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What is the DX investment promotion tax system | Easy-to-understand explanation of target companies, requirements and application methods

The DX investment promotion tax system is a tax system to encourage companies to promote DX, which was passed and established in the 2021 tax reform bill.

If you use the DX investment promotion tax system, it will be easier to reduce the cost burden related to DX, but in order to do so, it is necessary to clear the certification requirements.

This time, we will explain the target companies and application method from the contents of the DX investment promotion tax system.

Table of Contents

  • What is the DX investment promotion tax system?
    • When will the DX investment promotion tax system come into effect? Until when?
  • Background of the creation of the DX investment promotion tax system
    • Why DX is attracting attention
  • Certification requirements and certification method for the DX investment promotion tax system
    • What is the DX certification system?
    • Will SMEs be eligible for the DX investment promotion tax system? − Commentary on the target company
    • Tax measures for the DX investment promotion tax system
    • Assets subject to the DX investment promotion tax system
  • How to apply for the DX investment promotion tax system
    • How to get DX certified
  • Minimum and maximum investment amounts under the DX investment promotion tax system
  • Law revisions to support corporate DX
    • Exceptions to the maximum deduction for loss carryforwards
    • Supporting promotion by adding DX to the R&D tax system
  • Let’s promote DX using the DX investment promotion tax system

What is the DX investment promotion tax system?

The DX investment promotion tax system is a tax system established by the 2021 tax 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%.

When will the DX investment promotion tax system come into effect? Until when?

The effective date of the DX investment promotion tax system is from April 1, 2023 to March 31, 2023.

Background of the creation of the DX investment promotion tax system

Over the past few years, various companies have been suffering from financial difficulties such as a decline in performance due to the effects of the new coronavirus infection, and the Japanese economy has been hit hard.

However, with the spread of the new coronavirus infection, companies are adopting remote work one after another, and at the same time, awareness of corporate DX promotion is increasing.

There is a growing tendency to take this situation as an opportunity to change management strategies and promote the integration of management strategies and digital strategies. Against this background, the DX investment promotion tax system was established by the Ministry of Economy, Trade and Industry.

It is said that DX conversion will be required even more in the coming era of Wiz Corona. Therefore, let’s take advantage of the DX investment promotion tax system in preparation for with-corona and post-corona.

Why DX is attracting attention

Prime Minister Kan is pushing for digitalization, but DX is attracting attention in the world. There are a lot of companies working on DX now.

The background to this is the 2018 release of the Ministry of Economy, Trade and Industry’s DX Report-Overcoming the IT System ‘2025 Cliff’ and Full-Scale Deployment of DX-.

2025 wall

The wall of 2025 is the stagnation of the Japanese economy and the delay in international competition that is expected if the existing system, which 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.

Certification requirements and certification method for the DX investment promotion tax system

In order to be eligible for the DX investment promotion tax system, several requirements must be met.

DX investment promotion requirements are as follows:

The requirements to be met in this way can be broadly divided into digital requirements (D requirements) and corporate transformation requirements (X requirements) .

Here, we will explain what kind of tax incentives you can actually receive from the explanation of the DX certification system, which is one of the requirements for the above DX investment promotion tax system.

  1. What is the DX certification system?
  2. Will SMEs be eligible for the DX investment promotion tax system? − Commentary on the target company
  3. Tax measures for the DX investment promotion tax system
  4. Assets subject to the DX investment promotion tax system

I will explain each.

What is the DX certification system?

There is a “DX certification system” for certification related to the DX investment promotion tax system.

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 in May 2020.

In the DX certification system, the certification standard is to comply with the basic items of the Digital Governance Code.

The “Digital Governance Code” is a response required of managers, such as formulating and announcing a management vision based on the social transformation caused by digital technology, in order for the Ministry of Economy, Trade and Industry to encourage voluntary efforts by companies regarding DX.

Will SMEs be eligible for the DX investment promotion tax system? − Commentary on the target company

The DX investment promotion tax system is also certified for small and medium-sized enterprises.

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 mid- to long-term stagnation of Japanese industries and start sustainable development.

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.

Tax measures for the DX investment promotion tax system

The tax measures for software, deferred assets, and tangible fixed assets are as follows.

The government’s aim is to promote corporate DX investment by reducing the tax amount on capital investment expenses such as software, deferred assets, fixtures and equipment, and machinery for promoting DX in the form of tax credits or special depreciation. I can tell.

Assets subject to the DX investment promotion tax system

There are two types of assets subject to the DX investment promotion tax system: information technology business-adaptive equipment and business-adaptive deferred assets.

  1. Equipment suitable for information technology business
    Specific software newly installed or expanded
  2. Business adaptation deferred assets Deferred assets
    incurred when expenses related to software are spent on software

Equipment to which the DX investment promotion tax system applies is limited to those linked with specific software.

Also, as mentioned above, it should be noted that the total amount of the acquisition amount of information technology business compatible equipment and the amount of business compatible deferred assets subject to the DX investment promotion tax system is limited to 30 billion yen. .

How to apply for the 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.

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%.

How to get DX certified

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 in May 2020.
In the DX certification system, the certification standard is to comply with the basic items of the Digital Governance Code.

Here, we will explain the period from application to DX certification.

  • Review period (standard processing period)

After the application is received, accreditation will be decided on a monthly basis and will be announced at the beginning of the following month after a period of 60 days. The examination closes on the 15th of each month, and IPA will notify you of the certification results by email at the beginning of the following month.

It should be noted that this 60 days does not mean 2 months, but holidays on which the work of IPA or the Ministry of Economy, Trade and Industry is not performed (Saturdays, Sundays, holidays of the law concerning national holidays, December 29th to January 3rd ) is not included in the review period, so there is a review period of about 3 months on the calendar.

In addition, depending on the content and congestion, it may exceed 60 days. Therefore, it is safe to plan for four months from application to certification.

  • date example
  1. Examination pass date: December 10,
    2021 Closing date: December 10, 2021
    Certification: January 1, 2022
  2. Examination pass date: December 13, 2021
    Certification: February 1, 2022

In this way, in the case of ②, it may take about 4 months to review even a normal application due to the closing date of the review.

Minimum and maximum investment amounts under the DX investment promotion tax system

The DX investment promotion tax system has a limit on the amount of investment.

The minimum investment amount is 0.1% of sales, and the maximum investment amount is 30 billion yen.

Law revisions to support corporate DX

Law revisions are underway to promote corporate DX. There is also a background to promoting DX in the increase in the upper limit of the loss carryforward deduction and the research and development tax system.

Exceptions to the maximum deduction for loss carryforwards

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.

Supporting promotion by adding DX to the 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.

Let’s promote DX using the DX investment promotion tax system

This time, I explained the DX investment promotion tax system.

The DX investment promotion tax system is a tax system for reducing the burden of costs invested by companies to promote DX.

It is necessary to clear various certification requirements such as digital requirements and corporate transformation requirements, but if certified, the cost burden related to DX will be reduced. Let’s promote DX using the DX investment promotion tax system.

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