Immediate Depreciation Is Not Something You "Get" —
It Is Something You "Pass Through"
The Five Gates a Grid-Scale Battery Storage Owner Must Clear

On December 26, 2025, the Cabinet approved the FY2026 Tax Reform Outline. Since then, headlines such as "you can write it off in one year" and "you can expense a multi-billion-yen investment in full in year one" have spread quickly through the grid-scale battery storage (BESS) industry. They refer to a new measure, commonly called the "Bold Investment Promotion Tax Incentive" — formally, the Tax Incentive for Investment in Specified Productivity-Enhancing Equipment. The words "immediate depreciation," "full deduction," and "tax saving" line up on aggregator sites and battery-vendor columns alike.

The headline itself is not wrong. It is a fact that a new measure is being created under which you can choose either immediate depreciation (expensing the full purchase price in year one) or a tax credit of 7% of the purchase price. But the headline leaves out three things.

In short, immediate depreciation is not something you "get" automatically by filing an application. You acquire it only by "passing through" several gates one by one. And even once you have cleared the gates and the measure is usable, whether you should use it is a separate, second-order judgment. That is because immediate depreciation does not reduce the total tax you pay by a single yen. It only brings future tax forward into year one.

This piece traces, in order, how a grid-scale battery storage owner clears those gates — the mechanics of the measure, whether you qualify, contract structure, investment size, return on investment, and the confirmation procedure — and closes with the choice between immediate depreciation and the tax credit, and which exit strategy fits which. It is a piece for reframing immediate depreciation not as a "tax-saving technique" but as a question of investment judgment, contract structure, and taxable-income design. It is written for investors currently forming an SPC, operating companies entering the field for the first time, and mid-sized owners who have already handled one or more projects.

To begin, here is the map of the whole piece. The gates you pass through before using immediate depreciation come down to these five.

Not one of the five carries neither a "⚠" nor a "?". Immediate depreciation is not a question of preparing the right paperwork; it is a question of how you design your contract structure and how you read the way the measure unfolds. Below, after confirming the mechanics of the measure itself, we open each gate in turn.

01 — How it works: immediate depreciation is not a tax cut, but a deferral

Before entering the gates, let us state the measure itself precisely. And let us first untangle one misunderstanding. Immediate depreciation does not reduce the total tax you pay by a single yen.

1-1 What the measure does

The measure is available to corporations filing a "blue" tax return. Where such a corporation, under an investment plan confirmed by the Minister of Economy, Trade and Industry (METI), buys equipment of a certain scale (machinery and apparatus, tools, fixtures, buildings, building attachments, structures, software) and uses it in its own business, it can choose one of the following two for that equipment.

The period of use: where, from the entry-into-force date of the amended Industrial Competitiveness Enhancement Act through March 31, 2029, you obtain the Minister's confirmation, and then, within five years of that confirmation, buy the equipment and put it into business use. The five-year leeway from confirmation to acquisition-and-use fits a grid-scale battery facility well, since design, grid interconnection, and equipment procurement all take a long time. Many earlier capital-investment tax breaks required completion within roughly three years of certification, and as construction periods lengthened, operators frequently said they "could not make the deadline." This measure widens that to five years. Battery cells and the PCS fall into "machinery and apparatus," and the foundations and substation equipment into "structures," so they fit within the eligible asset categories.

1-2 What immediate depreciation moves is not the "tax amount" but "time"

Misread this and you misjudge the value of the measure. The battery equipment at a grid-scale facility has a statutory useful life fixed at 17 years for tax purposes (explained in detail in Chapter 07). Normally you expense the purchase price gradually over those 17 years. Immediate depreciation brings all 17 years of that expense forward into year one.

For a facility bought for ¥3 billion, ordinary depreciation gives a year-one deduction of only about ¥176 million (¥3 billion ÷ 17 years). Immediate depreciation lets you expense the full ¥3 billion in year one. On paper, you can erase year-one profit entirely, by the amount of the purchase price.

But here is what you must not misread about its nature. If you expense ¥3 billion in year one, the depreciation you could otherwise have booked in years two and onward disappears. Having brought it forward, the deductions in later years shrink, and profit in later years actually rises. Over the full 17 years, the total that can be expensed is the same ¥3 billion under immediate depreciation or under ordinary depreciation. The total tax you pay does not change by a single yen.

