JETRO Invest Japan Report 2018 (Summary)2. Toward Improvement of Business Environment

Further improving the business environment and contributing to more inward FDI into Japan

(1) Establishment of project-based “Regulatory Sandbox” system

  • A mechanism that creates an environment where innovative technologies and business models can be demonstrated without restrictions imposed by existing regulations, and that enables data collection that will lead to swift validation and regulatory reforms.
  • Organized the GoJ’s Regulatory Sandbox Team and started preliminary consultations and acceptance of applications in June 2018.

Project-based “Regulatory Sandbox” system and its relationship to other systems for revising regulations

With regard to consultations for foreign/foreign-affiliated companies, the GoJ’s Regulatory Sandbox Team conducts 1) appropriate allocations to systems, 2) advanced preparations made with each competent minister and 3) support for creating application forms (confirming relevance of new technology, giving shape to contents of demonstration, deciding the competent minister and confirming regulatory statutes). Demonstrations on a project-basis are allocated to the project-based Regulatory Sandbox system, which is established based on the Act on Special Measures for Productivity Improvement, whereas business on a project basis is allocated to the System to Remove Gray Zone Areas or the System of Special Arrangements for New Business Activities. The project-based Regulatory Sandbox system is distinguished by the following: 1) It targets innovative technologies, 2) there are limits on participants and time periods and 3) there are no prerequisites for revision of statutes. Under the System to Remove Gray Zone Areas, interpretation of law and confirming compatibility are possible in advance. Under the System of Special Arrangements for New Business Activities, you can implement projects once special measures for regulations are prepared. Meanwhile, if companies do business in a regional entity or nationwide entity, regulatory reforms are considered by either the National Strategic Special Zones or Council for Promotion of Regulatory Reform.

[Source] Innovative Technology/Businessmodel Evaluation Committee for Regulatory Sandbox in Japan

(2) Moves toward improvement of World Bank “Doing Business” ranking

  • Realize completion of formalities within 24 hours during FY2019
  • Use of IT in court proceedings, and introduction of web conferences for court cases
  • Improvement of port logistics by reducing in freight holding time

apan’s overall ranking (2019) (out of 190 countries)(-: abbreviation)

Rank Country/region
1 New Zealand
2 Singapore
3 Denmark
4 Hong Kong
5 Korea, Rep
6 Georgia
7 Norway
8 US
9-31 -
Rank Country/region
32 France
33 Poland
34 Portugal
35 Czech Republic
36 Netherlands
37 Belarus
38 Switzerland
39 Japan

Details of the Japan's overall ranking

It is 93rd in “starting a business,” 44th in “dealing with construction permits,” 22nd in “getting electricity,” 48th in “registering property,” 85th in “getting credit,” 64th in “protecting minority investors,” 97th in “paying taxes,” 56th in “trading across borders,” 52nd in “enforcing contracts,” and first in “resolving insolvency.”

[Notes] Numbers indicate the rankings out of 190 countries.
[Source] "Doing Business 2019" (World Bank)

(3) 20% reduction in cost for administrative procedures

  • The basic implementing plans (simplification plans) formulated by ministries and agencies have been examined and revised.
  • The cost reduction benefit in targeted fields is expected to be 73.15 million hours (186 billion yen, a 22.3% reduction).

Prospect of administrative procedure costs and number of hours reduced by area

Area Target cases/procedures for basic plan formulation Total Number of Cases Processed (Number of Procedures Processed) Target cases/procedures for cost measurement Total Number of Cases Processed (Number of Procedures Processed) Number of Hours Spent (Equivalent Monetary Value) Per Case Number of Hours Reduced (Equivalent Monetary Value) Per Case Reduction Rate
Business Licensing 6,519,196 cases
(786 procedures) 		5,253,226 cases
(330 procedures) 		141.73 million hours
(360.4 billion yen) 		27.0
hours 		29.6 million hours
(75.3 billion yen) 		5.6
hours 		20.9%
Social Insurance 62,716,706 cases
(105 procedures) 		56,806,812 cases
(28 procedures) 		122.11 million hours
(310.5 billion yen) 		2.1
hours 		29.22million hours
(74.3 billion yen) 		0.5
hours 		23.9%
Surveys and Statistics 7,169,681 cases
(153 procedures) 		6,811,452 cases
(98 procedures) 		23.93 million hours
(60.9 billion yen) 		3.5
hours 		5.62 million hours
(14.3 billion yen) 		0.8
hours 		23.5%
Labor Management 3,304,726 cases
(71 procedures) 		3,013,296 cases
(15 procedures) 		15.14 million hours
(38.5 billion yen) 		5.0
hours 		3.06 million hours
(7.8 billion yen) 		1.0
hours 		20.2%
Subsidies 297,660 cases
(74 procedures) 		292,598 cases
(56 procedures) 		11 million hours
(28 billion yen) 		37.6
hours 		2.3 million hours
(5.8 billion yen) 		7.9
hours 		20.9%
Commercial Registration 998,850 cases
(33 procedures) 		595,272 cases
(2 procedures) 		8.53 million hours
(21.7billion yen) 		14.3
hours 		1.71 million hours
(4.3 billion yen) 		2.9
hours 		20.0%
Certificate of Employment 2.46 million cases
(1 procedure) 		2.46 million cases
(1 procedure) 		5.56 million hours
(14.1billion yen) 		2.3
hours 		1.64 million hours
(4.2 billion yen) 		0.7
hours 		30.0%
Total 83,466,819 cases
(1,223procedures) 		75,232,656 cases
(530procedures) 		328 million hours
(834.1 billion yen) 		4.4
hours 		73.15 million hours
(186 billion yen) 		1.0
hours 		22.3%

