"Sell Unprofitable Businesses and Grow the Ones That Matter": Japan to Defer Taxes on Sales

[Financial News, Tokyo = Reporter Seo Hye-jin] The Japanese government will defer capital gains taxes for companies that sell non-core businesses and acquire growth businesses. The aim is to redirect funds tied up in low-profit operations into growth sectors, while encouraging corporate restructuring and investment. If both the sale and the acquisition are completed within about five years, tax payment will be postponed until the acquired business is disposed of.
According to the Yomiuri Shimbun on the 25th, METI plans to include the creation of a new tax system called the "tax incentive to promote business restructuring and strengthening" in its tax reform request for fiscal 2027, which will be compiled later this month.
The new system will target companies that both sell non-core businesses and acquire growth businesses within a set period. Given that business transactions often take considerable time, the government plans to set the deadline for completing both the sale and the acquisition at roughly five years.
If a company continues to hold the acquired business, taxation on the capital gains from the sale will remain deferred, creating an effect that is close to tax exemption. However, if the acquired business is sold again, the company must pay the taxes that were previously deferred.
At present, Japan imposes about 30% in corporate and related taxes on profits from business sales. Critics have argued that this has made companies reluctant to shed low-profit non-core businesses, slowing industrial restructuring and the strengthening of core operations.
METI does not plan to place restrictions on company size or industry. The measure will be available to a broad range of sectors, including manufacturing and retail, but tax benefits will be limited to companies that invest a certain amount or more in the acquired business. The system will be designed around domestic investment in Japan, with detailed requirements to be finalized later.
Japanese companies have been criticized for increasing profits without making comparable growth investments. According to METI, the net income of listed Japanese companies more than doubled from fiscal 2013 to fiscal 2024, but the ratios of capital investment and R&D spending to sales barely rose. Industries with higher capital efficiency also tended to invest less.
The growth investment guidelines announced by the Japanese government last month also called for tax support for companies pursuing business restructuring. The government also drew on Germany's system, which in principle exempts capital gains from share sales between companies, allowing firms to shift investment targets without a tax burden.
METI expects the tax support to make business transactions among Japanese companies more active. It also believes the measure could help prevent the outflow of strategically important technologies overseas if domestic companies are more likely to choose Japanese buyers over foreign ones when selling non-core businesses.


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