Laws & Regulations on
Setting Up Business in Japan

Preface
The Japan External Trade Organization (JETRO) has long provided various resources for foreign businesses interested
in setting up operations in Japan in order to promote FDI.
"Laws & Regulations on Setting Up Business in Japan" is a JETRO booklet designed with the foreign business in mind,
providing information on laws, regulations and procedures on registration of incorporation, visas, taxes, human resource
management, and trademark and design protection systems. First published in October 2004, the 11th edition has now
been revised to incorporate changes in these areas since then.
It is our hope that this publication will serve as an excellent resource for companies planning to establish operations inJapan and will make doing business in Japan easy.
Interested investors are also encouraged to visit our website at http://www.investjapan.org, which provides not only
the same information as this booklet but also updates on amendments and other changes to investment-related systems
and institutions.

June 2016
Invest Japan Department
Japan External Trade Organization (JETRO)

2

IndexSECTION 3 Taxes in JapanSECTION 1 Incorporating Your Business3.1 Overview of Japanese corporate tax system for

1.1 Types of operation in Japan ................................ 4

investment in Japan ......................................... 33

1.2 Comparison of types of business operation .......... 5

3.2 Domestic-sourced income ................................. 34

1.3 Procedures for registering establishment ............. 9

3.3 Overview of corporate income taxes (corporatetax, corporate inhabitant tax, enterprise tax) ...... 35

1.4 Information listed in articles of incorporation of acompany ......................................................... 13
1.5 Certificate on registered company informationand company seal impression certificate .......... 14
1.6 Notifications required after registration .............. 15
1.7 Closure of branch offices or subsidiarycompanies....................................................... 17

3.4 Overview of withholding income tax ................... 42
3.5 Tax treaties...................................................... 43
3.6 Overview of consumption tax ............................ 44
3.7

Overview of individual tax system ...................... 45

3.8 Other principal taxes ........................................ 49
3.9 Other principal corporate taxation regarding
international transactions ................................. 49

SECTION 2 Visas and Status of Residence

3.10 Handling of corporate, local, and consumption
taxes depending on capital amount ................... 50

2.1 Entry procedures .............................................. 20
2.2 Relation between visa and status of residence .... 20
2.3 Process from acquisition of Certificate of

SECTION 4 Human Resource Management

Eligibility to acquisition of visa ........................... 21

4.1 Application of laws ........................................... 52

2.4 Types of working statuses ................................. 22

4.2 Recruitment ..................................................... 52

2.5 Temporary visitor visa and status ....................... 24

4.3 Labor contracts ................................................ 53

2.6 Reciprocal visa exemptions for temporary visitor . 24

4.4 Wages............................................................. 56

2.7

4.5 Legislation on working hours, breaks and days

Resident card and residency management
system ............................................................ 25

off .................................................................. 57

2.8 Re-entry permission.......................................... 28

4.6 Work rules ....................................................... 63

2.9 Family members accompanying working foreign

4.7

nationals ......................................................... 29
2.10 Extension of period of stay and change of status

Safety and hygiene........................................... 64

4.8 Resignation and dismissal ................................. 64
4.9 Japan's social security system ........................... 66

of residence .................................................... 29
2.11 Points-based preferential immigration treatment for
highly skilled foreign professionals ........................... 30
2.12 Promoting acceptance of foreign entrepreneurs .. 31

SECTION 5 Trademark and Design Protection Systems
5.1 Legislation on trademark and design .................. 77
5.2 Japan's trademark system ................................. 77
5.3 Validity and term of trademark registration ......... 80
5.4 Cancellation of trademarks ................................ 80
5.5 The registration process.................................... 81
5.6 International registration of trademarks ............. 83
5.7

Protection of designs ........................................ 83

5.8 The registration process.................................... 85
5.9 International Registration of Industrial Designs ... 86

SECTION 1 Incorporating Your Business
1.1

Types of operation in Japan
Foreign companies generally establish a business presence in Japan in one of three modes.

1.1.1

Representative office
Representative offices are established as locations for carrying out preparatory and supplemental tasks
aimed at enabling foreign companies to engage in full-scale business operations in Japan. These offices may
conduct market surveys, collect information, purchase goods and implement publicity/advertising efforts, butthey are not permitted to engage in sales activities. The establishment of representative offices does not requireregistration. A representative office cannot ordinarily open bank accounts or lease real estate in its own name,so agreements for such purposes must instead be signed by the head office of the foreign company or the
representative at the representative office in an individual capacity.

