By Tomoko Numajiri / Yomiuri Shimbun Staff Writer

The Japanese government is set to relax restrictions on tax breaks for foreign investors who invest in domestic venture capital $(VC)$ funds to increase capital from abroad and spur the growth of startups in Japan.

The government hopes the measure will lead to the increase of unicorns--startups with a value of over 1 billion dollar--which Japan lags behind other nations.

The measure has been included in the government's outline of the tax system reform for the fiscal year starting April. Diet deliberations on related bills are scheduled during the ongoing extraordinary session.

The relaxation will apply to the current tax breaks for foreign investors receiving dividends from investments made on Japanese VC funds. Dividends are subject to income tax for individuals and corporate tax for corporations. The tax exemption for foreign investors requires the investor's stake in the VC fund to be less than 25%. Experts have pointed out that this condition has become a factor in discouraging foreign investors. The government will raise the cap to less than 50%.

According to the Economy, Trade and Industry Ministry, there are about 25,000 startups in Japan in 2025, increasing 50% from about 16,000 in 2021. However, there are only eight unicorns in 2025, far below the number of United States, which has 690 unicorns and Britain, which houses 55.

One of the reasons why Japanese startups do not grow much is the scarcity of funding from overseas. From 2022 to 2024, foreign investors who injected their capital in VC funds in Japan accounted for only about 1% of overall investors. This figure was much less than Singapore (92%) and Britain (61%). There are investors who directly invest in startups rather than using VC funds, but foreign investors accounted for only about 8% of total in 2024 through this channel.

Dividends paid to foreign investors are tax-exempt in countries such as Singapore, the United States and Britain, in principle. Japan's unfavorable conditions are believed to be a factor in hindering startups to raise capital. The economy ministry hopes that the relaxation will incentivize foreign investors to inject capital into Japanese startups.

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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.

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February 26, 2026 04:21 ET (09:21 GMT)

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