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Angel Investment Taxation

time 2018/11/22

Tax Benefit

Type A (company younger than 3 years old):

Benefit (#1) -> The investment will be deductible from gross taxable income (e.g. salary, business, property income) up to lesser of 40% of the gross income and 10,000,000 yen.
Benefit (#2) -> Capital loss from selling shares to a qualified company can be carried over for 3 years to offset against capital gain from stock. (Loss from selling a private company is not allowed to carry over by default.)

Type B (company younger than 10 years old):
Benefit (1) -> Invested amount will be deductible from capital gain from stocks in the same year.
Benefit (#2) -> Capital loss from selling shares to a qualified company can be carried over for 3 years to offset against capital gain from stock. (Loss from selling a private company is not allowed to carry over by default.)

Type A company:
It has to be younger than 3 years old.
It has to be an SME (paid-in capital less than 500,000,000 yen)
The following condition has to be met:

Type A company
Less than one year old and in the first FY More than 2 full time employee and 10% in R&D or new business
Less than 1 year old and in the second FY More than 2 full time employee and 10% in research or new business AND operating CF has to be negative until the last FY
1 to 2 years old R&D expense (including marketing) more than 3 % of revenue and operating CF is negative until the last FY. OR, employees in R&D are more than 2 and 10% of the total headcount and operating CF negative until the last FY.
2-3 years R&D expense (including marketing) more than 3 % of revenue and operating CF is negative until the last FY. OR growth rate in sales more than 25% and operating CF negative until the last FY.


Type B company:
It has to be younger than 10 years old.
It has to be an SME (paid-in capital less than 500,000,000 yen)
The following condition has to be met:

Type B company
Less than one year More than 2 full time employee and 10% in R&D new business
1 to 2 years old R&D expense (including marketing) more than 3 % of revenue, or employees in new business are more than 2 and 10% of the total headcount
2-5 years R&D expense (including marketing) more than 3 % of revenue or its growth rate in sales more than 25%.
5-10 years R&D expense (including marketing) more than 5 % of revenue.

Starting a business in Japan

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