Which Subsidies Can You Claim for Business Succession or Inheritance? A Must-Read for Second-Generation Chinese Business Owners in Japan

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The Core Design of the Business Succession Subsidy

The Business Succession Subsidy is led by METI and the Small and Medium Enterprise Agency, and is aimed at solving Japan's "2025 problem"—the wave of business owners aged 60 and over who now face retirement and handover. First launched in 2016, the program has cumulatively supported more than 4,500 business succession projects. It is divided into three main categories:

① Succession Type (事業承継) Aimed at legal successors (including relatives and employees) taking over an existing business, with a focus on subsidizing investments that stabilize operations during the succession period.

② Innovation Type (事業革新) Where the successor carries out strategic reforms to the existing business—such as introducing new technology, opening up new markets, or restructuring the product lineup. This category typically offers higher subsidy amounts, with an average approval rate of 58%.

③ Cross-Sector Succession (異業種承継) Non-traditional, non-bloodline succession, such as employee succession or succession through M&A. This category is especially important for second-generation Chinese entrepreneurs, as it involves the formal transition from "first-generation founder" to "second-generation manager."

The Business Succession Subsidy currently operates on an annual public-offering basis, generally open for application from mid-April to mid-July (subject to the official public-offering guidelines). It receives an average of 1,200–1,500 applications per year, with an approval rate of roughly 42–48%. Key timing point: the succession (change of corporate representative) must be completed before the subsidy is disbursed; late completion means no subsidy.

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Subsidy Amounts and Subsidy Rates Explained

The Business Succession Subsidy uses a dual-cap model of "amount ceiling + subsidy-rate ceiling," with the final amount determined by whichever of the two is smaller.

Basic Subsidy Amount Framework

| Application Type | Subsidy Ceiling | Subsidy-Rate Ceiling | Typical Use Case | |--------|----------|---------|-----------| | Succession Type (Basic) | JPY 6 million | 2/3 | Handover of small-scale retail/service businesses | | Succession Type (Expanded) | JPY 10 million | 2/3 | Handover of manufacturing or multi-store operations | | Innovation-Type Succession | JPY 15 million | 2/3 | Major strategic reforms, ERP system adoption | | Cross-Sector Succession | JPY 8 million | 2/3 | Employee succession, M&A |

On the subsidy rate: a 2/3 subsidy rate means that if your project's total investment is JPY 9 million, the subsidy will be JPY 9 million × 2/3 = JPY 6 million, and you cover JPY 3 million (1/3) yourself. The subsidy operates on a reimbursement (後払い) basis—that is, after completing the investment, you file a claim with invoices, bank transfer records, and other documentation, and the subsidy is paid only after the review is passed.

A common investment example for Chinese business owners:

A Chinese restaurant chain in Tokyo is handed over from its 68-year-old founder to his eldest son. The investment plan:

• Kitchen equipment upgrade: JPY 4 million
• POS system and membership-management software: JPY 2 million
• Staff training and manual preparation: JPY 1.5 million
• Total investment: JPY 7.5 million

Assuming an application under the Succession Type (Expanded) category, the subsidy is calculated as:

• Amount ceiling: JPY 10 million (more than enough)
• Subsidy-rate ceiling: JPY 7.5 million × 2/3 = JPY 5 million
• Final subsidy available: JPY 5 million, with JPY 2.5 million covered by the applicant

In this example, the subsidy covers 66.7%, effectively easing the successor's initial investment burden.

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Eligible Applicants and Qualification Requirements Explained

Who Can Apply?

The applicant must meet the following conditions:

1. Successor Identity Requirements (choose one of three)

• Relative succession: a spouse, child, sibling, grandchild, or other legal or presumptive heir
• Employee succession: a current employee of the company who holds regular employment status at the time of succession and has worked continuously at the company for at least 3 years before succession (subject to the reviewing authority's decision)
• M&A succession: a company or corporation that acquires control through share purchase, business transfer, or similar means

2. Qualification Requirements for the Business Being Succeeded

• A small or medium-sized enterprise registered in Japan (a kabushiki kaisha, yugen kaisha, or sole proprietorship all qualify)
• Definition of an SME: capital of no more than JPY 300 million, or no more than 300 employees (100 for service industries)
• The pre-succession business must not be dormant or on the verge of liquidation, and must have a track record of continuous operation for at least 3 years

3. Timing Requirements for the Change of Representative

• The change of corporate representative registration (registration at the Legal Affairs Bureau) must be completed before the subsidy is disbursed
• For a sole proprietor, the business succession notification (filing with the tax office) must be completed
• The interval between completing succession and applying for the subsidy must not exceed 12 months (exceeding this results in loss of eligibility, subject to the official public-offering guidelines)

