Japan is seeking to stimulate economic growth by encouraging entrepreneurship, but its tax breaks for investors are relatively meager compared with other countries such as the United States.
Masakiaki Hei, a member of Japan’s House of Representatives, said, “The United States has an effective incentive mechanism, while Japan has been very rigid and has imposed many conditions so that people cannot fully enjoy the benefits of capital gains.”
Faced with a business entry rate far below that of the US and Europe, Prime Minister Fumio Kishida’s government launched a five-year plan to encourage new businesses in 2022, with the goal of becoming Asia’s largest start-up hub.
But there is no tax deduction for capital gains, disappointing investors who had hoped for a system similar to the U.S. where angel investor returns are exempt from federal taxes of up to 100%, while Japan’s rate is slightly higher. 20%.
Capital gains taxes aren’t the only tax headaches for startups.
Earlier this year, the Japanese government unexpectedly announced that certain types of stock options would be subject to an income tax of up to 55 percent, a move that consultancy Endeavor SBC KK said severely damaged Japan’s attractiveness as a startup hub.