Subsidies in Japan play a crucial role in supporting local businesses and driving growth and innovation across various sectors. These financial incentives not only assist companies but also contribute to economic development and job creation. The current business environment is highly conducive to growth, offering business owners, including foreign entrepreneurs, access to valuable subsidies. For more information on starting a business in Japan, check out our article on Setting Up Your Company in Japan.
While securing subsidies in Japan can be challenging, especially for foreign entrepreneurs, this article provides an overview of Japan’s subsidy system and a list of available resources to help you get started with ease.
Key Takeaway
| Government Support: | Japan offers significant startup subsidies, especially in tech, green, and health industries. |
| Types of Subsidies: | Financial (seed funding, R&D) and non-financial (mentorship, incubation). |
| Eligible Industries: | Green tech, fintech, healthcare, digital technology, and manufacturing. |
| Application Process: | Involves submission, review, verification, and reporting obligations. |
| Foreign Startups: | Must have legal presence in Japan and meet innovation goals. |
| Post-Approval Obligations: | Includes reporting, potential audits, and milestone-based conditions. |
What is a subsidy and how is it different?
The Japanese government has a wide range of support and incentives that it awards and grants businesses across different industries. To learn more about financial support offered by the Japanese government, listen to our podcast on how to Get Japanese Government Money for Your Business with Miho Tanaka.
One example of support is a subsidy, which is financial aid given by a government or organization to individuals, businesses, or sectors for specific purposes such as economic development, social welfare, or industry promotion. It differs from the range of incentives available in a number of ways but first, we should define an incentive.
What is an incentive?
Government incentives for businesses are policies, programs, or measures implemented by governments at various levels (local, regional, national) to stimulate economic growth, investment, and job creation within their jurisdictions. These incentives are aimed at fostering a favorable business environment, attracting new businesses, retaining existing ones, and promoting overall economic development.
Government agencies such as the Japanese Ministry of Trade, Economy, and Industry (METI), the Japanese External Trade Organization (JETRO), the Japan Finance Corporation (JFC), Ministry of Education, Culture, Sports, Science and Technology (MEXT), and other regional or local agencies lead the forefront in handling incentives.
Government incentives can take various forms, but mainly focus on tax incentives: These are reductions or exemptions in taxes, such as corporate income tax, property tax, or sales tax. That can include tax credits, deductions, and deferrals, which can significantly reduce a business’s financial burden and increase its profitability.
The following are examples of tax incentives on a national level compiled from the JETRO website page:
Establishment and Relocation in Special Regions Taxation
| Subsidy name | Details | Eligibility | Requirements |
|---|---|---|---|
| Employment Promotion Taxation | Tax Credit of up to 600,000 JPY per new employee (up to 900,000 JPY for specific cases). | Startups hiring new employees. | – Must submit a blue tax return. – No employees left for employer-caused reasons. – Not an amusement business. |
| Capital Investment Tax Cut | Tax deductions for the acquisition value of business facilities: 15% special depreciation or 4% tax deduction (up to 25% or 7% for SMEs). | Startups investing in new business facilities or relocating headquarters. | – Acquisition price must be 20M JPY or more (10M JPY for SMEs). – Target facilities include buildings, structures. |
| Tax Exemption/Unequal Taxation of Local Taxes | Exemption or deduction for corporate income taxes, property taxes, and levies from local governments. | Startups relocating from the 23 wards of Tokyo to regional revitalization areas. | – Must be eligible for regional relocation and meet local authority conditions. |
Capital Investment Taxation
| Title | Overview | General Requirements | The Competent Authorities |
|---|---|---|---|
| Special Taxation Measure Regarding Capital Investment | Offers tax deductions on capital investment for foreign companies with a local economy-stimulating business plan. | Follow an approved business plan. Confirmation required from the prefecture and minister. Total acquisition cost must be under 8 billion yen. | Business Environment Promotion Division, Regional Economic and Industrial Policy Group, Ministry of Economy, Trade, and Industry |
| Tax Exemption or Unequal Taxation of Local Taxes | Companies confirmed under Article 24 may receive property tax exemptions or reductions from local authorities. | N/A | Local authorities |
Research and Development Tax Deductions
The R&D Tax Credit System allows companies to deduct a portion of their research and development expenses from corporate taxes. The tax credit rate ranges from 6-14%, with SMEs eligible for 12-17%. A 20-30% tax credit applies to joint research with universities or national research institutes.