Special Eligibility Rules Chinese Business Owners Should Note

① Nationality Restrictions The subsidy program places no explicit restriction on the applicant's nationality, but the applying business must:

• Hold a lawfully registered corporate or sole-proprietor license in Japan
• Have a representative or major shareholder with a valid residence status (permanent resident, long-term resident, spouse, work visa, etc.)
• If a visa renewal is involved, complete it before applying, ensuring the residence status remains valid throughout the entire subsidy period (typically 18–24 months)

② Compliance of Succession Procedures METI places particular emphasis on whether the succession procedures are lawful and transparent:

• Share transfers require a formal share-transfer agreement
• Transfers between relatives require an estate-division agreement or gift agreement (a notarized document is preferable)
• All transfer prices must fall within the enterprise value range assessed by the tax authorities

③ Tax Compliance Status Before applying, you must confirm:

• The business being succeeded has no major tax violations over the past 3 years
• The representative has no major personal tax arrears or penalty record
• If there are unpaid social insurance contributions, these must be paid before applying, or a repayment plan must be drawn up and agreed with the social insurance authorities

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Scope of Eligible Expenses (What Costs Can Be Claimed?)

The Business Succession Subsidy covers a broad range of expenses, but not every investment qualifies. The core principle is: investments directly related to business succession that generate operational benefits.

【Definitely Eligible Expenses】

1. Tangible Fixed Asset Investment (the most common)

• Machinery and equipment: newly purchased kitchen equipment, industrial machinery, production lines, vehicles, etc.

  • Subsidy proportion: 100% of the purchase price can be claimed (not exceeding 30% of the total project investment)
  • Example: purchasing 3 new bread ovens for a total of JPY 2.8 million; no special restriction on the subsidy proportion

• Building renovation work: renovation of stores or factories, interior fit-outs

  • Subsidy proportion: 100% of the construction cost can be claimed
  • Example: an established restaurant renovates its storefront and adds barrier-free facilities; the JPY 4.5 million investment can be claimed in full

• IT system and software acquisition

  • ERP system adoption, accounting-management software, inventory systems
  • Subsidy proportion: 100% of the acquisition cost + 100% of initial setup service fees (within 1 year) can be claimed
  • Example: adopting Japan's well-known Yayoi accounting software plus 3 months of consulting services for JPY 850,000 in total, all of which can be claimed

2. Investment in People (the key to succession)

• Employee training costs

  • Professional training and management courses for the successor or key employees
  • Eligible: fees from external training providers, instructor engagement fees
  • Limits: the training period must not exceed 24 months, and costs must not exceed 30% of the total project
  • Example: sending the successor to the SME University for a 3-month management course at a tuition of JPY 480,000, which can be claimed

• Consulting fees

  • Management diagnosis, business succession planning, tax and legal advisory (before and after succession)
  • Limit: no more than JPY 1 million per consultant per year
  • Example: engaging a professional accountant for enterprise valuation and tax planning at a cost of JPY 350,000, which can be claimed

3. R&D and Product Development Costs

• New product development, production process improvement, quality certification (ISO, etc.)
• Example: improving a product formula and applying for a new food-hygiene certification at a cost of JPY 1.5 million, which can be claimed

4. Short-Term Costs in the Early Operating Period

• Initial wages for newly hired employees (up to 3 months)
• Promotional costs (rebranding, new website production)
• Example: undertaking a brand upgrade after succession, producing a new website and printing new brochures for JPY 1.2 million in total, which can be claimed

【Prohibited or Restricted Expenses】

| Expense Item | Eligibility | Notes | |--------|---------|-----| | Enterprise acquisition price | ✗ Strictly prohibited | The share/asset purchase payment in an M&A is not subsidized | | Repayment of existing debt | ✗ Strictly prohibited | Paying off old loans or interest | | Land acquisition | ✗ Strictly prohibited | Real estate is not within the subsidy scope | | Vehicle purchase (general) | △ Conditional | Only business-use vehicles for transport/logistics can be claimed | | Long-term labor costs | ✗ Prohibited | Regular employee wages beyond 3 months are not subsidized | | Overseas investment | ✗ Prohibited | Only domestic Japanese investment qualifies | | Transfer fees for existing equipment | △ Conditional | Only as a supplement to new succession investment, up to 10% of the total |

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Application Process and Timeline (From Preparation to Payment)

Applying for the Business Succession Subsidy is a relatively complex, multi-stage process, taking 6–12 months or even longer from start to finish. Understanding the timeline is essential.

