Japan Depreciation

Japan's Ministerial Ordinance on Useful Lives

Japanese depreciation for corporation tax purposes is governed by the Corporation Tax Act and the Cabinet Office Ordinance on Useful Lives (減価償却資産の耐用年数等に関する省令), which prescribes statutory useful lives for every depreciable asset category. The National Tax Agency organises assets by structure, material, and intended use: steel-frame office buildings are assigned 50 years, wooden structures 22 years, general machinery 10–15 years depending on the industry, and passenger vehicles 6 years. Taxpayers cannot freely choose their own useful life — they must apply the ordinance tables, with self-assessed lives requiring prior approval and justification to the district tax office. This contrasts sharply with Australian-style self-assessment and US MACRS. Japan's declining-balance rate is calculated as (1 − (1/useful life)^(1/useful life)) × a statutory multiplier, revised from 250% to 200% for assets acquired from April 2012 onward.

Buildings and the Post-2016 Straight-Line Requirement

A significant reform took effect for assets acquired on or after 1 April 2016: buildings and building improvements must use the straight-line method regardless of the taxpayer's historical election. Before this change, buildings could use declining balance, accelerating the write-off. The practical impact was most visible in real estate-heavy industries: a commercial office building costing ¥1 billion with a 50-year useful life now produces an annual straight-line deduction of ¥20 million, whereas under the old declining-balance approach the first-year deduction could exceed ¥35 million. Companies acquiring or constructing new buildings must plan cash flows accordingly, as this reform permanently reduced the front-loading benefit available on property investment in Japan.

Small-Value Asset Expensing and SME Provisions

Japan has a tiered system for low-value assets. Items costing less than ¥100,000 (approximately US$650) can be fully expensed in the year of acquisition as a loss on disposal (損金算入). Assets between ¥100,000 and ¥200,000 may be pooled and depreciated equally over three years (一括償却資産). Small and medium enterprises with paid-in capital of ¥100 million or less may expense individual items costing up to ¥300,000 under Article 28-2 of the SME Tax Measures Law, subject to an annual ceiling of ¥3 million in total expensed assets. This provision, consistently renewed since its introduction, is heavily used by Japanese SMEs to reduce year-end tax payments on equipment and technology purchases, particularly for items like servers, testing equipment, and office automation tools that fall in the ¥100,000–¥300,000 range.