Fall Newsletter (No.18) as of


Tax Alert

Special Tax Measures for Small and Medium Enterprises (“SMEs”)

(Effective from fiscal years beginning on April 1, 2010º)

Following the 2010 tax reform, domestic subsidiaries¹ with paid-in capital of JPY 100 million or less will no longer be eligible for certain special tax benefits previously available for SMEs, if the parent company (and/or the ultimate parent with wholly-owned interest) has paid-in capital² of JPY 500 million or more. Some of the major benefits are:

Special Tax Benefits Currently New
Reduced corporate tax rate 22%³ up to JPY 8 million, 30% thereafter 30%
Exemption from special tax rate applicable to specified family corporations (“DOZOKU KAISHA”) Exempted from special tax rate Special tax rate of 10% to 20% on excess retained earnings
Deductibility of entertainment expenses 90% deduction was permitted up to JPY 6 million No deduction is allowed
Carryback of NOLs Permitted Disallowed
Deductibility of bad debt provisions Option to select from using prior years’ actual bad debt ratio or the standard industry ratios Based solely on prior years’ actual bad debt ratio

º Fiscal years beginning on January 1, 2011 for calendar year companies.
¹ Subsidiaries incorporated in Japan and all of the stock are directly or indirectly held by companies (including foreign companies).
² NEW “Paid-in capital” excludes additional paid-in capitals and will normally consist of common stock and preferred stock.
³ NEW For companies with fiscal years beginning April 1, 2010, the rate is18%.

Please contact distribution@ocassociates.jp for details and/or to schedule an appointment.

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