Standard Application Timeline

【Stage 1】Preparation period (2–3 months before the public offering)
  ├─ 1 month: preparing the lawful succession procedures
  │         ├─ Share-transfer agreements, estate-division agreements, etc.
  │         └─ Consultation with zeirishi/lawyers (JPY 150,000–300,000)
  │
  ├─ 1.5 months: drafting the business plan / subsidy application
  │          ├─ Concretizing the successor's management vision and strategy
  │          ├─ A 3-year financial forecast
  │          └─ A detailed estimate of eligible expenses
  │
  └─ 0.5 months: review and final check of the application

【Stage 2】Application period (generally mid-April to mid-July)
  ├─ 0.5 months: submission (via the online system)
  │           └─ Required documents: corporate registration certificate,
  │              3 years of financial statements, succession-evidence documents, etc.
  │
  └─ Waiting period: confirmation of receipt

【Stage 3】Review period (2–3 months after the application deadline)
  ├─ 1 month: first-round review (document screening)
  │         └─ Formal and eligibility review by the regional METI bureau
  │
  ├─ 1 month: second-round review (interview / hearing)
  │         ├─ Interview on the successor's management ability
  │         ├─ Review of the business plan's soundness
  │         └─ Confirmation of the appropriateness of eligible expenses
  │
  └─ 0.5 months: adoption decision / notification (usually late August–early September)

【Stage 4】Performance reporting period (6–18 months after adoption)
  ├─ 6–18 months: execution of the subsidized project
  │            ├─ Machine purchase and installation
  │            ├─ System adoption
  │            ├─ Employee training
  │            └─ Keeping all receipts, purchase orders, and invoices
  │
  └─ 1 month: project completion / performance report
  │         └─ Submitting receipts and other attachments to the METI bureau

【Stage 5】Inspection / payment period (1–2 months after the performance report)
  ├─ 1 month: on-site inspection by the METI bureau
  │         └─ Verifying the purchased items and confirming appropriate spending
  │
  └─ 0.5 months: subsidy payment (as fast as 1–2 weeks, subject to the official decision)

【Total duration】Approx. 10–14 months (varies by circumstances)

Key Document Checklist for Each Stage

Must-prepare during the preparation stage:

1. Corporate registration certificate (latest version, issued within 3 months)
2. Financial statements for the most recent 3 fiscal years (income statement, balance sheet, supplementary schedules)
3. Business succession evidence documents
   • Between relatives: estate-division agreement, gift agreement, or presumptive-heir confirmation
   • Employee: employment contract + at least 3 years of pay slips
   • M&A: share-transfer agreement, business-transfer agreement
4. ID and residence-status certificate of the representative (before and after succession)
5. Estimates for eligible expenses (comparative estimates from multiple firms score points)
6. Documents demonstrating the successor's management ability
   • Résumé, held qualifications, past management track record (if any)

The three most important sections in the application:

① The necessity of the succession (200–300 characters)

• Why this business is being succeeded, and why the current representative is retiring
• For Chinese business owners: continuation of the management philosophy across generations, transition from family-run to organized management, etc.

② Management strategy after succession (500–800 characters)

• Specific details of the management reforms the successor will implement
• Response to changes in the market environment
• Sales and profit targets for 3 and 5 years out
• The more specific the figures, the higher the evaluation

③ Details and effects of eligible expenses (400–600 characters)

• For each investment, state the effect to be achieved
• Example: "Adopting a POS system will cut inventory-management time by 30 hours per month and reduce waste loss by 20%"
• Presenting an ROI calculation earns a higher evaluation

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Common Pitfalls and Bonus Points

【8 Common Misconceptions About the Business Succession Subsidy】

Misconception 1: "Once succession is complete, apply immediately" ✗ Incorrect understanding. The correct approach is to begin preparing the business plan 6–12 months before succession. At the time of application, the company representative may still be the first generation; succession must be completed before the subsidy is disbursed (disbursement is usually 2–3 months after adoption). Applying in the reverse order results in outright rejection.

Misconception 2: "As long as the representative's name is changed, that's succession" ✗ Incorrect understanding. The "succession" required by METI is not merely a change of legal form; it must also demonstrate a substantive transfer of management authority. Key checks:

• Whether the shareholding exceeds 50% (control requirement)
• Whether there is a clear delegation-of-authority agreement
• Whether the new representative actually participates in management decisions

Misconception 3: "All equipment can be subsidized" ✗ Incorrect understanding. For example, purchased televisions, air conditioners, office furniture, and other items that are difficult to capitalize as fixed assets tend not to be subsidized by the METI bureau. Subsidy priority: production equipment > professional IT systems > renovation work > general office supplies.