The corresponding authorities for the R&D Tax Credit System are the Ministry of Economy, Trade and Industry (METI), specifically the Innovation and Industry-University Collaboration Division.
These incentives can vary widely depending on the specific goals of the government, the industry, and the region. However, they all share the common objective of encouraging business growth and economic prosperity by providing businesses with tangible benefits.
Essentially, the difference between incentives and subsidies is that subsidies are a form of incentive in the form of direct financial aid that may or may not need to be repaid. Beyond that, some differences make up categories of subsidies in Japan which we will explore.
What are the types of subsidies in Japan?
Japan offers a range of subsidies to support SMEs, covering labor, local economy promotion, and disaster relief. These subsidies help offset costs that would otherwise burden small businesses. Key government agencies include MHLW for labor and employment subsidies, METI for industrial development, MEXT for education and research, and municipal governments for local development.
What are labor and employment subsidies in Japan?
Japan’s commitment to fostering a robust workforce is reflected in its labor and employment subsidies. These incentives are designed to stimulate job creation, enhance skills training, and support individuals seeking employment. From encouraging employers to hire and retain workers to providing financial aid for skill development programs, labor, and employment subsidies drive workforce empowerment. The following table contains a few examples of subsidies in Japan available from the MHLW’s subsidy support. For a complete directory of these subsidies in Japan, a list is available on MHLW’s website.
Employment Development Subsidy for Specified Job Seekers
Overview: This subsidy supports employers who hire individuals from the “Employment Ice Age Generation” (born between April 2, 1968, and April 1, 1988), who had missed opportunities for regular employment. The aim is to stabilize their employment situation.
General Requirements: Employers must hire individuals who meet the following criteria: they have been employed as a regular employee for one year or less in the past five years, and they are currently unemployed or do not have a stable job.
Maximum Amount: Large companies: 500,000 JPY, SMEs: 600,000 JPY
Subsidy Period: 1 year
Regional Employment Development Grant (Regional Employment Development Course)
Overview: For businesses in areas with scarce employment opportunities, this subsidy helps with the establishment of business offices and hiring local job seekers.
General Requirements: Businesses must hire at least 3 new employees (or 2 for startups) and submit a plan to the local labor bureau for approval.
Maximum Amount: Up to 3,000,000 JPY or 200,000 JPY per item
Subsidy Period: 1 year
Japanese Taxes Are Too Difficult?
Check our accountant recommendations to find the right Japanese tax accountant for you!
What are local economic advancement and promotion subsidies in Japan?
Local economic advancement subsidies in Japan play a key role in boosting regional growth. By funding infrastructure, entrepreneurship, and community projects, these subsidies energize local businesses, attract investments, and enhance the overall economic vitality of various regions. Below are examples of subsidies that support local economies across Japan:
| Title | General requirements | Maximum Amount | Corresponding Authority |
| Project for Temporary Office Allocation for Foreign Financial Companies and Human Resources | For companies without a Japan office but with a presence or plans in Asia. | Office rent up to ¥300,000/month and initial costs up to ¥200,000 are exempted for up to 3 months. | Tokyo Office of the Governor for Policy Planning |
| Subsidies for Business Establishment and Operation in Tokyo | For companies without a registered office in Japan, but with an office in Asia or planning to establish one. | Office rent up to 300,000 yen/month (USD 2,800) for up to 3 months and initial costs up to 200,000 yen (USD 1,800) are exempted. | Tokyo Office of the Governor for Policy Planning |
| Overseas Financial Corporation Business Establishment Subsidy Program for Office and Consultation Expenses | For companies without a registered office in Japan. Requires financial info, TMG consultation, and at least one employee with employment insurance. | Covers 1/2 of costs up to 7.5 million yen (≈USD 68k) for consultation, recruitment, and office setup, within the fiscal year after TMG consultation. | Tokyo Office of the Governor for Policy Planning |
What are special economic zones and why are they important?
Special Economic Zones (SEZs) in Japan drive growth by offering reduced corporate taxes, streamlined regulations, simplified customs, and enhanced infrastructure. These zones attract both domestic and foreign investment, fostering innovation, business expansion, and economic vibrancy. SEZs are key to Japan’s ongoing economic progress and international collaboration.
Each region in Japan holds a designation for what the Japanese government and the local government hope it can become. This means they each have special benefits that we list here. While many SEZs exist across Japan, these two examples below are more open to foreign business owners.
