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Explain how to reduce tax on DX investment and conditions | Let’s use the DX investment promotion tax system

Don’t you want to cut costs as much as possible when promoting DX? In fact, there is a system that can reduce the amount of investment related to DX.

This time, we will introduce how to reduce tax on DX investment costs.

Table of Contents 

  • Why DX is attracting attention
    • Government digital reform behind the DX investment promotion tax system
  • Utilize the DX investment promotion tax system to reduce the tax on the investment amount related to DX
    • Overview of the DX investment promotion tax system
    • Conditions for applying the DX investment promotion tax system
    • Steps and required documents until certified as a DX investment promotion tax system
    • Raising the upper limit of loss carryforward deduction
    • R&D tax system
  • Other subsidies useful for DX
  • Notes on the DX investment promotion tax system from the National Tax Agency
    • Business adaptation plan
  • Use the investment promotion tax system to reduce taxes on investments related to DX

Why DX is attracting attention

DX means that companies use the power of technology such as data and digital technology to gain an advantage and enrich customers and society, and it is attracting attention.

It can be said that the reason why DX has attracted attention is the “wall of 2025”. The wall of 2025 is the stagnation of the Japanese economy and the delay in international competition that is expected if the existing system that was the foundation of Japanese companies becomes complicated, outdated, and black box. is a phenomenon that occurs.

If Japan does not proceed with digitalization, it is expected to lose out to international competition and lose up to 12 trillion yen annually. However, the report also states that if DX can be realized, it will be possible to boost real GDP to over 130 trillion yen in 2025-2030.

Thus, companies are required to go digital. Corporate DX is actually being promoted.

Government digital reform behind the DX investment promotion tax system

The ruling party has announced a stance to focus on digital measures, including digitalization of government administration, promotion of the popularization of the My Number card, and the establishment of the Digital Agency, which will take the lead. The background to this is that the 2025 barrier and the corona crisis, which I explained earlier, have highlighted the challenges of not being able to digitize government services.

Utilize the DX investment promotion tax system to reduce the tax on the investment amount related to DX

Companies must promote DX to resolve labor shortages, gain competitive advantage, and create new market value. However, in order to promote DX in addition to existing businesses, IT services and system construction will be costly.

Therefore, when companies work on DX, there are systems that can reduce investment costs, such as tax reductions. DX investment promotion tax system.

Overview of the DX investment promotion tax system

The DX investment promotion tax system is a tax system established by the 2021 tax reform for the purpose of promoting investment in digital transformation of companies. Targets are assets that have been approved for business adaptation plans by March 31, 2023 and have been used for business.

If you implement DX promotion based on the business adaptation plan stipulated by the minister, you can choose either a tax credit for the investment amount or a special depreciation of 30%.

Investment promotion tax system advocated by the Ministry of Economy, Trade and Industry

The DX investment promotion tax system is a measure put forward by the Ministry of Economy, Trade and Industry. In addition to the DX investment promotion tax system, the Ministry of Economy, Trade and Industry has various measures related to DX.

Conditions for applying the DX investment promotion tax system

DX investment promotion requirements are as follows:

In this way, there are digital requirements (D requirements) and enterprise transformation requirements (X requirements). The cloud in (2) Utilization of cloud technology in the digital requirements has been organized as a technology that allows data to be processed and stored openly via the Internet, etc.

In addition, company-wide DX initiatives that have been approved by the board of directors, etc., are eligible.

Applicable conditions for the DX investment promotion tax system: Target assets

  • software
  • Fixtures and fixtures
  • machinery
  • Deferred assets (initial costs for cloud system migration)

Applicable conditions for the DX investment promotion tax system: Eligible companies

Businesses subject to the DX investment promotion tax system are blue return corporations that have received [certification of business adaptation plan (tentative name)] of the “Industrial Competitiveness Enhancement Act”.

The Industrial Competitiveness Enhancement Act was established by the Ministry of Agriculture, Forestry and Fisheries to revitalize the Japanese economy by strengthening industrial competitiveness in order to break out of the medium- to long-term stagnation of Japanese industries and start sustainable development. It is a law to advance measures related to comprehensively and integrally.

The blue return is one of the income tax and corporate tax return methods, and in exchange for the requirement to prepare certain books and documents, you can receive various benefits that help you save tax. It is necessary to submit a blue application form to the tax office in advance.

Is the tax reduction amount different for large companies and SMEs?

There is no difference in the amount of tax reduction for large companies and SMEs. However, there are four caveats.

