Japan mulls tax breaks to lure back overseas profits

Japan’s ruling Liberal Democratic Party (LDP) is considering offering tax breaks to companies that convert their foreign profits back into yen, Reuters reported on Wednesday, citing senior party officials.

This move aims to incentivise firms to repatriate overseas earnings and potentially strengthen the weakening Japanese currency, as per the statement.

The tax breaks, if implemented, could be included in the government’s upcoming mid-year policy blueprint as part of a broader effort to support the yen. However, the LDP is yet to finalise details and discussions are ongoing.

The news comes amidst a significant decline in the value of the yen. This year alone, the yen has fallen roughly 11 per cent against the US dollar due to factors like low Japanese interest rates compared to rising US rates.

The potential tax breaks would target an estimated 20 trillion yen ($126.74 billion) in “foreign direct investment earnings” from Japanese companies’ overseas subsidiaries, according to the Sankei newspaper.

However, some government officials have expressed skepticism about the impact, considering existing tax breaks that already exclude most dividends from foreign subsidiaries from taxation.