Japan's aspirations to become a thriving startup hub are being hampered by stringent tax regulations.

 

Japan's aspirations to become a thriving startup hub are being hampered by stringent tax regulations.  With a capital gains tax exceeding 20% and the absence of tax breaks on capital gains for investors, Japan lags behind countries like the U.S., where investors can enjoy substantial tax breaks of up to 100% on capital gains. As a result, VC investment in Japanese startups has remained relatively low compared to other nations, impeding the realization of the country's startup potential. In addition to the lack of capital tax breaks, investors also have to pay income tax on certain types of stock options, which can be as high as 55%.  Prime Minister Fumio Kisida's government launched a five-year plan in 2022 to encourage the formation of new startups in the nation.  The government earmarked $7.2B (1T yen) in support, human resource development, and lower visa requirements for entrepreneurs.  However, despite the measures taken, the impact of the government's subsidies and grants is negated by the stringent tax factors.  The Bloomberg report highlights the French government's success in increasing VC funding by introducing tax breaks for capital invested in startups in 2013.