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The government and ruling coalition plan to allow companies to deduct 25 percent of the amount they invest in startups from their taxable income, informed sources said Friday.

The income deduction would be offered for investments of ¥100 million or more by large companies and ¥10 million or more by smaller ones, the sources said.

The tax relief is designed to encourage companies to utilize their cash reserves for investment in a way that revitalizes the nation’s economy. The plan is set to be a key part of tax system reform for fiscal 2020, which starts next April.

“Nurturing startups will lead to innovation by companies,” Akira Amari, chairman of the ruling Liberal Democratic Party’s Research Commission on the Tax System, told reporters.

Amari suggested that the expected tax revenue decline from the deduction would be covered by scaling down a tax break for large companies’ entertainment expenses.

The startups set to be covered by the investment tax break will be unlisted businesses founded less than 10 years ago that do not belong to groups led by large companies.

Companies would be required to keep holding shares in startups for at least five years after investment in order to prevent them from abusing the tax break, the sources said.

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