1-3 Immediate-depreciation impact calculator

How large the deferral benefit is, in money terms, can be estimated from three numbers: the purchase price, the effective tax rate, and the discount rate. The calculator below compares immediate depreciation against ordinary 17-year straight-line depreciation, and shows the cash brought forward into year one and the net present-value benefit of deferral. Move the sliders to try it.

As the calculator shows, the amount you truly gain from immediate depreciation is neither the purchase price itself nor the tax brought forward into year one. At a purchase price of ¥3 billion, a 30% effective tax rate, and a 5% discount rate, what you gain is around ¥0.2 billion. That is still a large number, but it is nothing like the ¥3 billion headline figure. Measure the value of immediate depreciation by this net benefit — not by the face value of the year-one deduction.

1-4 The measure has not yet started

Let us pin down "from when can it be used." This measure straddles two laws. The tax content (the rules for immediate depreciation and the tax credit) is set by an amendment to the Act on Special Measures Concerning Taxation. When it can be used, however, has as its starting point "the day the amended Industrial Competitiveness Enhancement Act enters into force" — and unless that amended Act enters into force, the door to the confirmation application does not open. Here is where the legislation stands.

"Enacted," "in force," and "open for applications" are each separate events. Even after the amended Act is enacted and promulgated, it does not take effect until the day set by an enforcement-date order; and even after it takes effect, an owner cannot file unless METI has published the application forms and guide. You can write "applications are open now" only once all three are in place. If you write about this measure in a business plan or an investment-committee paper as though it were "already usable," you will diverge from the facts. Re-confirm the enactment date, promulgation date, law number, entry-into-force date, and form-publication date against the Official Gazette and METI's site at the time. Please read this piece not as "a commentary on a measure already usable," but as a piece of preparation in anticipation of enactment and entry into force.

02 — Gate 1: Is a grid-scale battery facility even eligible?

Having confirmed the content of the measure, we enter the first gate. Is a grid-scale battery facility even eligible for this tax measure? This is what the assertive headlines omit most.

Read the body of the outline closely and what is listed as eligible is only categories of asset — "machinery and apparatus, tools, fixtures, buildings, building attachments, structures, and software." Product names such as "grid-scale battery," "storage facility," or "electricity storage" appear nowhere in the outline. That can be confirmed as fact.

So what decides eligibility? It is whether you fall within "specified productivity-enhancing equipment," a concept created by the amendment to the Industrial Competitiveness Enhancement Act. The amendment defines specified productivity-enhancing equipment as productivity-enhancing equipment that has "received the confirmation of the Minister of Economy, Trade and Industry as conforming to the criteria set by METI ordinance." In other words, eligibility is decided in two stages: (i) the METI ordinance criteria still to come, and (ii) the Minister's confirmation for each investment plan.

The mark on this gate is "⚠ Undecided." The chance that a grid-scale battery facility is excluded looks low, but it is not yet a matter that can be stated definitively. It will become clear when the METI ordinance is published. As an owner, you wait for that ordinance as your first checkpoint.

03 — Gate 2: The "no-leasing" rule selects your contract structure

Even after clearing Gate 1 and having a grid-scale battery facility included as eligible, the next gate is the most structural one in this measure. This is where the heart of the piece lies. The body of the outline writes the condition for application as follows — the equipment must be "used in the corporation's own business in Japan (excluding use for leasing)." METI's materials likewise describe the eligible assets as "depreciable assets directly used in the business," and clearly exclude use for leasing.

In other words, even if you buy the equipment, if you use it for the purpose of "leasing" it to others, this measure cannot be used. Why is this one sentence heavy for a grid-scale battery storage owner? Because the very business form of a grid-scale battery facility stands right on the edge of "does this count as leasing or not." Articles that flatly state "grid-scale batteries can use immediate depreciation" skip this screening entirely.

3-1 The four ownership / operation forms, and whether you can use the measure

The ownership and operation forms of a grid-scale battery facility broadly split into four. Whether each "counts as leasing" changes whether immediate depreciation can be used.

Here lies a serious tension with industry practice. In Japan's grid-scale battery market, the structure in which an SPC owns the facility and fixes its revenue through a tolling contract with a power company or similar counterparty is increasingly common, because it is easy to arrange project finance (PF). A fixed tolling fee makes revenue easy to read and makes the lender's credit assessment easier. Yet it is precisely that tolling type that leans against the outline's words "use for leasing is excluded." A lease or sale-leaseback is the renting of equipment itself, so on the lessor side it clearly "counts as leasing." What becomes the point of contention is the assessment of the remaining merchant type, the tolling type, and the outsourced-operation type.