1.1.2

Branch officeForeign companies wishing to engage in continuous transactions in Japan must register in the country (seeArticle 818 of the Companies Act). To do so, they must at least register (1) the appointment of a representativein Japan, (2) the establishment of a branch office, (3) a Japanese corporation, or (4) a partnership. Of these, thesimplest means for a foreign company to establish a base for business operations in Japan is to set up a branch
office. The branch office can begin business operations as soon as an office location is secured, the branch
office representative determined, and the necessary information registered. A Japanese branch office is abusiness location that provides services in Japan decided upon by an organization authorized by the foreigncompany, and ordinarily is not expected to engage in independent decision making. A branch office does nothave its own legal corporate status, but instead is deemed to be encompassed within the corporate status of theforeign company. In general, therefore, the foreign company is ultimately responsible for all debts and credits
generated by the activities of its Japanese branch office. A Japanese branch office, however, may open bankaccounts and lease real estate in its own name.

1.1.3

Subsidiary company
A foreign company establishing a subsidiary company in Japan must choose to establish the subsidiarycompany as a joint-stock corporation (Kabushiki-Kaisha (K.K.)), limited liability company (Godo-Kaisha), or
similar entity stipulated by Japan's Companies Act. Both unlimited partnerships (Gomei-Kaisha) and limited
partnerships (Goshi-Kaisha) are granted corporate status under the Companies Act, but they are rarely chosen inpractice because equity participants bear unlimited rather than limited liability. All types of subsidiary companies
can be established by completing the required procedures stipulated by law and then registering the corporation.
A subsidiary is a separate corporation from the foreign company, so the foreign company will bear the liability ofan equity participant stipulated by law for all debts and credits generated by the activities of the subsidiary.
Other methods by which a foreign company may invest in Japan using a Japanese corporation but withoutestablishing a subsidiary are by establishing a joint venture with a Japanese enterprise or investment company,
and by equity participation in a Japanese enterprise.
Joint-stock corporations and limited liability companies are similar insofar as liability in them is limited to theassets contributed by equity participants. Compared with joint-stock corporations, however, limited liability
companies have greater freedom of self-government through their articles of association and, unlike joint-stock
corporations, they may stipulate the procedures for preparing and approving their financial statements in theirarticles of association as there are no laws and regulations relating to finalizing annual financial statements anddo not have to publish their financial results. Additionally, although their members are as a rule required to
execute business, their articles of association may allow for the appointment of “managing partners.”

4

1.2

Comparison of types of business operation
Foreign companies generally engage in business operations by establishing a branch office or subsidiarycompany, and the legal differences between each of these are summarized in the following table.

<Table 1-1>
Subsidiary company
Branch office

Kabushiki-Kaisha

Godo-Kaisha(joint-stock corporation)(limited liability company (LLC))

CapitalNo capital

1 yen or more*1

1 yen or more*1

Number of investors
Liability of equity
participants/parent company
toward creditors---

1 or more

1 or more

Unlimited

Limited to amount of equity
participation

Limited to amount of equity
participation

Transfer of equity participation
share

No equity participation share

May be transferred freely inprinciple.
May be stipulated in articles ofincorporation that approval of
Board of Directors is needed fortransfer of shares.

Unanimous approval of equity
participants (members) required

Number of executives required

Representative in Japan.
1 or more*2

See Tables 1-2, 1-3

No legally stipulated minimum.
In principle, all members are executive
officers, but may be stipulated
otherwise in articles of association*2

Legally stipulated term of officefor executives

No legally stipulated term

See Tables 1-2, 1-3

No legally stipulated term

Regular general meeting ofshareholders (members)

Not required

In principle, must be held every
year

Not required

Possibility of public offer ofstock (equity participation
share)

No equity participation share

Possible

Not possible

Possibility of reorganization into
joint-stock corporation

Not possible.
Need to separately close branch
office and register resignationof all representatives in Japan,
and establish joint-stock
corporation*3--(A joint-stock corporation may
be reorganized into a limited
liability company.)

