Angel Taxation has widened its scope from April 2024. It used to be only stocks (common stocks or preferred stocks) to be qualified for the tax deduction but now stock options are also qualified.
https://www.yamada-partners.jp/hubfs/zeikai/2024-documents/A06.pdf?hsLang=ja-jp
Angel taxation is a huge tax benefit that was legislated since sometime ago in Japan. When you invest into a company younger than certain years (5 years for Type A and 10 for Type B benefits), you will get a tax credit by the amount you invest in a certain type of venture company.
If you are in the bracket of 33% tax rate for the national tax, your tax rate is already 43% since there is always 10% resident tax in next year. The maximum angel investment you can make is the lower of 8,000,000 yen or 40% of your taxable income.
Your investment into a venture company is directly credited from your income tax. If your original total tax is 3,000,000 yen and if your investment is 1,000,000 yen, your tax after your angel investment will be reduced to 2,000,000 yen.
If your investment return in future is on a par (1,000,000) yen in 8 years, you already gained 40% return on the investment over 8 years. Since you always reduce your income tax by the amount of the investment, your chance of getting higher return is much higher.
The recent change in the law allows investments in stock options to be treated as angel investments. J-KISS is a type of stock options where its strike price is to be determined in the future. This is a product of Japanese tax law to avoid unreasonable tax when the options are exercised.
If you are planning to accept investments from your friend, it may be a good idea to consult with us (https://www.minatoacc.com). We should be able to let you know your company can be qualified or not for the angel taxation.