Oct 20th - Japanese Government to offer tax breaks to attract Foreign Companies

To convince more foreign firms to set up operations in Japan, the government is considering plans to offer corporate tax breaks that would lower their effective rates to 25-30%.

This comes alongside government and ruling bloc discussions toward reducing the current effective corporate tax rate of 40% by around 5 percentage points as a way to revitalize business activity. By offering an even larger break to overseas companies, bringing the rate closer to those in other major markets, the government hopes to woo them to Japan.

Drugmakers and other overseas companies that set up R&D operations in Japan would be eligible for an effective corporate tax rate of 25-30% for five years.

The growth strategy that the government unveiled in June places a priority on encouraging foreign firms to invest here. A council tasked with promoting investment is expected to unveil comprehensive measures in November.

Corporate tax breaks are set to be a key component of these measures. Under a proposed plan, overseas companies that set up R&D operations and other core bases in Japan would be eligible for an effective corporate tax rate of 25-30% for a period of around five years. Firms boasting advanced technologies in the medical and biotech fields, among others, are expected to qualify.

The specifics have yet to be fleshed out, including whether to grant the tax breaks to foreign companies that acquire Japanese businesses.

The government also plans to offer subsidies that firms can use to lease office space and acquire property. And by easing visa requirements for highly skilled workers, Japan will strive to create a favorable working environment for foreigners.

Competition among Asian countries is heating up as governments seek to attract investments from abroad. South Korea currently offers income tax breaks to foreign engineers, while China has established special tax incentives to manufacturers holding advanced technologies.

By contrast, Japan has seen an exodus of overseas companies. According to a Ministry of Economy, Trade and Industry survey, 125 foreign firms exited Japan in fiscal 2008.