Possible

May be allocated at a different rate fromequity participation rate if specified inarticles of association
Taxed according to profits of
Taxed according to profits ofIncome arising within Japan is
Taxation of profits
joint-stock corporation andGodo-Kaisha and profits allocated toin principle taxed
profits allocated to shareholders
participants(Note) Regardless of the type of operation, prior notification must be filed with the Bank of Japan if establishing an operation in an industry in which
the Foreign Exchange and Foreign Trade Act requires that such notification be filed when making an inward direct investment.
Distribution of profits andlosses

*1
*2

*3

---

Allocated according to equity
participation ratio

Although establishment with capital of zero yen is theoretically possible, approval is granted ex post facto, and it is not in practice possible toincorporate a company without paying in capital.
When a branch office is to be established in Japan, at least one representative must have an address in and be a resident in Japan.
Said address requirement does not apply to a representative member (a person performing duties of such member, if such representative is a
corporation) of a Godo-Kaisha on and after March 16, 2015.
See 1.7.1 "Closure of a branch office and resignation of all representatives in Japan".

5

SECTION 1 Incorporating Your BusinessComparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)(if no nominating committee, etc. or committee of audit, etc. *1 is established)<Table 1-2>

No.
Directors

Term
Board of directors(3 directors or more)

Representative director(s)Small and medium companies(joint-stock corporations with capital of less than 500
million yen and total liabilities of less than 20 billion yen)

Large companies(joint stock corporations with capital of
500 million yen or more or total liabilities of 20 billion yen or
more)

Kabushiki Joto Seigen Kaisha(joint-stock corporations
subject to restrictions on thetransfer of issued shares)

Kabushiki Joto Seigen Kaisha(joint-stock corporations subject torestrictions on the transfer of issued
shares)Appointment of 1 or more
required.
Representative director withright to execute business.
If no representative director isappointed, executive officers
each have the right ofrepresentation *2
1 to 10 years.
Extendable up to 10 years
Establishment optional.
Establishment required if boardof auditors is establishedAppointment possible if 2 ormore directors appointed.
Executive officer with right ofrepresentation *2

No.

1 or more may be appointed.
However, appointment of 1 ormore is required if a board of
directors is established and noaccounting counselor isappointed

Term

4 years in principle
Extendable up to 10 years

Auditors

Board of auditors(3 or more auditors)
Accounting
auditorAccounting
councilor*4

*1
*2
*3
*4

Appointment

Kokai Kaisha(publicly tradedjoint-stock
corporations that are
not Kabushiki Joto
Seigen Kaisha)Appointment of 1 or more required.
Representative director with rightto execute business.
If no representative director isappointed, executive officers eachhave the right of representation *2

Appointment of 3 ormore required

1 to 10 years.
Extendable up to 10 years
Establishment optional.
Establishment required if board ofauditors is established

2 years
Establishment
required
Appointment of 1 ormore required.
Executive officer withright ofrepresentation*2

Appointment possible if 2 or more
directors appointed.
Executive officer with right ofrepresentation *2

Appointment of 1 or more required

4 years in principle
Extendable up to 10 years

4 years

Appointment of 3 ormore required*3

2 years
Establishment
required
Appointment of 1 ormore required.
Executive officer withright ofrepresentation*2

Appointment of 3 ormore required

4 years
Establishment

Establishment possible

required

Appointment possible

Term

Kokai Kaisha(publicly tradedjoint-stock
corporations that are
not Kabushiki Joto
Seigen Kaisha)Appointment necessary
1 year

Appointment

Appointment possible.
However, 1 or more must be
appointed if a board of
directors is established andno auditor is appointedTerm

2 years in principle.
Extendable up to 10 years

Appointment possible

2 years

2 years in principle.
Extendable up to 10 years

2 years

A “company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1,2015). A "company with nominating committee, etc." used to be called a “company with committees” before the said revisions.
The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on and after
March 16, 2015.
If a company subject to the Financial Instruments and Exchange Act has not appointed an outside director by the last day of every business
year, it must explain the reason why appointing an outside director would not be appropriate at its annual shareholders meeting.
An accounting councilor must be a certified public tax attorney or certified public accountant. An auditing councilor prepares financial
documents in association with the directors, and may not hold another position as well, such as director, auditor, or accounting auditor.