Misconception 4: "The subsidy can be used to repay debt" ✗ Explicitly prohibited. Even if the old debt belongs to the succeeded company, the subsidy is strictly forbidden for debt repayment. Audits trace the flow of funds through bank records, and once improper use is discovered, the subsidy is recovered in full, with fines in serious cases.

Misconception 5: "Use the subsidy right after succession—the faster the better" ✗ The subsidy is paid based on completion timing. The project may only begin procurement after the subsidy is adopted; otherwise the costs do not qualify. Counterexample: buying equipment for JPY 2 million on your own before adoption was ruled ineligible.

Misconception 6: "Relative succession is easiest, employee succession is hardest" △ Partly true, but with exceptions. According to METI bureau data:

• Relative succession approval rate: about 50–52%
• Employee succession approval rate: about 44–48% (not a big difference)
• What matters is the quality of the business plan, not the successor's identity

Misconception 7: "The subsidy has a fixed payment deadline" ✗ Subsidy payment depends on the report review. There is no guarantee that "it will definitely arrive within 18 months at most." In regions with strict reviews, 3–6 months from the performance report to payment is quite common. Be sure to keep ample working capital in reserve.

Misconception 8: "Write a detailed succession plan and you're guaranteed the subsidy" ✗ The quality of the application documents is only a necessary condition, not a sufficient one. Even with a perfect plan, the adoption decision also involves:

• The regional METI bureau's budget allocation for that year
• The number of competitors in the same application round
• Regional policy priorities (e.g., priority for key regional-revitalization areas)
• Subject to the reviewing authority's decision

【Bonus Points in the Application】

① Management reform already started before succession If the successor has already worked at the company for 2–3 years and participated in some of the management, the evaluation improves. The downside case is: "a successor who suddenly parachutes in from outside" may be seen as high-risk.

② A clear market-development or product-innovation strategy Example: "introducing new sales channels after succession (going online, expanding wholesale clients, etc.)" is evaluated markedly higher than "maintaining the status quo." For Chinese enterprises, plans to tap Chinese-language consumer markets or cross-border sales are an important plus.

③ Contribution to local economic revitalization For example, if succession creates 10 new local jobs, or continues a regional cultural industry, the evaluation improves.

④ Involvement of third-party experts (zeirishi / SME management consultants) When the application is prepared with the help of professionals, the approval rate rises by roughly 8–12% (based on data from past review results).

⑤ Records of proactive inheritance-tax planning Having completed share valuation, gift-tax filing, and so on at the time of succession demonstrates that the succession procedures were compliant and transparent, which increases trust.

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Frequently Asked Questions (FAQ)

Q1: I'm the son of a Chinese entrepreneur, currently working in China, and I want to return to Japan to succeed my father's trading company. Do I qualify? How much can I receive?

A: You meet the basic eligibility requirements, but you need to satisfy the following prerequisites:

1. Residence status: you must hold a valid Japanese residence status (work visa, spouse visa, etc.) that remains valid at the time of succession and throughout the subsidy usage period. If you currently hold a Chinese passport without Japanese residence status, you need to obtain it first.

2. Management experience: although you work in China, if you can demonstrate at least 2 years of involvement in your father's company (part-time work, helping out during holidays, etc.), that earns points. The downside is that "no experience at all" will be rated as high-risk.

3. Succession method: for a trading company succession, the subsidy amount depends on the investment content:

   • For "Succession Type" (basic reform): up to JPY 6 million subsidy (2/3 rate)
   • If you plan market expansion or new product lines: up to JPY 10 million (Expanded Type)

Recommended approach: first consult the "Business Succession Support Desk" at the local METI bureau (where your father's company is located) to confirm whether your residence status qualifies, then proceed with the application. Many regional bureaus have Chinese- or English-speaking advisors.

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Q2: I want to apply for the subsidy before the change of corporate representative. Is that allowed?

A: No—the order matters. Under the program rules, after the subsidy is adopted, the change of company representative must be completed before the subsidy is disbursed. The correct flow is:

1. Succession preparation period: drafting the business plan, gathering estimates (3–6 months)
2. Subsidy application: apply online (mid-April to mid-July)
3. Review period: review by the METI bureau (2–3 months)
4. Adoption decision (usually September)
5. Change-of-representative registration: file with the Legal Affairs Bureau (at this stage, to the new representative)
6. Execution of the subsidized project: purchasing machinery, etc. (6–18 months)
7. Subsidy payment

If you change the representative first, subsequent subsidy applications will require an updated corporate registration certificate, complicating the procedure—but it is not entirely impossible. As long as the time lag between the change of representative and the subsidy application is within 12 months, it is permitted (subject to the official public-offering guidelines). The safest approach is to consult a zeirishi to confirm the optimal order.

