Japan's government and ruling coalition are finalizing a comprehensive tax reform package that will significantly impact high-income earners, corporations, and ultra-wealthy individuals. The changes, set to take effect in the upcoming fiscal year, represent a shift toward greater tax equity and economic stimulus through corporate investment incentives. Furusato Nozei Reform: Capping Benefits for High Earners According to NHK, the government is implementing caps on the furusato nozei (hometown tax) system, responding to criticism that the current structure disproportionately benefits wealthy taxpayers. Under the new rules, individuals earning approximately 100 million yen or more annually will face a maximum resident tax deduction of 1.93 million yen. For foreign residents in Japan who participate in furusato nozei, this change addresses a fundamental inequity in the system. Currently, higher-income individuals can claim larger deductions and receive more valuable return gifts, while those with modest incomes receive proportionally smaller benefits. The cap ensures that ultra-high earners cannot leverage the system for excessive tax advantages. Expats earning below the 100 million yen threshold will see no changes to their furusato nozei benefits. However, those in executive positions or with substantial investment income should recalculate their tax strategies, as deductions exceeding 1.93 million yen will no longer be permitted. This may affect decisions about charitable giving and tax planning for the upcoming year. Corporate Investment Incentives In a move designed to stimulate economic growth, the government is creating new tax incentives for corporate investment. According to NHK, companies making significant capital investments will be able to deduct up to 7% of their investment amount from corporate taxes. For foreign professionals working in Japan's corporate sector, particularly those in management or strategic planning roles, these incentives could signal increased investment in facilities, technology, and infrastructure. Companies may accelerate planned expansions or equipment upgrades to take advantage of the tax benefits, potentially creating new opportunities or affecting business operations. The timing of this incentive reflects government concerns about Japan's competitiveness and productivity. By encouraging bold capital expenditure, policymakers hope to modernize Japanese industry and improve long-term economic prospects. Foreign business owners and entrepreneurs operating in Japan should consult tax advisors about how these incentives might apply to their investment plans. Ultra-Wealthy Taxation Expansion Perhaps the most significant change involves taxation of ultra-wealthy individuals. NHK reports that the government is lowering the threshold for enhanced taxation on capital gains from stocks, real estate, and other assets from approximately 3 billion yen in annual income to 600 million yen. This five-fold reduction in the threshold dramatically expands the number of taxpayers subject to ultra-wealthy taxation measures. While most foreign residents in Japan will remain unaffected, those with substantial investment portfolios, successful business exits, or significant real estate holdings should take note. The change reflects growing political pressure to address wealth inequality and ensure that individuals with primarily investment-based income pay proportionate taxes. Japan's tax system has historically taxed capital gains at lower rates than employment income, creating advantages for the wealthy. This reform narrows that gap. Implications for Foreign Residents For most expats in Japan, the corporate investment incentives represent the most relevant change, potentially affecting workplace investment and business conditions. High-earning professionals should review their furusato nozei participation, while those with substantial investment income should consult tax advisors about the ultra-wealthy taxation threshold. These reforms demonstrate Japan's ongoing efforts to balance tax equity with economic growth. As the government finalizes details, foreign residents should monitor announcements and consider how these changes might affect their 2025 tax planning. The reforms are expected to be formally approved as part of the annual tax reform package in December 2025.