6

Comparison regarding directors of Kabushiki-Kaisha (joint-stock corporations)(if a nominating committee, etc. are established *1)<Table 1-3>

Directors

Small and medium companies(joint-stock corporations with capital of lessthan 500 million yen and total liabilities ofless than 20 billion yen)

Large companies(joint stock corporations with capital of
500 million yen or more or total liabilities of
20 billion yen or more)

Kabushiki Joto
Seigen Kaisha(joint-stock
corporations
subject torestrictions on thetransfer of issued
shares)Kabushiki Joto
Seigen Kaisha(joint-stock
corporations
subject torestrictions on thetransfer of issued
shares)

Kokai Kaisha(publicly tradedjoint-stock
corporations thatare not Kabushiki
Joto Seigen Kaisha)No.

Appointment of 3 or more requiredTerm

1 yearBoard of directors(3 or more directors)

Establishment required

Representative director

Appointment not possible
No.

Appointment of 1 or more required.
Appointment of representative executive officer if 2 or more *2Term

1 yearExecutive

Auditors

Appointment not possible

Board of auditors(3 or more auditors)

Appointment not possible

Accounting auditor

Accounting councilor

Appointment

RequiredTerm

1 year

Appointment

PossibleTerm

1 year

Kokai Kaisha(publicly tradedjoint-stock
corporations thatare not Kabushiki
Joto Seigen Kaisha)

Auditors committee

Establishment required (for auditing, etc. of performance of duties by executive officers).
Consists of 3 or more directors, of which a majority must be outside directors *3

Nominating committee

Establishment required (to decide on proposed appointment and dismissal of directors for
submission to the general meeting of shareholders)Consists of 3 or more directors, of which a majority must be outside directors *3

Benefit committee

Establishment required (to determine compensation of executive officers, etc.).
Consists of 3 or more directors, of which a majority must be outside directors *3*1 "Companies with nominating committees" used to be called “companies with committees” before the revisions to the Companies Act (enforcedon May 1, 2015).
*2 The requirement that at least one representative executive officer must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on andafter March 16, 2015.
*3 Note that the requirements of outside directors have been altered by the enforcement of revisions to the Companies Act.

7

SECTION 1 Incorporating Your BusinessComparison regarding directors of joint-stock corporations(if an audit and supervisory committee*1 is established)<Table 1-4>

Directors(members of comm. ofauditors, etc.)
Directors(excl. members ofcomm. of auditors,
etc.)

Small and medium companies(joint-stock corporations with capital of lessthan 500 million yen and total liabilities ofless than 20 billion yen)

Large companies(joint stock corporations with capital of
500 million yen or more or total liabilities of
20 billion yen or more)

Kabushiki Joto
Seigen Kaisha(joint-stock
corporations
subject torestrictions on thetransfer of issued
shares)Kabushiki Joto
Seigen Kaisha(joint-stock
corporations
subject torestrictions on thetransfer of issued
shares)

Kokai Kaisha(publicly tradedjoint-stock
corporations thatare not Kabushiki
Joto Seigen Kaisha)No.

Appointment of 3 or more required *2Term

2 yearNo.

Appointment of 1 or more required.

Term

1 yearBoard of directors

Establishment required

Representative director

Appointment required*3

Auditors

Appointment not possible

Board of auditors

Appointment not possible
Appointment

RequiredTerm

1 year

Appointment

PossibleTerm

1 year

Kokai Kaisha(publicly tradedjoint-stock
corporations thatare not Kabushiki
Joto Seigen Kaisha)

Accounting auditor

Accounting councilor

Auditors committee

Establishment required (for audit, etc. of performance of duties by directors).
Consists of 3 or more directors, a majority of which must be outside directors*2*1 A "Company with audit and supervisory committee” was newly established due to the revisions to the Companies Act (enforced on May 1,2015).
*2 A majority must be outside directors. They do not have to be full time.
*3 The requirement that at least one representative director must be domiciled in Japan is no longer applied to Kabushiki-Kaisha on and after
March 16, 2015.

