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How to receive DX investment promotion financial incentives? | Also explains the certification requirements and two other tax systems!

In Japan, where labor shortages are a concern, digital transformation is being emphasized in all industrial fields. DX (Digital Transformation) is attracting attention . Many companies are working to promote DX in order to survive the competition in a changing society.

However, there are many companies that have stalled their efforts to promote DX because it costs money to realize it. So this time, I will explain the DX investment promotion financial incentives !

 

Table of contents

  • Why is DX promotion required?
    • 2025 wall
  • What is the DX investment promotion tax system (DX tax system)?
  • Certification requirements for the DX tax system
    • digital requirements
    • Enterprise transformation requirements
  • How to use DX tax incentives
  • Background of the creation of the DX tax system
    • Purpose of the DX tax system
  • Other tax systems related to DX
    • Exceptions to the maximum deduction for loss carryforwards
    • Expansion of R&D tax system
  • summary

Why is DX promotion required?

2025 wall

In the “DX report” released by the Ministry of Economy, Trade and Industry on September 7, 2018, the word “2025 cliff” was used to warn against the IT system infrastructure of Japanese companies. It has become a center of attention.

The “2025 cliff” is a term that expresses the economic loss of up to 12 trillion yen per year after 2025 due to the slow progress of DX in Japan.

The content of the existing system, which was the foundation of the company, becomes complicated, outdated, and black boxed, causing delays in international competition and stagnation of the Japanese economy. On the other hand, if DX is realized, it is said that it is possible to boost the real GDP to more than 130 trillion yen in 2025-2030.

What is the DX investment promotion tax system (DX tax system)?

The Ministry of Economy, Trade and Industry has revised the tax system, and the DX investment promotion tax system has been established since FY2021. For corporate tax, corporate inhabitant tax, business tax, and income tax, you can receive tax credits and special depreciation measures for digital technology investment necessary for DX .

Companies that promote DX will be able to reduce the burden of investment by utilizing tax incentives to promote DX investment.

Certification requirements for the DX tax system

In order to receive DX investment promotion tax incentives, it is necessary to meet the certification requirements . There are two certification requirements: “digital requirements” and “corporate transformation requirements” , and it is required to create a business plan that meets these requirements.

digital requirements

( 1 ) Coordination and sharing of data
(coordination of data owned by other corporations, etc. or data newly acquired by businesses using sensors, etc., and internal data) (
2 ) Utilization of cloud technology (
3 ) Examination by the Information-technology Promotion Agency Acquisition of “DX certification” to

*Legacy: Complicated and outdated core business systems

Enterprise transformation requirements

( 1 ) It is based on company-wide decision-making (attachment of a resolution document of the board of directors, etc.) (
2 ) A certain level of productivity improvement is expected

If preferential treatment is approved, you can receive tax credits or special depreciation measures for digital technology investment necessary for DX .

Target equipment tax credit special depreciation
  • software
  • deferred assets
  • Fixtures and fixtures
  • machinery
3% or 5% 30%

* Deferred assets: initial costs related to the migration to cloud systems

<Tax deduction rate>
The tax deduction rate will be 5% when linking and sharing data with companies outside the group.

  • Collaboration between group companies : 3% tax credit or 30% special depreciation
  • Data linkage within a company using external data : 3% tax credit or 30% special depreciation
  • Data linkage with other companies outside the group : 5% tax credit or 30% special depreciation

How to use DX tax incentives

① Creating
a business plan First, create a business plan for DX. A company-wide DX plan with cross-departmental cooperation is required , not for each field or department .

② Check the certification requirements Once you have created a business plan , check if it meets the certification requirements . This is the minimum requirement for receiving DX investment promotion tax incentives.

③ Approval of the
competent minister Submit the created business plan to the competent minister and receive approval, and the DX investment promotion tax incentive will be applied. In principle, a certificate of approval or a notification of non-certification will be issued within one month.

Background of the creation of the DX tax system

Purpose of the DX tax system

Due to the changes in society caused by the new coronavirus epidemic, there are concerns about delays in digitization. DX, which is a transformation of companies using digital technology, is required for with/post-corona.

Achieving DX requires a company-wide effort. Therefore, the Ministry of Economy, Trade and Industry has established a DX investment promotion financial incentive as a new plan approval system in the Industrial Competitiveness Enhancement Act .

Other tax systems related to DX

Exceptions to the maximum deduction for loss carryforwards

Due to the epidemic of the new coronavirus, corporate management is in a difficult situation. However, we must work on corporate transformation and business restructuring for the post-corona/with-corona era. Therefore, we have raised the upper limit of deductions for loss carried forward for corporate tax, corporate inhabitant tax, and enterprise tax for companies that are engaged in corporate transformation .

A new plan certification system was established in the Industrial Competitiveness Enhancement Act, and if a business plan that includes investment details for corporate transformation and business restructuring is certified by the minister having jurisdiction over the business, it will be subject to special measures. Let’s create a business plan that incorporates future initiatives and the accompanying investments.

If certified, the deduction limit will be raised from 50% to a maximum of 100% for a maximum of five fiscal years for losses caused by the corona disaster.

Expansion of R&D tax system

The research and development tax system is a system that deducts the amount multiplied by a certain percentage for companies conducting research and development . The purpose is to promote investment in research and development by private companies.

The previous system covered only engineering and scientific research and development, but with the revision, software-related research and development was added to the scope and is attracting attention. In addition, the tax credit limit was raised and the tax credit rate was revised.

summary

This time, we introduced the DX investment promotion financial incentives. Companies are required to reorganize and transform in order to respond to drastic social changes such as the epidemic of the new coronavirus.

However, changes such as DX will cost a lot. How about using DX investment promotion financial incentives to promote DX? In addition, there are many companies that use subsidy programs. Let’s make good use of it and respond to the changing society.

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