Tax loss can be carried over for the next 10 years for a company. The tax loss can be netted against income from the current year if the company is considered as a small/medium-sized enterprise (SME). For a company which is not considered as an SME, tax loss that is at maximum only 50% of the current income can be netted in a fiscal year. So, whether a company is considered as an SME or not will have a quite major impact on the amount of tax it will have to pay.
The definition of SMEs is either (A) a company’s capital is less than 100 million yen or (B) the paid-in capital of its 100% holding parent company is over 500 million yen.
One of the frequently asked questions is, if an individual owns 1 share of the company so that no one company owns 100%, will it be exempt from the restriction?
The answer is probably YES, but it is not 100% safe.
https://www.nta.go.jp/law/tsutatsu/kihon/hojin/01/01_03_02.htm
If a partnership organized by employees owns more than 5% of its shares, the company is still to be considered as “fully controlled”
There is guidance issued publicly on the website of the National Tax Agency.