8

1.3

Procedures for registering establishment

1.3.1

Registration of establishment of a branch office
A branch office may begin business operations after registering its establishment with the Legal Affairs
Bureau; branch offices of foreign companies must register in accordance with the registration requirements forJapanese corporations of most similar form to that of the foreign company. In order to select the most similar
form of Japanese corporations and to determine the information of the Japanese corporations to be registered,reference should be made to the foreign company's articles of incorporation, establishment certificate,registration certificate, and other such documentation. Once the details to be registered in accordance with
Article 933 of the Companies Act --- specifically, the address of the branch office, the representative in Japan,
the date of establishment of the branch office and the disclosure method for balance sheets, etc. --- aredetermined, the information that must be registered can be ascertained.
Document(s) certifying the information to be registered must be submitted when applying for registration of
the establishment of a branch office, and the certified document(s) must be issued by the competent authorities
in the home country of the foreign company. It is often convenient to use an "affidavit" on information for*1

registration certified by that country's embassy/consulate in Japan . Document(s) actually required will be
determined individually for each company.
General flow of procedures for establishing a branch office1

Prior notification of establishment of branch office to the Bank of Japan depending on categoryof industry

2

Determination of branch office information to be registered

3

Examination at the Legal Affairs Bureau of identical corporate names

4

Establishment of branch office (date of branch office establishment is at the branch office's
discretion)

5

Preparation of affidavit on establishment of branch office6

Certification of affidavit by embassy/consulate in Japan

7

Application at the Legal Affairs Bureau for registration of branch office establishment;*1

registration of company seal at Legal Affairs Bureau
8

Acquisition of certificate on registered information and company seal impression certificate(approx. two weeks after application for registration)

9

Opening of bank account under branch office name(Note) Time required: about one month after determination of branch office information to be registered*1 If your embassy does not provide notary services, certification by a public notary in your home country is required.

9

SECTION 1 Incorporating Your Business
1.3.2

Registration of establishment of a subsidiary company
Subsidiary companies are established through registration with the Legal Affairs Bureau. The application date
for registration will also be the date of establishment, and the company may carry out business operations fromthat date. Some of the documents needed for the subsidiary establishment procedures should be prepared in
the home country of the foreign company: document(s) certifying the profile of the foreign company,
document(s) certifying the representative authority of the foreign company's representative, document(s)certifying the authenticity of the signature of the foreign company's representative and certificate(s) of
signature for the person(s) to be appointed as director(s), etc. (if any) of the subsidiary company.
The foreign company's articles of incorporation, establishment certificate, registration certificate and otherofficial documents as well as an affidavit and a certificate of signature notarized by a notary public in the homecountry of the foreign company are ordinarily used. These documents will be required in completing theprocedures for certifying the subsidiary company's articles of incorporation in Japan. Document(s) certifying thatthe foreign company has decided to establish a subsidiary company may also be needed when requesting afinancial institution in Japan to take custody of the subsidiary's capital and issue a capital custody certificate.
The capital custody certificate is a certificate issued by a financial institution when the full amount of thesubsidiary's capital has been remitted to a special account specified by the financial institution asked to takecustody. The certified articles of incorporation and the capital custody certificate may both be needed when
applying for registration of company establishment. Document(s) actually required will be determined
individually for each company.

10General flow of procedures for establishing a Kabushiki-Kaisha (joint-stock corporation)*1

1

Determination of profile of joint-stock corporation to be established2

Examination at the Legal Affairs Bureau of identical corporate names

3

Preparation of joint-stock corporation's articles of incorporation4

Acquisition of registration certificates, etc. for parent company, and preparation of affidavits
regarding profile of parent company and affidavits regarding signatures of representatives ofparent company (affidavits must be attested by a public notary in equity participants' own*2countries)

5

Notarization of joint-stock corporation's articles of incorporation by Japanese notary public

6(Application to bank for capital custody and issue of capital custody certificate in case of*3
incorporation with outside offering)

7

Remittance of joint-stock corporation capital to account of incorporator or representative
director at incorporation(Remittance of joint-stock corporation capital to special bank account in case of incorporation*4*5
with outside offering)

8

Appointment of directors and other officers, such as representative directors and auditors

9

Examination by directors and auditors of legality of establishment procedures

10

Application at the Legal Affairs Bureau for registration of joint-stock corporation establishment(joint-stock corporation establishment date); registration of company seal at the Legal Affairs*6
Bureau11

