Japan Is Rethinking How It Values Family Company Shares, and Most Owners Haven't Noticed

Most Japanese companies are not listed on a stock exchange. So when an owner dies or gives shares to a child, the tax office needs a rule to put a price on those shares. That rule is under review, and most owners have not heard. On 16 October, Tokyo Shoko Research (TSR) published a survey of 5,257 companies, taken online from 1 to 8 October. Only 36.6% knew that the National Tax Agency (NTA) is reviewing how unlisted shares are valued for inheritance and gift tax. Of the 1,604 companies that knew and answered a follow-up question, 56.2% expected their own share value to rise, 39.9% expected no change and 3.8% expected a fall.

How the rule works today. The NTA's guidance (Tax Answer No. 4638) puts a family-controlled company into a large, medium or small band based on its assets, employees and sales. Large companies are valued mainly by comparing their dividends, profit and book net assets with listed companies in the same industry (the "comparable industry" method, 類似業種比準方式). Small companies are valued mainly on net assets. Medium companies use a blend of the two. In November 2024, Japan's Board of Audit found that the bigger the company, the lower its shares tend to be valued relative to its net assets. It asked for a system that is fairer between companies of different sizes. In April 2026 the NTA set up an expert panel (取引相場のない株式の評価に関する有識者会議) to respond.

What the NTA has put on the table. At the panel's fifth meeting on 20 August, the NTA set out its thinking, framed as questions. Should the size bands go, so that most companies are valued the same way? Can the comparable-industry method survive? Should the main approach be based on earnings? Its candidate is a "residual income" method. In plain terms, a company is worth its book net assets, plus or minus the present value of several years of profit above a normal return. Panel members suggested five years.

What the trial showed. At the sixth meeting on 16 September, the NTA tested the method on 1,378 companies drawn at random from inheritance and gift tax returns for 2020 to 2023 (all of them companies for which both current values had been calculated). It assumed five years of excess profit and an 8% rate, and it ran four versions of a discount factor (斟酌率, from 1.0 down to 0.7) that is still under discussion. Compared with the values actually filed, the median results were:

• Large band (128 companies): up between 50.3% and 114.7%.
• Medium band (820 companies): between 40.2% higher and 1.9% lower.
• Small band (430 companies): down between 1.9% and 31.6%. Depending on the discount, 50.7% to 78.4% of small companies would see their value fall.

The starting gap explains the pattern. Under today's rules, the median large company in the sample was valued at 38.2% of its net assets, against 53.4% for medium and 63.8% for small companies.

The pushback. The Ministry of Economy, Trade and Industry (METI) and the SME Agency sent a formal opinion to the same meeting. Heirs pay this tax in cash on shares they cannot sell without giving up control, METI wrote. A sharp rise in values could force owners to sell business assets or shares to other companies to raise the money, or even push them to close. It called the NTA's median-only analysis "entirely insufficient" and asked for case-by-case estimates by industry and financial condition. It also noted that the succession tax regime, which can defer this tax for family successors, excludes mid-sized companies, and only a limited number of SMEs can use it.

Where it stands. On 6 October, Finance Minister Satsuki Katayama told reporters that "no conclusion has been reached at all, and not even the direction of the review has been decided" (MOF transcript). She said the ruling party's tax commission would take it up toward year-end, together with the succession tax regime, whose special measures run out in 2027. Japan's annual tax reform outline usually lands in December. No start date for any new rule has been announced.

Why it matters to a foreign buyer. We read it three ways:

1. It changes the cost of keeping the business in the family. For a profitable, asset-rich owner, the tax on handing shares to a child is the price of the family route. If that tax value rises sharply, selling to an outside buyer looks better by comparison. METI's own warning describes owners forced to sell. That is the segment foreign buyers usually want: larger, profitable SMEs.
2. It cuts the other way at the small end. The trial suggests most small, low-profit companies would be valued lower, which makes a family handover cheaper. On its own, this review is unlikely to add micro-company sellers.
3. A tax value is not a sale price. The NTA number sets the tax on family transfers. A sale to an unrelated buyer is still negotiated, usually on adjusted net assets plus goodwill (see our valuation guide). Keep the two apart in conversations with owners.

The deadlines already in place still apply. Succession plans under the special regime are due by 30 September 2027, and transfers must happen by 31 December 2027 (see last week's brief on successor-shortage bankruptcies). If you are talking to the owner of a profitable company, it is fair to ask whether their tax accountant (zeirishi) has looked at the proposal. As our guide to how Japanese owners decide explains, the zeirishi is usually the first adviser an owner turns to. The December tax outline is the next point where anything becomes concrete.