  • When linking data with a business that is not in a group relationship, such as a parent company or subsidiary, the tax deduction is “acquisition price x 5%”
  • If you choose a tax credit for local taxes, it will only apply to corporate inhabitant tax for small and medium-sized enterprises.
  • If none of the following three apply, large companies are not applicable. If the
    income for the current period is less than or equal to the income for the previous
    period
    . If more than ×30%
  • Loss carryforward deduction differs between SMEs and large companies (explained later)

Steps and required documents until certified as a DX investment promotion tax system

First of all, it is necessary to receive DX certification, which is subject to the DX investment promotion tax system.

The Information-technology Promotion Agency, Japan (IPA), an independent administrative agency, handles the certification examination. After the IPA examination, the Ministry of Economy, Trade and Industry will certify it and it will be subject to the DX investment promotion tax system.

If you clear the DX certification system and implement DX promotion based on the business adaptation plan specified by the minister, you can choose either a tax credit for the investment amount or a special depreciation of 30%.

The DX certification system is a certification system based on the “Law for Partial Revision of the Act on Promotion of Information Processing” which came into force on May 15, 2020. Based on the government’s “How to use strategic systems in corporate management”, it will be a system to certify based on the application of a business that incorporates DX and conducts excellent corporate strategy and management.

<Prepare for tax reduction after receiving DX certification>

Get DX certified in the following 3 steps and prepare for tax reduction with the DX investment promotion tax system.

① Check the “Application Guidance”

First of all, when applying for the DX certification system, let’s check the “DX certification system application requirements (application guidance)” that summarizes the necessary preparations and procedures.

②Download and prepare required documents

Download and complete the certification application form and application check sheet. How to fill in the contents and how to prepare in advance are described in the “Application Guidance”.

For question (5) of the certification application form, additional submission of supplementary materials is required unless the results are submitted using the “DX promotion index self-diagnosis result input site”.

③ Apply through the online application system and submit necessary documents

Apply and submit the required documents from the web application system “DX Promotion Portal”. This web application system requires a Gbiz ID.

Preparation of business adaptation plan certification application form

Get DX certified and create a certification application for your business adaptation plan. The Ministry of Economy, Trade and Industry explains the points of business adaptation plans.

The business adaptation plan describes (1 ) the goals of business adaptation, (2 ) the content and timing of implementation of business adaptation, and (3 ) the resolution or decision process of management policies related to business adaptation .

<Select tax credit or special depreciation 30%>

Then select tax deduction or special depreciation.

  • tax credit

A tax credit is a certain amount deducted from the income tax amount calculated by multiplying the taxable income amount by the tax rate.

  • Special depreciation 30%

Special depreciation is the amount calculated by multiplying the acquisition price by 30% in addition to the normal depreciation amount when purchasing and using the target asset, which is the condition for applying the DX investment promotion tax system. increase.

Raising the upper limit of loss carryforward deduction

For companies that are working on management reforms including DX, a new exception will be established for the upper limit of deductions for loss carried forward. The upper limit is 100% for small and medium-sized enterprises and 50% for large enterprises.

After receiving approval for a business adaptation plan, submitting a plan that includes post-corona initiatives and necessary investment details to the minister in charge of the business, and if approved, special measures will be applied.

R&D tax system

The R&D tax system is a system in which research and development costs are deducted from corporate tax. Due to the tax reform, cloud-related software R&D expenses were included in the R&D tax system.

Other subsidies useful for DX

In addition to tax cuts, there are subsidies related to DX

Notes on the DX investment promotion tax system from the National Tax Agency

Here are some points to note about the business adaptation plan for the DX investment promotion tax system issued by the National Tax Agency.

Business adaptation plan

Digital (D) requirements (data linkage/sharing, avoidance of legacy, cyber security)
◆ Data owned by other corporations, etc. or data newly acquired by businesses using sensors, etc. will be linked together with existing internal data. thing

◆ Use cloud technology

◆ Certification (DX certification) that the Information-technology Promotion Agency examines

Corporate transformation (X) requirements (transformation of business model, output, company-wide strategy)
◆Product manufacturing costs must be reduced by 8.8% or more, etc.

◆Set targets for improving productivity and increasing sales
・Within the plan period, ROA will improve by 1.5% points from the average of 2014 to 2018
・Within the plan period, the sales growth rate ≥ the past 5 years industry sales growth rate +5 percentage points

◆ Total investment must be 0.1% or more of sales

Use the investment promotion tax system to reduce taxes on investments related to DX

This time, we introduced the DX investment promotion tax system that can reduce the amount of investment related to DX. By using the DX investment promotion tax system, you can cut the cost of promoting DX.
Please allow yourself plenty of time as the process will take some time and effort.

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