3-2 Three reasons the tolling type drifts toward "leasing"

There are three reasons one can say the tolling type carries a high risk of "counting as leasing."

The first is the content of the contract. A tolling-type facility is described, even in legal-practice commentary, as a form close to "lending out the equipment," in which the owner hands the operating right to the counterparty (the offtaker). The owner holds an asset — the equipment — and hands the right to use it to the counterparty for a fee; this structure is hard to distinguish from "leasing" in tax terms.

The second is a precedent in the power sector. A tolling contract for thermal power has, in an Agency for Natural Resources and Energy advisory-council document (Working Group on Institutional Design, Document 3-1, April 5, 2023), been characterized as a "consigned-processing contract" — under which the ownership of the electricity belongs to the consignor, and the fee paid does not include fuel cost. The stance of looking at substance rather than the name of the contract may extend to the assessment of battery-facility tolling as well.

The third is the circulars under earlier, similar tax measures. Whether a depreciable asset has been used for leasing is judged by a comprehensive assessment of how the asset is used and operated (Corporation Tax Basic Circular 7-1-11-2). That circular originally concerns low-value depreciable assets and the like, but its reasoning is helpful for interpreting "leasing." Under the SME Investment Promotion Tax Incentive, the SME Management Enhancement Tax Incentive, and others, the "leasing" exception is recognized only in limited cases. If that limited treatment carries over to this measure, the room for a tolling-type facility to be rescued as an exception is narrow.

3-3 The dividing line is the substance, not the name, of the contract

Between merchant and tolling lies a form in which operation is outsourced to an aggregator. The owner holds the facility and outsources control of the EMS (operating software) to a specialist aggregator — but the market revenue belongs to the owner, and the owner also bears the risk of price moves. This can be framed as "procuring an operating service" rather than "leasing equipment," and moves closer to operating it yourself. The dividing line comes down to these three.

A fixed tolling fee, the decision right with the counterparty, risk shifted away — the more these three line up, the closer to "leasing"; the more you swing the other way, the closer to "your own business." Calling the contract a "service outsourcing agreement" does not make it not leasing. The form of the operating fee, which side possesses the equipment, who decides when to charge and discharge — these substantive points are what is examined.

04 — Gate 3: The ¥3.5 billion / ¥0.5 billion size threshold

Suppose the contract structure has cleared "leasing." Next is the size gate. The first confirmation requirement is that the total acquisition cost of the equipment recorded in the investment plan is ¥3.5 billion or more (¥0.5 billion or more for SMEs and agricultural cooperatives). There is a gap of ¥3 billion, and for a grid-scale battery facility, which of the two applies changes whether you can use the measure at all. Two points are easily missed here.

4-1 The floor is judged per "investment plan"

First: this floor is judged at the unit of the "investment plan." Depending on PCS output and storage capacity, a grid-scale battery facility often has a per-site acquisition cost in the range of ¥0.5–0.6 billion — a level that, for a single site, may or may not reach the ¥0.5 billion SME line. Bundling several sites into a single investment plan to clear the floor becomes a realistic option.

4-2 The ¥0.5 billion route is for "SMEs" only — the deemed-large-enterprise wall

Second: the ¥0.5 billion route presupposes that you qualify as an "SME." An SME under the Act on Special Measures Concerning Taxation is, in principle, a corporation with capital of ¥100 million or less — but an exclusion rule applies here.

The mark on Gate 3 is "⚠ Two tests." You must, at the time of forming the investment plan, clear two tests at once: how the plan is bundled (single site or several sites), and the SPC's capital structure (does it qualify as an SME, or is it a deemed large enterprise).

* The "SME" used for this measure's ¥0.5 billion route (the Act on Special Measures Concerning Taxation) and the "small/medium corporation" that appears for loss carryforwards in Chapter 07 (the Corporation Tax Act) are different definitions. The precise definitions will be finally settled by the publication of the enforcement rules and circulars. This piece is organized on the general framework of the SME under the Act on Special Measures Concerning Taxation.

05 — Gate 4: Showing a 15% return on investment in the plan

Once over the size gate, next is the numbers gate. The second confirmation requirement is that the plan's average annual return on investment (ROI) is expected to be 15% or more.