[Source] Third report by the Council for Promotion of Regulatory Reform - For New Era to Come-(June 4, 2018, Council for Promotion of Regulatory Reform)

(4) Inviting more foreign professionals into Japan

  • Inviting more foreign entrepreneurs – extending period of stay to maximum of one year for preparation of starting a business
  • Establishment of new status of residence for working in Japan
  • "Business Manager" status of residence acquisition for coworking space now feasible

(5) Initiatives toward expanding Japan's inward FDI into regional areas

  • Support Program for Regional Foreign Direct Investment in Japan
  • Regional Business Conference

Image of Support Program for Regional Foreign Direct Investment in Japan

This is a program that support drawing up plans to attract inward FDI by local public bodies, promote use and application of effective measures, and fine tune initiatives taken by local public bodies in relationship to inward FDI into Japan. In response to the request for support from local public bodies, mainly JETRO and METI support them in collaboration with related ministries and agencies (14 in total) that are members of the Council for Promotion of FDI in Japan and that have ”The Office of INVEST JAPAN”. By collaborating on measures to provide effective applications, focused support for regional FDI in Japan such as “Grant application to Ministry A,” ”Consultation to Organization B about support menu,” and ”Consultation with Local Branch Office of Ministry C about regulations and administrative procedures” can be provided. One-stop consultation desk service is available for ministerial measures through the Personal Advisors System of JETRO.

[Source] Council for Promotion of Foreign Direct Investment in Japan (6th meeting)

(6) Tax reform

  • Establishing a tax system pertaining to the promotion of information collaboration investment (Connected Industries Tax System)
  • Establishing a measure for smooth business restructuring via stock acquisition by way of compensation through ownership of company stock

Image of a measure for smooth business restructuring via stock acquisition by way of compensation through ownership of company stock

Before the tax reform, stockholders of a target company sometimes had to sell off some of the acquiring company's stocks as compensation to pay tax obligation. For acquiring companies, there was the fear that their stock prices would drop as a result of such a sell off. For these reasons, in practice, acquisition of company-owned stocks as compensation was difficult. However, after the tax reform, an acquiring company with a plan to restructure business just needs to get the competent minister's approval to enable a tax deferment for the stockholders in the acquisition, eliminating the need to secure funds to pay taxes. This also removes the fear of the acquiring company's stock price dropping. As a result, company restructuring with company-owned stocks as compensation has now become a smooth process.

[Source] FY2018 Tax Reform pertaining to Economy, Trade and Industry (Ministry of Economy, Trade and Industry)

(7) Enhancement of corporate governance

  • Revision of corporate governance code(Jun 1, 2018)

Business environmental improvement efforts till now

Description

This chart illustrates the efforts taken by the government to improve the business environment from 2013 to 2018 in chronological order in three categories: "measures for promoting inward FDI into Japan," "effective corporate tax rates" and "reform of bedrock regulations, etc."
The following measures for promoting inward FDI into Japan are included:

  • "Five Promises for Attracting Foreign Businesses to Japan" (1. Overcoming language barriers at retailers and restaurants, 2. Facilitating better internet connectivity, 3. Accommodating business jets at local airports, 4. Enhancing the educational environment for expatriate children, 5. Strengthening advisory and consultation services to support foreign businesses) announced in 2015
  • The "Policy Package for Promoting FDI into Japan to Make Japan a Global Hub" (1. Improvements in regulations and administrative procedures, 2. Attracting and fostering globally competitive human resources, 3. Improvement of the living environment for foreign nationals) announced in 2016
  • The "Final Report of Working Group for Revising regulations and Administrative Procedures" (1. Simplifying establishment of companies by foreigners, 2. Making online application for status of residence possible, 3. Greatly shortening the residence period required to apply for permanent residency by highly skilled foreign professionals, 4. Boosting information dissemination in foreign languages, 5. Simplifying import procedures, 6. Expansion of services at the Tokyo One-Stop Business Establishment Center) announced in 2017

The effective corporate tax rate has been lowered to 37.00% in 2013, 32.11% in 2015, 29.97% in 2016, and 29.74% in 2018.
On the topic of reform of bedrock regulations, the following are mentioned:

  • Establishment of National Strategic Special Zones in 2013
  • Drawing up Japan's Stewardship Code and introduction of an early approval system for regenerative medicine in 2014
  • Application of Japan's Corporate Governance Code in 2015
  • Full liberalization of electricity market in 2016
  • Full liberalization of gas retail market in 2018

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