Review of the wage increase promotion tax credit: the add-on for education and training expenses is abolished for SMEsCompanies that raise employees' pay get a tax discount (FY2026 changes)
In the FY2026 (Reiwa 8) tax reform, the measure for all corporations within the wage increase promotion tax credit was abolished as of March 31, 2026. The requirements for the measure for mid-sized enterprises were revised, and the measure for small and medium-sized enterprises (SMEs) is maintained as is, except that the add-on for education and training expenses is abolished. It applies to business years beginning on or after April 1, 2026.
Key points
- Credit rates for SMEs: 15% when the rate of increase in total salaries paid to employees is 1.5% or more, and 30% when it is 2.5% or more (the same before and after the reform).
- The add-on for education and training expenses (+5% or +10%) is abolished.
- The add-on (+5%) for companies actively supporting the balance of work and child-rearing is maintained.
- The measure for all corporations was abolished on March 31, 2026.
- For mid-sized enterprises with 2,000 or fewer regular employees, the requirements were revised (for example, 10% for an increase of +4% or more), and the add-on for education and training expenses is abolished.
What to do in practice
- In the payroll plan for business years starting on or after April 1, 2026, estimate whether the rate of increase reaches the 1.5% and 2.5% levels.
- If you had counted on the add-on for education and training expenses, remove it from the expected amount and recalculate.
There is a system that lowers a company's taxes a bit when it raises pay. It was reviewed in FY2026, and the system for small companies did not change much. However, the extra discount for spending money on training employees was removed.
- ○Applies: The basic discount (pay more, pay less tax) continues
- ○Applies: The extra discount for companies that support balancing child-rearing and work continues
- ×Does not apply: The extra discount for spending money on training employees is gone
Points
- The basic discount for small companies continues as is
- The extra discount for training employees was removed
- The extra discount for companies that support balancing child-rearing and work continues
What the words mean
- Tax credit
- A fixed amount that is subtracted directly from the tax you calculated
- Mid-sized enterprise
- A company bigger than a small or medium-sized one, but not huge
- National Tax Agency (NTA): NTA: Outline of the FY2026 (Reiwa 8) corporate tax law amendments (3. Review of the tax credit for promoting wage increases)
This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.