5-1 The formula is still "under adjustment"

Let us be honest first. The ROI formula specific to this tax measure has not yet been fixed. METI's materials present ROI as follows, while annotating it as "formula (under adjustment)."

ROI = (operating profit + depreciation) / capital investment

  - Operating profit + depreciation = accounting figures
  - Capital investment = total acquisition cost in the year of acquisition
  - Over what period the "average" is taken is not yet decided

It is shown that the numerator "operating profit + depreciation" is an accounting figure, but over what period the "annual average" is taken, and whether the numerator is viewed for a single year or averaged over the plan period, is not yet decided. Because the accounting depreciation is added back into the numerator, the numerator is, in substance, pre-depreciation operating profit (a figure close to EBITDA). The final method of calculation awaits the publication of the METI ordinance and enforcement rules.

5-2 Can you demonstrate ROI of 15% with market revenue?

What makes this gate hard for a grid-scale battery facility is the form of its revenue. The revenue of a grid-scale battery facility is built from a combination of the capacity market, the balancing market, JEPX (arbitrage of buying low and selling high on the wholesale power exchange), and the Long-term Decarbonization Power Source Auction. All depend on future market prices, and a long, 17-year forecast carries uncertainty. To submit ROI of 15% or more as an "expectation" to the Minister, you need a sound estimate grounded in public market data. Here is some public data you can use as evidence for the revenue assumptions in the plan.

In the capacity market, OCCTO's auction results (delivery year FY2028) show area prices differing greatly — ¥14,812/kW in Hokkaido, Tohoku, and Tokyo; ¥10,280/kW in Chubu; ¥8,785/kW in Hokuriku, Kansai, Chugoku, and Shikoku. The ¥14,812/kW for Hokkaido, Tohoku, and Tokyo is a figure that reached the upper price — equal to 1.5 times the indicator price (Net CONE) of ¥9,875/kW (OCCTO, Review Committee on the Capacity Market, 56th meeting, Secretariat Document 6). Note that the Kyushu area, whose price is set by reference to neighboring areas, is not included here as a basis for comparison. Where you site the facility changes the assumption for capacity revenue. In the Long-term Decarbonization Power Source Auction (LDA), OCCTO's results (FY2024 bidding) awarded batteries and pumped storage about 0.77 GW for a continuous-operation time of six hours or more and about 0.96 GW for three to six hours — about 1.73 GW in total. An LDA-awarded project obtains capacity revenue at a fixed-cost level for, in principle, 20 years, so operating profit over the plan period is easy to read, and the ROI projection is easier to set conservatively and stably. By contrast, a full-merchant project that relies on the capacity market plus spot revenue from the balancing market and JEPX sees its ROI swing widely with the market assumptions.

06 — Gate 5: Obtaining the Minister's confirmation before you buy

The last gate is procedure. This measure presupposes, as a condition of use, that the investment plan receives the confirmation of the Minister of Economy, Trade and Industry (in practice, the regional Bureau of Economy, Trade and Industry).

6-1 The measure cannot yet be applied for

This measure becomes usable in practice only after the underlying law is enacted and enters into force. Note that "enactment," "entry into force," and "the start of accepting applications" are each separate events.

6-2 Confirmation is received "before you buy" — the procedural flow

What is decisive in this procedure is the order. The flow is "confirmation of the investment plan → buying the equipment → putting it into business use." Equipment bought before confirmation is not eligible. For a grid-scale battery storage owner, this is a constraint that bears directly on construction scheduling. The sequence of the interconnection agreement, grid connection, and EPC start of work must be planned backward from the confirmation date. If you place orders and acquire before the confirmation, immediate depreciation cannot be used. Translated into the flow an owner walks through, the five confirmation requirements in METI's materials become the following.

6-3 The "advance project registration" is not an application

One related point to clarify. In early 2026, METI, via industry associations, invited advance registration of "investment projects expected to use this measure" (deadlines were mid-February 2026, varying by association). Some treat this as "getting a head start on applying," but its character is different. METI explains this registration as follows: not registering does not mean an application will not be accepted, but in the early stage of operation it would like to advance reviews centered on registered projects. It is not a legal application but a hearing to build the administrative capacity for confirmation work.

An owner who did not register will not become unable to file a confirmation application in the future. On the other hand, because the early operation processes registered projects first, you should factor in the possibility that an unregistered project's processing is pushed back. If there is a further round of recruitment, registering a grid-scale battery project early works, in practical terms, to advance the confirmation procedure smoothly. This is not "you can move once the measure starts," but a reason to finish the substance of the investment plan while you wait for entry into force.