- Okinawa (Okinawa region) is deemed a special economic zone making it have the benefits of a 40% corporate/national tax deduction, subsidies for land and building expenses up to 25% (1 billion JPY), seed funding, and youth employment promotion incentive of up to 1.2 Million JPY per worker under 35. Okinawa’s SEZ focuses on industries such as tourism, resort development, and healthcare.
- Fukuoka City (Kyushu region) is deemed a special economic zone making it have the benefits of a 22% corporate/national tax deduction, startup subsidies, seed funding, and financial aid for renting office and residential spaces up to 50% of the cost. Fukuoka’s SEZ focuses on industries such as IoT, International, Medicine, Agriculture, and Advanced IT.
How can I file for a subsidy?
When seeking to tap into the diverse pool of available subsidies in Japan, the application process can often be difficult. Contrary to the common assumption that accountants manage subsidy filings, it’s actually scriveners you should seek. Accountants are mainly responsible for consultations about subsidies in Japan but scriveners actually file them.
To gain consultation on subsidy applications or just to learn more about accountants, our Ultimate Guide to an Accountant in Japan can provide valuable insights on how. This resource offers a comprehensive understanding of how accountants can assist businesses in various aspects, helping you to make informed decisions when seeking financial assistance, especially about subsidies in Japan.
What is a scrivener and why would I want one?
Scriveners, often overlooked in favor of accountants, hold a specialized role in facilitating successful applications for subsidies in Japan. These professionals are well-versed in the intricacies of subsidy regulations and procedures, ensuring that your application adheres to all necessary requirements. However, it’s essential to understand what scriveners do and why they are integral to the process.
Scriveners are experts in documentation and legal procedures, well-equipped to compile and present your subsidy application to maximize your chances of approval. While there might be associated costs with employing scrivener services, these expenses are an investment in the accuracy and effectiveness of your application. They also assist you with Visa applications. It’s crucial to conduct thorough research to find a qualified scrivener who aligns with your specific needs and goals.
Where can I find a scrivener?
To find a reliable scrivener, research and networking are key. Legal directories, business associations, and online platforms offer leads to reputable professionals skilled in subsidy applications. By tapping into these resources, you enhance your chances of finding a scrivener who not only possesses the necessary skills but also aligns with your business objectives and values. To learn more about what skills you need to do this, read our Guide to Networking in Japan.
What will a typical application process look like?
To apply for labor and employment subsidies in Japan, specifically those from the MHLW, various application procedures exist for the different subsidies. To apply for disaster support subsidies in Japan, specifically those from METI, various application procedures exist for the different subsidies. Generally, the following should be followed:
- Research and update yourself Take note of the subsidies listed on the MHLW website and the METI website to understand which ones are available and which ones are discontinued. There are changes every fiscal year so it is important to update yourself on new ones introduced and which ones have been stopped. Additionally, if you plan to apply for something, you must update yourself on requirements and procedures that may have changed for the new fiscal year. For any inquiries, make sure to contact the listed numbers and emails for each specific subsidy.
- Gather all requirements or hire a scrivener After having listed all the documents and proof you need to submit, start to gather the items for your application. You may also hire a scrivener to help you apply. Their role and the process of hiring a scrivener are discussed in a previous section. It may be necessary to fill out an application form that will be attached to the webpage that announces the subsidy.
- Submit documents Submitting documents can be done in several ways. MHLW and METI allow electronic applications through e-Gov. If you do not have an e-Gov account, registering can be done through native accounts, Gbiz ID, or an Open ID. First-time users can refer to this guide for help. Other applications in MHLW are made through Gbiz. If no electronic application is available, physical applications are printed and mailed to a service counter listed with the address, postal code, and telephone number.
- Pay for the subsidy (Not applicable to all) Subsidies in Japan tend to be a long-term strategy and investment into the business, especially with the payment that some subsidies in Japan require up-front. Instructions vary per subsidy but in general, the business will be evaluated by the corresponding ministry as to whether or not they should have to pay. Instructions and a form are attached to webpages should you have to pay.
For a flow of what happens before and after obtaining your subsidy, refer to this application flow created by jGrants, an official website of the Japanese government.
Navigating Subsidies Successfully in Japan
Japanese government subsidies are crucial for business growth, offering various incentives to foster a favorable environment. Entrepreneurs should consider hiring specialists to navigate the complex application process. These subsidies are not just financial aid but strategic tools for growth. By utilizing available opportunities, both local and foreign entrepreneurs can position themselves for success in Japan’s dynamic market. Embrace the support, prepare for applications, and use these resources to accelerate your business, whether expanding your workforce, establishing a new site, or contributing to local revitalization.