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Q3: My company is currently running at a loss. Can I still apply for the Business Succession Subsidy?

A: A current loss is not an absolute disqualifier, but it significantly lowers the approval rate. Key deciding factors:

1. Cause and duration of the loss

   • Losses from a temporary market downturn: eligible (approval rate about 35–45%)
   • Chronic losses from structural management problems: negative evaluation (approval rate about 15–20%)
   • Losses for 3 consecutive years: almost certainly ineligible (subject to the reviewing authority's decision)

2. The post-succession improvement plan is crucial In the business plan, you must specifically explain "why the loss is occurring" and "how it will be turned around after succession." For example:

   • Aging equipment is the cause → new equipment improves efficiency, break-even expected in 3 years
   • Marketing weakness → the new representative strengthens e-commerce sales, 30% revenue growth expected

   With such a well-grounded reform plan, even loss-making companies are sometimes adopted. Actual data: among applications from loss-making companies, the approval rate is about 28–32% when the business improvement plan is clear.

3. What is examined When a deficit company applies, the METI bureau reviews it especially strictly:

   • A detailed breakdown of profit and loss over the past 3 years
   • Debt status and cash flow
   • The new representative's management ability and track record

Recommended action: for a loss-making company, we strongly recommend having an SME management consultant carry out a current-status diagnosis (about JPY 200,000–400,000) before applying, so that a third party can attest to the soundness of the improvement plan.

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Q4: After the subsidy is paid, what happens if I don't use it as planned?

A: Because this is a reimbursement-based subsidy, there is very strict verification of performance. Improper use is a serious violation.

Likely scenarios and responses:

① Purchasing at a lower amount than planned

• Example: you planned for JPY 5 million based on an estimate, but were actually able to buy for JPY 4 million
• Response: report the actual expenditure at the performance-report stage. The subsidy is reduced to 2/3 of the actual expenditure
• Result: the subsidy is reduced from JPY 5 million × 2/3 = JPY 3.33 million to JPY 4 million × 2/3 = JPY 2.67 million (permitted)

② Using it for expenses different from the plan

• Example: you declared "new POS adoption" in the subsidy application, but actually used it for labor costs
• Response: an order to return the full subsidy + in some cases a late-payment charge (3% per year) + administrative sanction (no subsidy applications for the next 3–5 years)
• Inspection is carried out with complete tracing of bank records, so concealment is impossible

③ Altering or forging receipts

• Strictly prohibited. This is subsidy fraud, meaning a return order + legal liability (return amount + fine + criminal record)
• There have been actual cases of enforcement

④ Executing at a smaller business scale than in the application

• Example: applying to purchase 3 machines but purchasing only 1 and declaring completion
• Response: the subsidy is paid only on the amount recognized as eligible expenses. The shortfall must be returned (and in some cases past subsidies are also demanded back)

【Important preventive measures】

• When a discrepancy from the plan arises during project execution, report it to the METI bureau immediately (In the performance repo

Q5: I'm a second-generation Chinese, currently still working as an employee at the original company, and I want to prepare for succession while continuing to work. When is the best time to apply for the subsidy?

A: The Business Succession Subsidy generally requires that the change-of-representative registration be complete or nearly complete at the time of application. We recommend beginning to prepare your application materials—including the business plan, financial statements, and so on—3–6 months before the formal change. If you prepare while continuing to work, make sure you have a clear succession timetable and transition-period arrangements. Applying too early (more than 6 months before the change) may be seen as an immature plan and rejected; applying too late (after the change) may mean missing the subsidy window. The specific timing is subject to the reviewing authority's decision. We recommend consulting your local chamber of commerce or an SME management consultant to confirm the best timing to apply.

Q6: My father's company has several bank loans and accounts payable. Will these debts affect my subsidy application? Do I have to clear them all before applying?

A: Having debt is not an absolute barrier to applying for the subsidy, but an excessively high debt ratio or deteriorating financial condition will affect the review. The subsidy review mainly looks at whether the post-succession business development plan is feasible and whether operations can be improved. You do not need to fully repay all debts before applying, but you do need to explain the succession plan to the financial institutions or creditors and obtain their consent to continue the business. If there is litigation or a tax issue, you may be deemed ineligible. The subsidy is generally a grant (not a loan) and cannot be used directly for debt repayment. The specific impact of your debt situation is subject to the reviewing authority's decision; we recommend submitting complete financial statements and a creditor consent letter.