07 — Beyond the gates: choosing the scheme, and immediate depreciation vs. tax credit vs. exit

We have mapped the five gates. From here, we organize the judgments that lie beyond them. Which tax measure to use, whether you can absorb the expense (loss) that immediate depreciation produces, and which to choose — immediate depreciation or the tax credit — for which exit strategy.

7-1 Two measures are usable. The SME Management Enhancement Tax Incentive is out from the start

This measure has an exclusivity. A corporation that receives confirmation of an investment plan cannot, during the plan period, use the Regional Future Investment Promotion Tax Incentive, the SME Management Enhancement Tax Incentive (excluding the carried-forward tax credit), or the Carbon Neutrality Investment Promotion Tax Incentive. Grid-scale battery facilities have to date been discussed as eligible for the Carbon Neutrality Investment Promotion Tax Incentive and GX-related breaks, but once you receive confirmation under this measure, those cannot be used during the plan period. Which tax measure you take must be decided before you submit the investment plan.

That said, of the exclusivity list, the SME Management Enhancement Tax Incentive is, in practical terms, not an option from the start for a grid-scale battery storage owner. The SME Management Enhancement Tax Incentive cannot be used for a grid-scale battery facility. The reasons are structural — several "cannot-use" reasons overlap.

Even if you slip past reason 01's "electricity industry" point, reason 02's exclusion of "more than one half of generated volume sold" rules out nearly every grid-scale battery SPC. A grid-scale battery facility exists in order to sell power, and that essence collides head-on with the exclusion rules of that measure. The immediate-depreciation route for a grid-scale battery storage owner narrows, in practice, to the single Bold Investment Promotion Tax Incentive. The comparison comes down to a choice between this measure and the Carbon Neutrality Investment Promotion Tax Incentive.

7-2 The relationship with subsidies — reduced-basis accounting shrinks the "purchase price"

Even for equipment bought with a national subsidy — such as the grid-scale battery subsidy administered by SII (the Sustainable open Innovation Initiative) — this measure can be used together with it. What this measure shuts out is the capital-investment tax measures listed above; subsidies are not among them. However, where the subsidy counts as a "national-treasury subsidy etc." under the Corporation Tax Act, you may elect "reduced-basis accounting" (atsushuku kichō), and doing so shrinks the "purchase price" by the amount of the subsidy. Circulars under earlier, similar tax measures have, as a principle, judged immediate depreciation and the tax credit on the amount after reduced-basis accounting. This measure is expected to be treated the same way, but it is not stated in the body of the outline and awaits the ordinances and circulars.

7-3 In which company do you absorb the expense immediate depreciation produces?

Having decided on this measure, the next thing to pin down is "can you use up immediate depreciation." The biggest pitfall of immediate depreciation is that, unless you have enough profit (taxable income) in year one to match the purchase price, the measure floats in the air.

A grid-scale battery facility is often built in an SPC (special purpose company). The SPC holds only that facility's business. If you expense the multi-billion-yen acquisition cost in full in the start-up year, year-one profit will first go negative, and a large loss carryforward (a loss that can be carried into the future) arises. A loss carryforward can be offset against future profit, but profit large enough to offset it only emerges after operations are on track. A few years' lag arises before the expense you brought forward with immediate depreciation actually works as cash. Moreover, a blue loss carryforward can be carried for 10 years, and for corporations other than a tax-law "small/medium corporation," the loss usable each year is limited to 50% of that year's profit. The point to note here: even an SPC with capital of ¥100 million or less does not count as a "small/medium corporation" if it is 100%-controlled by a large company with capital of ¥500 million or more. Where you run the SPC as a wholly owned subsidiary of a major company, this 50% limit applies, and the large loss in year one cannot be used up in 10 years — part of it can expire and vanish.

To turn the expense (loss) immediate depreciation produces into cash, you need to have, somewhere, profit to absorb it. There are broadly three receptacles.

• AThe group aggregation regime. If the corporate group including the SPC has elected group aggregation, the SPC's immediate-depreciation loss can be aggregated with the profit of other group companies. If the parent has enough profit, the deferral benefit turns into cash from year one.
• BHolding it in the operating company itself. If an operating company with enough profit beyond the storage business buys the facility on its own books, the immediate-depreciation loss directly compresses that company's profit. But this design is hard to reconcile with the non-recourse nature and bankruptcy remoteness of PF.
• CChoosing the tax credit rather than immediate depreciation. In a year-one with small profit, the tax credit — a pure reduction — may leave fewer leftovers than deferral. Not choosing immediate depreciation can, in the end, maximize the tax benefit.

