JETRO Invest Japan Report 2021
Chapter2. Japan's Business Environment and Foreign-Affiliated Companies Section2. Improving the Business Environment in Japan
[COLUMN] Improving the business environment as a global city

The government incorporated the “Japan as a Global Financial Center” (Finance Place Japan)” in the Comprehensive Economic Measures to Secure People’s Lives and Livelihoods towards Relief and Hope approved by the Cabinet on December 8, 2020 (Chart 2-8).

With a view to attracting foreign investments to Japan and establishing Japan as an international financial center, the 2021 tax reform has included measures to attract foreign financial businesses and skilled professionals.

First, regarding the corporate tax, unlisted, private non-family corporations whose main business is asset management will be allowed to deduct its performance-based compensation with a number of conditions, including where the calculation methods are posted on the Financial Service Agency website, etc.

Second, with regard to inheritance tax, foreign nationals, who reside abroad or in Japan for short period of time becomes an heir,the foreign property will not be subject to Japanese inheritance tax, regardless of the period of residence. Until now, if a foreigner whose total domestic residence period within 15 years before inheritance is more than 10 years becomes an heir, foreign property was also subject to inheritance tax.

Third, regarding the income tax, with regard to the distribution of profits (carrying interest) that the fund manager receives from the fund that holds the equity interest in excess of the investment ratio according to the investment results, it is clarified that they are not subject to the aggregate taxation (progressive tax rate, up to 55%) but are subject to separate taxation (uniformly 20%) as "gains on transfer of shares, etc." in cases where there is economic rationality in the distribution of profits.

In addition to the tax system, the entry procedures are also being reviewed. In January 2021, the Financial Services Agency and the Finance Bureau jointly established the "Financial Market Entry Office" as a centralized consultation service desk for overseas financial companies considering establishment in Japan. This makes it possible to handle everything from financial licensing consultation to registration procedures and, ultimately, supervision after the registration, all in English and without any obstacles. It also responds to advance consultations from overseas via video conference.

There are also moves to simplify the entry procedures. At present, even asset management companies with overseas professional investors as clients need to be registered first in principle in order to engage in the asset management business in Japan, and even if they have a track record of overseas operations, it took a certain period of time to complete the registration process. In March 2021, the Financial Service Agency submitted the revised Financial Instruments and Exchange Law to the Diet to create an exception that would allow foreign companies to enter the fund business through a simplified procedure (notifications) in order to encourage them to enter the fund business. This bill was enacted in May of the same year and has been in force since November of the same year. Specifically, (1) investment managers who have obtained licenses and approvals from overseas authorities and have a track record of managing overseas clients’ funds and manage only the funds of overseas clients (a five-year provisional measure), and (2) investment managers of funds whose clients are mainly overseas professional investors, will be allowed to enter the market through a simplified procedure (notification).

Regarding the status of residence, as part of the measures to create an environment where foreign businesspersons can conduct business in Japan with peace of mind, it was decided to take various steps to improve procedures with regard to the status of residence in Japan under the “Comprehensive Economic Measures to Secure People’s Lives and Livelihoods towards Relief and Hope.”

Specifically, foreigners who enter Japan as a "Temporary Visitor" for the preparation of setting up a business can change their status of residence without returning to their home country before starting their business, subject to certain requirements. As for highly-skilled professionals, a new bonus category (+10 points) is added for asset management businesses for calculating the points to apply for the status of residence of "Highly-skilled Professional" who can receive various special measures. When applying for a "Highly-skilled Professional" status of residence, it will be given with preferential processing (expected to be within 10 days).

In addition, for highly-skilled professionals who meet certain requirements, it is now possible to employ domestic workers even if they do not meet conditions such as having a child under the age of 13, and the number of domestic employees that can be hired by highly-skilled professionals can hire has been expanded from one to two. In addition, spouses of highly-skilled professionals can work full-time without obtaining working visas if they meet certain requirements.

In November 2017, Tokyo formulated the "Global Financial City: Tokyo" concept, outlining the structure and issues to be addressed in order to improve its status as an international financial city. Based on this initiative, Tokyo concluded an agreement with the City of London for cooperation in the financial field, and established the " Organization of Global Financial City Tokyo (FinCity.Tokyo)" to promote Tokyo's efforts and attractions both domestically and internationally through public-private partnerships. Since then, Tokyo decided to revise the concept in order to respond to changes in the global environment surrounding finance including growing interest in decarbonization and the UK's withdrawal from the EU.. With the aim of revising the concept, the Advisory Council of Experts was held five times until June 2021, and public comments were collected from July to August 2021. Based on the opinions received in public comments, the "Global Financial City: Tokyo Concept 2.0" was formulated in November 2021. In the new concept, includes the establishment of a green finance market such as support for entities issuing green bonds; the promotion of digitalization in financial sector such as the promotion of cashless society; attracting and founding support of FinTech companies; and the concentration of diversified financial-related companies and experts, including the efforts to attract and train asset managers.

Osaka Prefecture, Osaka City, and economic organizations of Kansai area established the International Financial City OSAKA Promotion Committee on March 29, 2021, with the aim of creating an international financial city that will attract financial experts and financial institutions from overseas. In July, the committee released its draft strategy for realizing the concept of an international financial city, which calls for expanding financial functions and improving the business environment in Osaka by supporting fund-raising for startups and deregulating financial services. The final plan will be formulated by the spring of 2022, after which it will be put into concrete implementation.

In September 2020, Fukuoka Prefecture and Fukuoka City and other local governments, educational institutions such as Kyushu University, and local companies such as Kyushu Electric Power Co., Inc. and National Japan Railway Co., Ltd. Launched TEAM FUKUOKA, an industry-government-academia organization that aims to attract foreign financial functions to Fukuoka. Fukuoka's accessibility to major business districts in Asia is one of its strengths, and it has been successful in attracting Asian financial-related companies. Specifically, MCP Holdings, a Hong Kong-based asset management company in February 2021, and Capbridge Financial, a Singapore-based FinTech company in April 2021, have announced that they would establish bases in Fukuoka.