Revision of the R&D Tax Credit: A New System and a Gradual Reduction for Overseas Commissioned Research CostsMore ways to pay less tax when you spend money on new technology research
The FY2026 (Reiwa 8) tax reform revised the R&D tax credit. A new tax credit for research costs of priority industrial technologies was created, and the credit ratio for the general type is also revised for business years beginning on or after April 1, 2027 (Reiwa 9). For research commissioned overseas, the share eligible for the credit falls in stages.
Key points
- A tax credit for priority industrial technology research costs is created. It covers blue return filing corporations certified by the government, with a credit rate of 40% (50% for special priority industrial technology research costs), capped at 10% of corporate tax before adjustment, and any unused amount can be carried forward for 3 years
- Certification under the new system must be obtained between the effective date of the amended Industrial Technology Act and March 31, 2029 (Reiwa 11). As of May 27, 2026 (Reiwa 8), the cabinet order setting the effective date has not been promulgated
- For the general research cost credit, the formula for the credit ratio is revised from business years beginning on or after April 1, 2027 (Reiwa 9), and the special rule with a 14% cap was extended by 3 years
- A carryforward credit was created for the tax system to strengthen the technology base of small and medium enterprises. It can be carried forward up to 3 years, and the total with each year's credit is capped at 25% of corporate tax before adjustment (only when the current-year research costs exceed the comparison research costs)
- For commissioned research conducted overseas, excluding clinical trials of pharmaceuticals and the like, the eligible amount becomes 50%. It is 70% for business years beginning from April 1, 2026 (Reiwa 8) to March 31, 2027 (Reiwa 9), and 60% for the following business year
What to do in practice
- If you commission research overseas, check that the calculation of the eligible amount changes from business years beginning on or after April 1, 2026 (Reiwa 8)
- If you may be certified in a priority industrial technology field, check whether the cabinet order setting the effective date has been promulgated
There is a system that lets a company subtract part of its research spending on new products and technologies from its corporate tax. The FY2026 (Reiwa 8) review set a new system for important fields such as AI and quantum technology. When research is handed to someone overseas, the share you can subtract shrinks little by little.
- (1) CertificationGet your research plan certified by a government minister
- (2) ResearchDo the research just as the certified plan says
- (3) FilingAttach documents to your tax return to get the credit
Points
- For research in important fields such as AI and space, if the government certifies it, you can subtract 40% of the research money you spent from your tax
- For money spent on research handed to overseas companies or universities, the share you can subtract shrinks little by little: 70%, 60%, then 50%
- Small and medium companies can carry over what they could not subtract in one year, for up to 3 years starting the next year
What the words mean
- Tax credit
- Taking a set amount directly off the tax you calculated
- Research costs
- Money spent on research to create new products or technologies
- National Tax Agency (NTA): NTA: FY2026 (Reiwa 8) Overview of Corporate Tax Law Amendments (Revision of the R&D Tax Credit)
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.