Whether to choose immediate depreciation comes down not to "the size of the tax saving" but to a design question: "in which company do you secure the profit to absorb the year-one expense." Note, too, that if you build the business plan on immediate depreciation, you should watch its effect on the PF loan's DSCR (Debt Service Coverage Ratio). DSCR is assessed on after-tax cash flow, so immediate depreciation, which makes the year-one tax burden zero, improves year-one DSCR but can squeeze DSCR in years two onward, when profit rises. If the period when the tax burden returns overlaps with the principal-repayment peak, that year's DSCR can fall below the assumption. Redraw the after-tax cash flow and DSCR for each year of operation and share them with the lender.

7-4 Immediate depreciation, or a 7% tax credit? — the answer changes at the exit

Finally, which to choose — immediate depreciation or the 7% tax credit. The two differ in nature. Immediate depreciation is a deferral of tax; the tax credit is a pure reduction. The single-year impact is overwhelmingly larger for immediate depreciation, but over the period the equipment is used, the tax credit — where tax falls purely by the amount credited — can leave more cash in hand. And immediate depreciation has one more issue, one that surfaces at the exit (on sale).

So whether to choose immediate depreciation or the tax credit is decided by three things: year-one profit, the receptacle for the loss, and the exit strategy.

The simplification "immediate depreciation = a gain" is the most dangerous part. Immediate depreciation is a powerful tool, but it is a deferral of tax, not a permanent exemption. Jump at it on the year-one cash improvement alone, without looking at the exit, and the rebound — capital-gains tax — is waiting. The lithium-ion cells of a grid-scale battery facility are said to last 20 years in a stable environment, but used without pause across multiple markets, cell replacement can be needed within 10 years. Line up the three — physical life, the 17-year statutory life, and the assumed timing of exit — and choose between immediate depreciation and the tax credit.

7-5 The statutory life for tax is 17 years; if you choose the tax credit, the EPC asset breakdown matters

Here let us confirm the underlying statutory-life-for-tax point. The battery cells and PCS of a grid-scale battery facility are, for tax, classified basically as "machinery and apparatus," and under the organization that they fall within "mainly metal" in "electricity-industry equipment" in Appended Table 2 of the Ordinance on Useful Lives of Depreciable Assets, the statutory useful life is 17 years. That the housing (container) and support posts of a grid-scale battery are metal is the basis for treating it as "mainly metal." The "storage-battery power supply" among building attachments (useful life 6 years) is used for power backup at outages and does not apply to a grid-scale battery facility that discharges into the grid to earn revenue. The useful life a grid-scale battery storage owner should assume is neither 6 years nor 8 years, but 17 years. Equipment that in reality reaches replacement time in around 10 years must, for tax, be expensed over 17 years — immediate depreciation resolves that gap between tax treatment and reality in year one, and the longer the useful life of the asset, the larger the deferral benefit.

If you choose the tax credit, there is one more thing you cannot overlook — the asset category. The eligible equipment of this measure has a price floor per asset (the floors in METI's materials: machinery and apparatus ¥1.6 million; tools and fixtures ¥1.2 million; buildings ¥10 million; building attachments and structures ¥1.2 million [building attachments are also eligible at ¥0.6 million or more per item with an annual total of ¥1.2 million or more]; software ¥0.7 million). The main equipment of a grid-scale battery facility comfortably exceeds these floors. The components break down roughly as follows.

If you choose immediate depreciation, every category is 100%-of-price eligible, so the asset category makes no difference. If you choose the tax credit, however, the difference between 7% for machinery and 4% for structures bites. How far you book the battery cells and PCS as machinery, and how you classify the foundations, racks, substation, and interconnection equipment as structures — this split of asset categories in the EPC contract drives the tax-credit amount. Before deciding between immediate depreciation and the tax credit, you need to grasp the asset breakdown in the EPC estimate.

08 — Open questions, and where to ask

While the outline and METI's materials fix the skeleton of this measure, several issues that bear directly on a grid-scale battery storage owner's decision are, at the time of writing, not answered by the primary sources. Rather than filling them with guesswork, we set them out clearly as questions that cannot yet be confirmed.

