Japan's new large-scale investment tax incentive: immediate expensing or a 7% credit, and how to actually apply

Hello, this is Ryuta Hamamoto from TIMEWELL.

On July 31, 2026, Japan's Ministry of Economy, Trade and Industry opened applications for a new capital investment tax incentive, informally called the bold investment promotion tax system (formally, the tax system for investment in specified productivity-enhancing facilities).¹

The name fits. It covers essentially every industry, and it reaches buildings as well as machinery — most investment incentives do not.

The catch is that this is not a filing you simply submit. It requires confirmation from the Minister of Economy, Trade and Industry, it has numerical thresholds, and it hides several conditions that will disqualify a plan if you miss them. Here is what to know once you think you might qualify, built from primary sources.

Tax vocabulary gets in the way, so I will start from the basics.

The short version

• The statute is Act No. 29 of 2026, passed May 29 and promulgated June 5, 2026
• Applications opened July 31, 2026. Obtain confirmation by March 31, 2029, then acquire and place assets in service within five years of that confirmation
• Immediate expensing or a 7% tax credit, elected per asset (4% for buildings, building fixtures, and structures). The credit is capped at 20% of corporate tax liability
• Two numerical thresholds: 3.5 billion yen minimum investment (500 million yen for qualifying SMEs) and average annual return on investment of 15% or more
• A plan consisting only of buildings does not qualify. Used, leased, and R&D assets are also excluded
• The investment plan must have been decided on or after December 26, 2025
• Confirmation blocks three other investment tax regimes for the duration of the plan
• File online with the bureau covering your head office. Roughly one month to issue the certificate

Three terms first

Immediate expensing

Normally an asset is expensed gradually over its useful life. A 100 million yen machine depreciated over ten years gives you 10 million yen of expense per year.

Immediate expensing lets you take the whole amount in year one.

The point people miss: your total tax does not fall. Taking more in year one leaves less for later years. Over the life of the asset it evens out. What changes is when you pay — this is tax deferral.

It still matters, because cash stays in the business sooner. Right after a large investment is exactly when cash is tight, so reducing that year's tax bill has real value.

Tax credit

A credit comes off the calculated tax itself. A 7% credit on a 100 million yen asset takes 7 million yen straight off corporate tax.

This is a genuine reduction, not a deferral. But here the credit is capped at 20% of corporate tax liability, so a large investment in a thin year can leave credit you cannot use.

Which to choose

You elect per asset. Broadly:

	Suits you when
Immediate expensing	Cash position right after the investment is the priority; this year's profit is large and later years are hard to forecast
Tax credit	Profits are steady and substantial, with headroom under the 20% cap

That is the sketch. Loss carryforwards, interaction with other credits, and your view on future rates all move the answer. Model it with your tax advisor — I cannot take this further than "as a general matter."

Return on investment

The test here asks how much profit the investment generates relative to its cost, and requires an average of 15% or more per year. METI publishes an Excel calculation sheet, and filling it in is the fastest way to get a feel for whether you clear it.²

What you get

Item	Detail
Election	Per asset: immediate expensing or tax credit
Credit rate	7% (4% for buildings, building fixtures, structures)
Cap	20% of corporate tax liability
Carryforward	Up to three years, if you also obtain certification for a plan responding to abrupt changes in international economic circumstances

Electing per asset is useful: within one plan you can expense the machinery immediately and take the credit on the building.

Who qualifies

Essentially all industries. METI's brochure describes it as open to a wide range of businesses regardless of size or sector, excluding only certain sectors such as facilities used for adult entertainment businesses.³

It is not limited to manufacturing. Logistics, retail, food service, hospitality, healthcare, and agriculture all qualify if the thresholds are met. This gets misread often.

Eligible and ineligible assets

Eligible, as components of production facilities:³

• Machinery and equipment
• Tools, furniture and fixtures
• Buildings
• Structures
• Building fixtures
• Software

Not eligible:

• Used assets
• Assets held for lease
• R&D assets
• Plans consisting only of buildings

That last one deserves attention. Buildings are eligible assets, yet a building-only plan is not. Putting up a warehouse or a store on its own will not clear it — the plan needs machinery or other qualifying assets alongside.

The two thresholds

Minimum investment

• General: 3.5 billion yen or more
• Qualifying SMEs: 500 million yen or more

Return on investment

• 15% or more per year on average

Three and a half billion yen is a large number, and even the SME threshold of 500 million is not small. This is not a "buy one machine" incentive. It is a "build a plant" or "open a new site" incentive.

