News Details


Relaxation of Criteria for Deduction of Performance-based Compensation for Directors

List of news

1. Introduction
In line with the 2021 Tax Reform, we will mention the revision of criteria for the deduction of performance-based compensation paid to directors of unlisted non-family companies, etc. whose primary business is investment management services.

2. Background
With the aim of activating Japan’s economy, it is important to establish the position as an international financial center by appealing the high-volume of its economy and stable government policy. This tax measure is one of the revisions to enhance investment from overseas.

3. Details
Before the reform, the performance-based compensation of directors was deductible on the condition that the company described the calculation of compensation of directors on the Annual Securities Report. Therefore, an unlisted investment company which was not obligated to submit the Annual Securities Report could not deduct the performance-based compensation as expenses for corporate tax purposes. In the 2021 Tax Reform, the performance-based compensation is deductible if the following conditions are met.

Blue-return filing companies pay the performance-based compensation in the period from 1 April 2021 to 31 March 2026.
The companies satisfy the criteria for pre-approval by inspectors.
The business report is disclosed on the Internet by the Commissioner of Financial Services Agency.
The calculation of performance-based compensations is listed on or submitted via the relevant business report, and thereafter published or provided to the public inspection.

4. Conclusion
In this News, we mentioned the relaxation of criteria for deduction of performance-based compensation for directors of unlisted non-family companies etc. whose primary business is investment management services. 
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.

Proposals of 2021 Tax Reform (9 March, 2021)
(Accessed on 24 November, 2021)

Business Report Regarding the Special Treatment of Deduction of Performance-based Compensation 
(Accessed on 24 November 2021)