Japan: Tax credit for renewable energy

Overview 

Public concerns over the replacement of atomic power with renewable energy increased after the Tsunami disaster occurred on 11 March 2011 which led to the explosion of Fukushima nuclear plant (3.11 disaster). Japan government has geared up to introduce renewable energy as one of the economy recovery measures. Amongst the energy sources, solar PV, or energy with potentially large amount or easy to use is most expected to serve as alternative energy. Two years have passed since the 3.11 disaster, highefficiency solar panel or mega solar power plant with leading clean energy technology became popular in Japan and tax break for solar power equipment was offered. 

The scheme of purchasing renewable energy 

As a measure to promote the nationalwide use of renewable energy sources (solar power, wind power, hydro power, geothermal power, biomass), Japan government launched a scheme which required electric utilities to purchase excess electricity generated by renewable energy sources at a fixed price. It was anticipated that renewable energy sources will be adopted by many companies and households; therefore, tax break has made available as soon as the scheme being launched. 

General tax credit 

Expenses for the purchase of solar power equipment to serve the business within one year from the purchase date, will be wholly deducted in the business year in which the equipment is placed into use. However, in order to be deducted as expense, there are certain conditions to be fulfilled. For instance, the solar power equipment that is qualified under the scheme must generate over 10 kilowatt. Moreover, the equipment must be certified by Ministry of Trade and Industry as well as having a leasing agreement with electric utilities. 

Special tax credit 

For small to medium sized company (company with capital of 100 million yen or below), 7% of the purchase price of the solar equipment will be allowed to deduct against the income tax if it satisfied the conditions mentioned above. 

A company cannot enjoy both general tax credit and special tax credit at the same time, however it can choose to either general tax credit or special tax credit, whichever is preferable. Further, a company cannot claim for either general tax credit or special tax credit if the purchase of solar power equipment was subsidized by the local government’s grants. 

Fixed asset tax deduction 

Qualified solar power equipment which can generate power of or above 10 kilowatt according to the renewable energy source scheme are allowed to pay lower fixed asset tax, which is 2/3 of the taxable amount of the payable fixed asset, in other words, 1/3 of the taxable amount is deducted within three years starting from the first year the equipment become taxable. Moreover, besides solar power equipment, wind power equipment, geothermal equipment or hydro power equipment can also claim for fixed asset tax deduction.

‍