Conditions that are easy to miss

When the decision was made

The plan must have been decided on or after December 26, 2025.³

If a decision was taken on or before December 25, 2025, the measure can still apply where certain requirements are met, but you cannot simply carry an old plan across. If your project is already moving, check this first.

Decision by an appropriate body

The plan must rest on a decision by an appropriate body such as the board of directors.³ In other words, minutes. Projects driven by the founder's say-so need the paperwork built out.

It must increase growth investment

The plan must "increase the applying company's growth investment."³ Straight replacement of existing equipment will be harder to justify, so how the plan is written matters.

How to apply

Step 1: consult your regional bureau first

File with the Regional Bureau of Economy, Trade and Industry covering your head office — there are nine (Hokkaido, Tohoku, Kanto, Chubu, Kinki, Chugoku, Shikoku, Kyushu, and the Okinawa General Bureau).

METI recommends consulting the bureau before filing.² Applying the thresholds and framing the plan are fact-specific, so take the offer.

For general questions there is a dedicated desk:

Support Center: 0570-093-930 (weekdays 9:00–17:30)

Step 2: run the return on investment

Use METI's Excel sheet.² You will know immediately whether 15% is reachable. If it is not, this incentive is closed to you — better to learn that at the start.

Step 3: obtain a CPA or tax accountant pre-confirmation

One required document is a pre-confirmation statement from a certified public accountant or tax accountant.² Third-party professional review is built into the design. Bring your advisor in early; you cannot complete this in-house.

Step 4: file online

Filing is normally online, through the application form on METI's page via gBizFORM.² Key forms:

Form	Purpose
Form 1	Application for confirmation of specified productivity-enhancing facilities
Form 2	The confirmation certificate itself
Form 4	Application for confirmation of changes
Form 8	Application for a certificate of conformity with the investment plan
Form 9	Certificate of conformity

Step 5: wait for the certificate

Roughly one month.² Work backwards from your board calendar and fiscal year end.

Step 6: acquire and place in service within five years

After confirmation you have five years to acquire the assets and put them into business use. The window is deliberately long so that large investments with long lead times can still qualify.³

Step 7: claim it on the return

The benefit lands at filing, via the conformity certificate procedure in Forms 8 and 9. Again, run this with your tax advisor.

The two deadlines

Deadline	What
March 31, 2029	Obtain confirmation under the Industrial Competitiveness Enhancement Act by this date
Five years from confirmation	Acquire and place assets in service within this window

The traps

Trap 1: three other regimes become unavailable

A company that receives confirmation cannot use the following during the plan period:³⁴

• The regional future investment promotion special depreciation / tax credit regime
• The SME Business Enhancement Tax System
• The carbon neutrality investment promotion tax system

For SMEs this is a genuine trade-off. A company comfortable with the SME Business Enhancement Tax System has to decide whether switching is worth it, and that comparison only works across the whole plan period. Do not decide on a single year.

Trap 2: large companies face an exclusion test

Under Japan's rule restricting special tax measures, a large company in a year where income exceeds the prior year loses this incentive (other than the carryforward) unless at least one of the following holds:⁴

1. Continuing-employee salary payments increased by 1% or more (2% or more where stated capital is 1 billion yen or more and employees number 1,000 or more, or where employees exceed 2,000)
2. Domestic capital investment exceeded 30% of total depreciation for the period (40% under the same conditions)

In short: profitable companies that neither raise wages nor invest domestically are shut out. Wage data belongs in this analysis from the start.

Trap 3: building-only plans

Covered above, and easy to skim past.

Trap 4: acquiring before confirmation

The sequence runs confirmation first, acquisition second. Rushing a purchase order breaks it. Settle the schedule during the pre-filing consultation.

The second application track

Two application streams opened on July 31.¹

1. Confirmation of the specified productivity-enhancing facilities investment plan → the nine regional METI bureaus
2. Certification of a business adaptation plan responding to abrupt changes in international economic circumstances → the ministry with jurisdiction over your business

The second covers plans responding to unforeseeable, abrupt shifts in international economic circumstances, and certification unlocks up to three years of credit carryforward.³

Worth considering if your profit in the investment year is hard to predict, or if your sector sits directly in the path of trade policy shifts. Note that this one is filed with your sector ministry, not a METI bureau.

The law is broader than the tax measure

The incentive sits inside Act No. 29 of 2026, which bundles three sets of amendments.⁵

1. Industrial Competitiveness Enhancement Act — defines the "specified productivity-enhancing facilities" underpinning the tax measure; adds two business adaptation plan categories (international economic circumstances, and cost escalation) carrying two-step loans from the Japan Finance Corporation and guarantees from the SME support agency; and creates a category for maintaining supply of goods and services essential to daily life, with financial support, procedural exemptions, a certified support organization scheme, and prefectural and municipal councils.

