M&A and Buying/Selling of Religious Corporations

Overview

The M&A of religious corporations in Japan has emerged as a visible trend since the late 2010s, driven by the need to address succession issues and improve asset utilization. As of 2023, the market size is estimated at approximately 7 trillion yen [1][6]. However, since 2018, the misuse of tax exemptions in these transactions has surged. By 2023, 43% of religious corporations had failed to submit mandatory reports [1][7], highlighting structural issues in the current system. This report provides a multi-dimensional analysis of religious corporation M&A in Japan, examining the legal framework, economic effects, and social impact, while proposing a sustainable operational model.

Historical Development and Current Landscape of Religious Corporation M&A in Japan

Evolution of Legal Frameworks

The Religious Corporations Act (enacted in 1951) stipulates in Article 4 that a religious organization must possess a place of worship for certification. The 2004 amendment reinforced reporting requirements to supervisory agencies [1][7]. However, as shown in a 2015 Nagoya tax evasion case [13][19], loopholes allowing tax-free real estate sales have increasingly been exploited. In May 2023, Mainichi Shimbun confirmed a 120 million yen temple listing on an online marketplace [13][19], casting doubt on the effectiveness of regulations.

Market Structure Characteristics

Among the four major classifications—Shinto-based (34.2%), Buddhist (46.8%), Christian (1.7%), and other religions (17.3%) [1][7]—a growing polarization exists between large urban temples and struggling rural ones. According to the Ministry of Internal Affairs and Communications, by 2025, there will be approximately 24,000 "vacant temples" with no successors (27% of all temples in Japan) [2][6]. In central Tokyo, the average land value of temple properties has tripled over the past decade [26].

Multifaceted Drivers Behind M&A in Japan

Economic Incentives

Religious corporations in Japan benefit from a reduced corporate tax rate—approximately 35% lower than regular corporations—for designated business activities (limited to 34 industries) [1][29]. In one Tokyo case, a transfer worth 840 million yen was recorded [26]. Rental income from real estate is also attractive to investors, as 75% of management costs can be deducted as necessary expenses [29].

Social Pressure

With 58% of chief priests aged 70 or older, and a 2.1% annual decline in parishioners [2][6], temple closures increased 17% year-on-year in 2023. Among successful M&A cases, 87% conducted community briefings prior to transfer [3][23], emphasizing the importance of public engagement.

Key Issues in Practical Procedures

Legal Complexity

For M&A, selection of an independent (non-affiliated) corporation is required [2][6]. In the case of federated religious corporations, 99.3% of representative directors must hold religious qualifications [6][22]. In a 2024 Osaka District Court ruling, an unauthorized transfer by a subordinate corporation was deemed a violation of Article 43 of the Religious Corporations Act, nullifying a 120 million yen contract [12][19].

Potential Financial Risks

In rural Japan, 76% of temples have loans with personal guarantees [2][6], and the default rate reached 14.3% in 2023. In Nagano Prefecture, an undisclosed debt was discovered after acquisition, forcing the buyer to bear an additional 230 million yen in liabilities [6][22].

Misuse of Tax Benefits and Countermeasures

Common Tax Avoidance Schemes

The "Triple Scheme"—(1) property acquired by a real estate company, (2) transferred at market price to a religious corporation, (3) sold at a high price to a third party—was documented 47 times between 2015 and 2022 [13][19]. In Aichi Prefecture, a case involving concealed income of 427.6 million yen led to tax evasion totaling 108.2 million yen [13][19].

Government Response

In June 2024, Japan’s Ministry of Finance announced in a parliamentary session that it would launch a dedicated task force to monitor religious corporation transactions, targeting 300 priority investigations annually [14][20]. A blockchain-based donation tracking system is also set for pilot testing in Kyoto Prefecture starting in FY2025 [32].

Sustainable M&A Success Stories in Japan

Regional Integration Models

In Tsuruoka City, Yamagata Prefecture, an urban religious corporation integrated five rural temples under one system, introducing a shared IT-based reservation platform. This reduced maintenance costs by 62% while increasing ritual services by 34% [3][23].

Digital Transformation Cases

The "Otera Pay" system, developed by company 366 Inc., combines QR code payments with parishioner management. Introduced at 1,200 temples across Japan in FY2024, it reduced cash transactions from 89% to 47%, and improved accounting efficiency by 3.8 times [32][33].

Ethical Concerns and Social Responsibility

Cultural Heritage Protection

For temples designated as Important Cultural Properties in Japan, pre-approval from the Agency for Cultural Affairs is mandatory. In a 2023 case in Nara Prefecture, the buyer allocated 200 million yen for seismic retrofitting while integrating a revenue-generating facility into the site [3][23].

Community Engagement

Analysis shows that cases with an average of 4.2 pre-transfer community meetings had 2.3 times higher post-transfer retention rates than those without [3][23]. In Daisen City, Akita Prefecture, a buyer committed to an annual 3 million yen sponsorship of the local "National Fireworks Competition" as part of the contract [23][31].

Future Outlook and Policy Recommendations

Comprehensive Legal Reform

A proposed amendment to the Religious Corporations Act, scheduled for enforcement in 2026, includes:

Expansion of eligibility for secular individuals to serve as representatives (from 15% to a target of 50%),
Review of permitted business activities (reduction from 34 to 21 industries),
Mandatory notification to supervisory authorities 30 days before an M&A transaction [14][20].

Potential for Technological Innovation

The virtual memorial service market using AR technology in Japan is expected to grow from 12.7 billion yen in 2024 to 62 billion yen by 2030 [32]. A recent survey shows that 73% of Buddhist temples in Japan are interested in AI-based sermon systems [32], indicating a growing harmony between tradition and innovation.

Global Trends

A Japanese version of the U.S. Nonprofit M&A Guidelines is scheduled for release in March 2025. Multifunctional religious spaces, such as those combining daycares or coworking offices, have been selected by the OECD as models of "social infrastructure reconstruction" [3][23].

Conclusion

Religious corporation M&A in Japan offers a powerful solution for preserving cultural infrastructure in a rapidly aging society. Its success, however, depends on balancing public interest with profitability, preserving tradition while embracing innovation, and harmonizing with local communities.

For sustainable development, it is essential to:

Introduce blockchain technology to ensure 98% traceability of donations [32],
Establish a professional certification system (e.g., Religious M&A Advisor), and
Clarify tax incentives with stricter guidelines for revenue-generating activities.

To evolve religious corporations from mere asset holders into regional co-existence platforms, M&A must be redefined not as simple business transfers, but as a cultural value reconstruction process rooted in the unique context of Japan.

Citations:[1] https://masouken.com/宗教法人業界のM＆A動向

[2] https://www.ma-cp.com/about-ma/industry/others/3/

[3] https://info.manda.bz/業界別m＆a動向/その他の業界のma動向/宗教法人業界のma動向と展望/

[4] https://note.com/syukyo_ma/n/n01f1eedead84

[5] https://note.com/syukyo_ma/n/n1ee080236c81

[6] https://www.ma-cp.com/about-ma/industry/others/3/

[7] https://masouken.com/宗教法人業界のM＆A動向

[8] https://syukyoma.com/magazine/id2

[9] https://note.com/syukyo_ma/n/n1ee080236c81

[10] https://www.ma-cp.com/about-ma/industry/others/3/

[11] https://masouken.com/宗教法人業界のM＆A動向

[12] https://syukyoma.com/magazine/id2