer preferential treatment to companies whose exports to the United States have declined due to the impact of U.S. high tariff policies, by expanding the deduction amount to 15% of investments for them.

The tax reduction plan will be a five-year time-limited measure and is expected to provide ¥500 billion in tax relief annually.

The tax credit will apply to capital investment plans with expected return on investment of more than 15％. It is intended to cover purchases such as manufacturing machinery, software and factory buildings.

Preliminary government hearings suggest that about 80% of the total investment will be directed toward the 17 strategic sectors designated by the administration of Prime Minister Sanae Takaichi, including fields such as artificial intelligence, semiconductors, shipbuilding and quantum technology.

Instead of claiming the tax credit, companies will be allowed to depreciate the entire cost of their capital investments in the first fiscal year. This is intended to facilitate consideration of subsequent investments for businesses, particularly those in the growth stage that are facing immediate cash flow challenges.

The measure is set to be introduced as a type of special taxation measure that offers tax incentives for purposes such as industrial promotion and environmental preservation.

In 2014, the government, under the administration of then Prime Minister Shinzo Abe, implemented a three-year time-limited measure which provided a 5% tax credit on capital investment. As a result, annual domestic investment increased from ¥80 trillion to ¥87 trillion during that period.

The government’s current attempt to expand and reintroduce the capital investment tax break is driven by the intensifying international competition, as the United States and some European countries have adopted similar mechanisms to attract and secure investment within their own borders.

A permanent law was enacted in the United States in July that allows for the immediate depreciation of the full cost of capital expenditures.

That same month, Germany enacted a bill reducing taxes by 46 billion euros (about ¥8.3 trillion) and introducing provisions for future corporate tax reductions.

Risk is emerging that unless Japan introduces preferential measures to promote capital spending domestically, corporate investment could move overseas.