That last piece is the support for essential services — retail, transport, and similar.

2. Act on Promotion of Regional Economic Driving Businesses — special treatment under the Factory Location Act for green space ratio requirements, expressly premised on harmony with the living environment and local understanding; an obligation to supply industrial water to data centers; and a new approval scheme for industrial land development plans, under which land transfers made through public-private development receive reductions in income tax and inhabitant tax for landowners.

Industrial land shortages come up constantly in regional Japan. The idea is to lower the tax burden on the party releasing the land, so land moves.

3. Trade and Investment Insurance Act — a new "specified underwriting business" at Nippon Export and Investment Insurance for government-to-government arrangements needed to strengthen supply chains.

How it became law

Date	Step
March 6, 2026	Submitted to the House of Representatives (Cabinet Bill No. 15, 221st Diet)
April 14, 2026	Referred to the Committee on Economy, Trade and Industry
May 13, 2026	Approved in committee
May 14, 2026	Passed the House of Representatives
May 20, 2026	Referred to committee in the House of Councillors
May 28, 2026	Approved in committee
May 29, 2026	Passed the House of Councillors and became law
June 5, 2026	Promulgated as Act No. 29 of 2026

Source: House of Representatives bill record.⁶

Working out whether you qualify

Go down this list. Stop where you fall out.

1. Does the investment reach the threshold? 3.5 billion yen, or 500 million for qualifying SMEs
2. Is return on investment 15% or more per year? Run the Excel sheet
3. Is the plan buildings-only? If so, can you bring other assets in?
4. Was the decision taken on or after December 26, 2025? If earlier, check the exception
5. Are you planning to use another investment tax regime? If so, compare across the full plan period
6. (Large companies) do you clear the wage or domestic investment test?
7. Can you produce board-level decision records?

Clear all seven and go talk to your regional bureau.

Closing thought

The design is consistent on one point: back companies that invest at scale, in Japan, in things that add value. Including buildings and allowing five years to acquire both point at large projects.

For SMEs, though, whether 500 million yen is realistic is the whole question. Since it cannot be combined with the SME Business Enhancement Tax System, the existing regime will be the better fit for plenty of companies. Newer does not mean better for you.

We are not a tax practice and cannot give tax advice. What we can help with is the layer before that — how to structure the investment plan itself, and which regime to build it toward. If that is useful, get in touch.

Wrapping up

• Applications for the bold investment promotion tax system opened July 31, 2026, under Act No. 29 of 2026
• Immediate expensing or a 7% credit, elected per asset (4% for buildings and similar), capped at 20% of corporate tax
• Thresholds: 3.5 billion yen (SMEs 500 million) and 15% average annual return on investment
• Buildings qualify, but building-only plans do not
• The decision must date from December 26, 2025 or later, with board-level records
• Confirmation blocks three other investment tax regimes during the plan
• Large companies face a wage or domestic investment exclusion test
• File online with the bureau covering your head office; about one month for the certificate
• A CPA or tax accountant pre-confirmation is required
• Obtain confirmation by March 31, 2029 and place assets in service within five years

"Bold" is the label, but the mechanics are detailed. Eligibility comes down almost entirely to investment size and return on investment, so fill in the Excel sheet first. That is the shortest path to an answer.

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Footnotes

1. METI, "Applications open for the tax system for investment in specified productivity-enhancing facilities" (July 31, 2026). https://www.meti.go.jp/press/2026/07/20260731004.html ↩ ↩²

2. METI, scheme page for the tax system for investment in specified productivity-enhancing facilities (last updated August 7, 2026). https://www.meti.go.jp/policy/economy/kyosoryoku_kyoka/henkashien/daitanzeisei/daitan.html ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶

3. METI, official brochure for the measure. https://www.meti.go.jp/policy/economy/kyosoryoku_kyoka/henkashien/daitanzeisei/pdf/pamphlet_daitanzeisei.pdf ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷ ↩⁸

4. Ministry of Finance, Outline of the FY2026 Tax Reform. https://www.mof.go.jp/tax_policy/tax_reform/outline/fy2026/08taikou_03.htm ↩ ↩²

5. METI, "Cabinet approves the bill to partially amend the Industrial Competitiveness Enhancement Act and related acts" (March 6, 2026). https://www.meti.go.jp/press/2025/03/20260306003/20260306003.html ↩

6. House of Representatives, legislative record for Cabinet Bill No. 15, 221st Diet. https://www.shugiin.go.jp/internet/itdb_gian.nsf/html/gian/keika/1DE163A.htm ↩