Besides these — the METI ordinance criteria that finally decide whether a grid-scale battery facility is included as eligible equipment, the requirements for certification of the "plan to respond to abrupt, hard-to-foresee changes in the international economy" needed for the three-year carry-forward of the tax credit, and whether there were amendments or supplementary resolutions in the Upper House — are also not settled at the time of writing. Once the measure enters into force and the ordinances are in place, we will follow up in a separate piece.

Conclusion — Eligibility is decided by your contract structure. What to do now

Let us fold up what this piece set out to convey.

First, immediate depreciation is not something you "get," but something you "pass through." The Bold Investment Promotion Tax Incentive opens immediate depreciation to grid-scale battery facilities, but the body of the outline names no battery products, and eligibility is decided in two stages — the METI ordinance and the Minister's confirmation. And the outline limited the scope to "excluding use for leasing." The structure of an SPC owning the facility and entering a tolling contract — increasingly common in Japan's market because it makes PF easy to arrange — leans against that one sentence. Whether you can shift your contract structure toward a merchant type, or an outsourced-operation type, becomes the precondition for use.

Second, immediate depreciation is not a tax cut, but a deferral of tax. Compressing into one year the price you would otherwise expense over 17 years is powerful, but the total tax you pay does not fall by a single yen. For the deferral to work as cash, you need, in year one, profit to absorb that expense (loss). An SPC alone cannot absorb it, and there is even a risk that a loss carryforward expires unused within the 10-year carry period. The design of the receptacle — group aggregation, holding in the operating company, the tax credit — must be considered as one with the choice to use immediate depreciation.

Third, immediate depreciation rewrites the whole business plan. The PF loan's DSCR can be squeezed in years two onward, when the tax burden returns. Whether it is ¥3.5 billion or ¥0.5 billion is decided by the SPC's investment structure (the deemed-large-enterprise test). The ROI-15% wall stands or falls on how you set the market-revenue assumptions — capacity-market area prices, LDA fixed revenue. Take a subsidy, and reduced-basis accounting shrinks the target of immediate depreciation. And sell via M&A at the exit, and the capital-gains tax on equipment with a book value close to zero rebounds against the year-one tax saving.

Fourth, the measure cannot yet be applied for. The tax rules are set by the special-measures act, but the amended Industrial Competitiveness Enhancement Act, the starting point for when it can be used, is under deliberation in the Upper House. The application window opens only once all three stages — enactment, entry into force, and publication of the forms — align. But because equipment bought before confirmation is not eligible, simply waiting for entry into force is not the right answer. Drawing up the investment plan and the board resolution can proceed without waiting for entry into force. The stance is not "move once the measure starts," but "build a state in which you can file the moment it starts."

With the same facility, the same price, and the same equipment, there are operators who can use immediate depreciation and operators who cannot. What divides the two is neither equipment specifications nor location, but contract structure and taxable-income design. If you intend to pursue immediate depreciation, that work must be finished before you choose the equipment — at the stage of drafting the contract clauses. The checklist below distills that work into 14 items. Proceed to the application with any of them unconfirmed, and you risk failing to obtain confirmation, or immediate depreciation missing its mark.

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Immediate depreciation is not something you "get," but something you "pass through." Four of the five gates depend on design, or wait on the publication of the measure's operating rules. And even beyond the gates, whether you "should" use it is one more layer of judgment. Now, while aggregator sites run ahead with assertive headlines, there is value in keeping the map of the gates at hand. When the measure starts moving, only the projects that prepared can pass the first confirmation.

* This piece is based on the FY2026 Tax Reform Outline and the bill amending the Industrial Competitiveness Enhancement Act, as confirmable on May 24, 2026. The premises of this piece will change depending on the enactment and entry into force of the amended Act and on the content of the METI ordinance and enforcement rules. The enactment date, promulgation date, law number, entry-into-force order, application forms and guide, the new article number under the Act on Special Measures Concerning Taxation, the final ROI formula, and whether any use-case example names a grid-scale battery — all of these are undecided or unpublished at the time of writing and must be checked against the latest Official Gazette and METI site. Interpretive judgments — whether something counts as "leasing," subsidies and reduced-basis accounting, stacking multiple measures, choosing immediate depreciation versus the tax credit — should be confirmed with a tax advisor and the competent tax office. This piece is not tax advice; it is a map of the issues, and is not a substitute for the tax judgment on an individual project.