Acquisition of certificate on registered information and company seal impression certificate(approx. two weeks after application for registration)

12

Opening of bank account under company name13

Notification of stock acquisition to the Bank of Japan (notification prior to company
establishment may be required in certain sectors)(Note) Time required: about two months after determination of profile of company to be established*1 This profile should contain information including the following: trade name, location of head office, business objectives, business year,
amount of capital, issue price of shares, existence of provisions restricting transfer of shares, existence of board of directors, names of
directors and representative directors, terms of directors, names of equity participants, and values of their investments.
*2 If an individual or corporation with an address in Japan is the promoter of a joint-stock corporation and a foreign enterprise is the subscriberof shares in that corporation at incorporation (this method is called "incorporation by outside offering,” or Boshû Setsuritsu), affidavits
regarding the parent company may not be required. Note, however, 6. **3 In Boshû Setsuritsu, a bank capital custody certificate is required to certify the amount paid in by the promoter as well as the subscriber ofshares at incorporation.
*4 If a joint-stock corporation is incorporated with the joint equity participation by an individual or corporation with a bank account in Japan(“incorporation without outside offering”, or Hokki Setsuritsu. This method includes the incorporation by an independent promoter.), it may
not be necessary to apply to a bank for capital custody and issuance of a capital custody certificate. In this case, it is sufficient for the capital
to be paid into the joint equity participant's bank account in Japan, and for documentary evidence to be submitted by the representative
director of the joint-stock corporation in place of a bank-issued capital custody certificate in order to certify that payment of the full amountof capital has been received.
*5 In the case of incorporation without outside offering, special bank accounts and capital custody certificates are in practice rarely used. Thisis due to several reasons, including the high level of bank fees, and the fact that banks often do not allow special accounts to be opened if
there are no previous dealings with them.
*6 When a foreign enterprise incorporates a joint-stock corporation with an equity participant, an individual or corporation with an address inJapan by incorporation with or without outside offering, shares at incorporation are held by the foreign enterprise and such individual or
corporation. After incorporation, the joint stock corporation may become a wholly owned subsidiary of the foreign enterprise by acquisitionof all shares held by such individual or corporation.

11

SECTION 1 Incorporating Your Business

General flow of procedures for establishing a Godo-Kaisha(LLC)*1

1

Determination of profile of Godo-Kaisha to be established2

Examination at the Legal Affairs Bureau of identical corporate names

3

Acquisition of certification regarding equity participants (in equity participants' own countries):
Acquisition of registration certificates, etc. for companies that will become equity
participants, and preparation of affidavits regarding profiles of companies that will become
equity participants and affidavits regarding signatures of representatives of companies thatwill become equity participants (affidavits must be attested by a public notary in equity
participants' own countries)

4

Acquisition of certification regarding equity participants (in Japan):Acquisition of registration certificates for companies that will become equity participants
Acquisition of seal certificates for individuals/companies that will become equity participants

5

Preparation of Godo-Kaisha's articles of incorporation

6

Payment by members of investment stipulated in articles of incorporation (to members’ bankaccounts)

7

Application at the Legal Affairs Bureau for registration of establishment of Godo-Kaisha(Godo-Kaisha establishment date), registration of company seal at the Legal Affairs Bureau

8

Acquisition of certificate of registered information and company seal impression certificate(approx. two weeks after application for registration)

9

Opening of bank account under company name10

Notification of stock acquisition to the Bank of Japan(notification prior to company establishment may be required in certain sectors)(Note) Time required: about one month after determination of profile of company to be established*1 This profile should contain information including the following: trade name, location of head office, business objectives, business year,
amount of capital, names of members (equity participants) and values of their subscriptions, names of representative members, and namesof executive officers (representative members in the case of a corporation).

12

1.4

Information listed in articles of incorporation of a company
Articles of incorporation of a company list "absolute matters" and "relative matters". Absolute matters arematters that must be stated for the articles of incorporation to be valid, and relative matters are matters that do
not have legal effect unless stated in the articles of incorporation.

