Japan is preparing tax incentives to encourage companies to sell non-core assets as part of a broader corporate governance reform initiative, according to sources familiar with the matter.
The government, led by Prime Minister Sanae Takaichi, is drafting proposals to defer indefinitely the roughly 30% corporate tax normally due on capital gains from the sale of non-core businesses. To qualify, firms would need to reinvest proceeds within several years in acquisitions tied to their core operations and commit to long-term investment in those businesses.
The plan reflects concerns over inefficient capital allocation, with a recent government study estimating that about 65% of Japanese companies’ invested capital remains locked in businesses failing to meet their cost of capital. Officials aim to submit the proposals by the end of August, with final approval targeted for year-end to take effect in the next fiscal year.
The proposed measures build on prior reforms, including spin-off tax rules introduced in 2017 and a partial spin-off regime enacted in 2023. An industry ministry report from 2020 had also highlighted the need to improve capital efficiency. The government has cited Germany’s tax reforms in the early 2000s as a model for the initiative.
The push comes amid a surge in deal activity involving Japanese companies, which last year more than doubled to a record $353 billion, according to LSEG data. Divestitures accounted for $44.7 billion of that total, underscoring the scale of non-core asset sales already underway.
The measures are expected to be included in the government’s broader governance reform agenda, which seeks to enhance shareholder returns and corporate performance through strategic asset reallocation.
