An outline of the 2026 Tax Reform Plan was approved by the Cabinet decision on December 24, 2025. We hereby provide a summary of significant amendments in the 2026 Tax Reform Plan which would affect especially foreign business.

1. Mitigation of PE Exemption Requirements for Foreign Investors (Corporate Income Tax and Individual Income Tax)

Under the current tax law, a taxpayer who is a limited partner of certain types of investment limited partnerships (LPSs) can benefit from the PE exemption if the following requirements are met:

• The taxpayer is a limited partner of the LPSs;
• The ratio of the interest in the partnership property of the LPSs is less than 25%;
• The taxpayer does not act as an executive of the LPSs (no business execution requirement);
• The taxpayer has no special relationship with the general partner of the LPSs; and
• The taxpayer would not have any income attributable to the permanent establishment if the taxpayer did not conduct business through a permanent establishment under the investment partnership agreement which governs the LPSs (no income attributable to PE requirement).

Under the 2026 Tax Reform, considering maintaining equal footing with the relevant exemptions in other jurisdictions, the following amendments will be made:

• The ratio of the interest in the partnership property of the LPSs is mitigated to "less than 50%" for the LPSs having established certain committee that consists of limited partners.
• Regarding the "no business execution" requirement, under the current requirements, approvals for self-transactions granted by the general partner are excluded from the category of "business executions". Under the 2026 Tax Reform, any approvals for conflict-of-interest transactions will be comprehensively excluded from "business executions".
• A taxpayer will still be able to benefit from PE exemption regarding investment through LPSs even if the taxpayer has any income attributable to other PEs. (No income attributable to PE requirement will be abolished.)

Although the effective date of this reform was not specified, it is assumed that the reforms will take effect in due course.

2. The Amendment concerning Individual Income Tax on Crypto-related Transactions (Individual Income Tax and Consumption Tax)

(1) Individual Income Tax

Under the current tax law, any income of an individual taxpayer derived from crypto-related transactions is subject to Japanese income tax at a progressive tax rate, the maximum tax rate of which is 55.945% (including local tax).

On the other hand, under the 2026 Tax Reform, on the condition that the amendments to the Financial Instruments and Exchange Act (Act No. 25 of 1948 "FIEA") take effect, which Act will regulate "crypto-assets" (i.e., cryptocurrencies) in place of the current regime, where such assets are regulated by the Payment Services Act (Act No. 59 of 2009 "PSA"), an income derived from the dispositions of certain types of crypto assets registered in the statutory list under the amended FIEA ("Specified Crypto-Assets") to crypto business operators (e.g., current "crypto-asset exchange service providers" under the current PSA) would be subject to separate taxation reporting requirements at a 20.315% fixed tax rate.

In addition, an individual income derived from the derivative transactions of the "Specified Crypto-Assets" would be also subject to a separate taxation reporting requirements at a 20.315% fixed tax rate.

(2) Consumption Tax

Under the 2026 Tax Reform, a fee for the lending of "crypto-assets" will be newly exempt from consumption tax. Any consideration given for the disposition of "crypto-assets" remains exempted from consumption tax.

(3) Effective Date

These reforms will take effect on January 1 of the year following the year in which the aforementioned amendments to the FIEA take effect.

3. Abolition of Minimum Threshold of Import Consumption Tax and the Introduction of Platform Taxation (Consumption Tax)

The disposition of assets dispatched to Japan from abroad by way of mail order is exempt from import consumption tax if the amount paid for a parcel is JPY 10,000 or less (Specified Small Portion Transactions). However, under the 2026 Tax Reform, the Specified Small Portion Transactions will be newly subject to import consumption tax (will be excluded from existing exemptions).

In addition, if the aggregate amount of (i) taxable sales (sales of the goods) by foreign business operators through a digital platform, and (ii) taxable sales of the Specified Small Portion Transactions through such a digital platform exceeds JPY 5 billion (including consumption tax amount), the platform provider managing the digital platform will be subject to second-type platform taxation and to pay the amount of consumption tax for the Specified Small Portion Transactions.

These reforms will take effect on April 1, 2028.

4. Other Amendments

(1) The Amendment of Japanese CFC Rules (Corporate Income Tax and Individual Income Tax)

Under the current CFC rules, a foreign corporation may be deemed as a shell-company which is subject to Japanese CFC rules on all of its income, once the corporation starts a wind-up procedure. Under the 2026 Tax Reform, a wind-up of a foreign corporation will be subject to CFC rules only on its passive income (e.g., interests or dividends derived without any business activities in the jurisdiction) if certain requirements are met.

This amendment will apply to a business year that starts on or after April 1, 2026.

(2) The Amendment of Individual Minimum Taxation (Individual Income Tax)

Under the current tax law, in brief, an individual, who has no less than approximately JPY 1 billion of income that is not subject to progressive tax rate, may be subject to a minimum tax which secures his/her effective national individual tax rate as 22.5%, depending on the component of income.

Under the 2026 tax reform, the threshold of income that is not subject to progressive tax rate will decrease to approximately JPY 330 million and the minimum national tax rate will increase to 30%.

This amendment will apply on or after 2027.