1.4.1 Matters listed in articles of incorporation of Kabushiki-Kaisha (joint-stock corporations)-Absolute matters
Purpose, trade name, place of principal office, value or minimum amount of assets contributed at time ofincorporation, name and address of each promoter-

Main relative matters
Names of persons contributing in kind, assets to be contributed, value of the assets, and number and typeof shares assigned therefore; assets to be taken over after the coming into existence of the corporation,
value thereof, and name of transferor; incorporation expenses incurred by the corporation; appointment ofauditor(s); establishment of board of directors; rules on payment of dividends of surplus

1.4.2

Matters listed in articles of incorporation of Godo-Kaisha (limited liability companies)-

Absolute matters
Purpose, trade name, place of principal office, names and addresses of members, statement that all
members are limited liability members, and the purpose and value of members' contributions-

Relative matters
Relative entries may be freely determined provided that they do not contravene the Companies Act

13

SECTION 1 Incorporating Your Business
1.5

Certificate on registered company information and company
seal impression certificate
Once registration of establishment has been completed for a Japanese branch office or a subsidiary company,a certificate on registered company information can be obtained from the Legal Affairs Bureau. The certificate
on registered company information is a document officially certifying a company's registered information.
The principal information to be registered for a joint-stock corporation is as follows:-

Corporate name-Location of head office-Business purposes-

Method of giving public notice-

Total number of shares to be issued-

Types and numbers of outstanding shares-

Rules on the limitation of transfer of shares-

Amount of capital-

Directors-

Representative directors-

Auditors-

Date of company establishment
The certificate on registered company information must ordinarily be presented whenever opening a bankaccount, filing notifications with administrative authorities, purchasing assets for which name registration isrequired (real estate, securities, vehicles, telephone lines, etc.), and concluding important agreements withbusiness partners.
On certain occasions, the company seal impression certificate will need to be submitted along with thecertificate on registered company information. The company seal impression certificate is a document publicly
certifying the company seal that has been registered. This certificate is used to confirm whether or not company
seals placed on applications, filings, contracts, etc., have been placed there with legitimate authorization fromthe company; the certificate may be obtained from the Legal Affairs Bureau after completion of establishment
registration. The company seal as well as the names of the persons authorized to use the seal must be applied
for registration with the Legal Affairs Bureau when applying for establishment registration. The representativesof the branch office/subsidiary company are the only parties authorized to use the company seal, and theirpersonal seal registration certificates or signature certificates must be presented when registering the company
seal.
In the event of changes to the registered information or the company seal, the prescribed modification
procedures must be completed promptly. Applications for registration of changes to registered information mustbe submitted to the Legal Affairs Bureau within two weeks of the changes for subsidiary companies, and within
three weeks of the changes for branch offices.

14

1.6

Notifications required after registration
After completing the process of incorporation or establishment of a branch, the following notifications need tobe filed with the authorities.

1.6.1

National tax authorities (see SECTION 3 Taxes in Japan for details)

 Notification of incorporation in case of a subsidiary corporation
File within 2 months from date of incorporation.
 Notification of acquisition of status of foreign ordinary corporation in case of a branch
File within 2 months from date of acquisition of status of foreign ordinary corporation.
 Notification of establishment of an office paying salaries.
File within 1 month from establishment of office.
 Application for approval of filing a blue form tax returns (see 3.3.10(3) regarding the blue form return system)
File the day before the sooner of the day 3 months after incorporation or the last day of the first business year
after incorporation.
As other documents needing to be filed with the tax authorities will vary according to the circumstances of acorporation, please consult a professional for detailed advice.

1.6.2

Prefectural and municipal tax authorities

 Notification of incorporation or establishment of branch, etc.
Notifications of incorporation or establishment of branch, etc. must be filed with each of the prefectural andmunicipal authorities to which local taxes are to be paid.
As the forms required vary according to prefecture and municipality, please check the requirements online.
(Example: In the case of a head office established in Tokyo, notification must be filed within 15 days of the dateof start of business.)

1.6.3

Labor standards inspection authorities(See SECTION 4 Human Resource Management for details)

 Labor standards enforcement report
This must be filed without delay when a business becomes subject to the Labor Standards Act (i.e., when it
employs workers).
 Labor insurance: notification of establishment of labor insurance relationship and declaration of estimatedinsurance contributions
A business becomes subject to labor insurance as soon it employs any workers (even if just one). These
documents must be filed within 10 days of the date of hiring and insurance contributions paid within 50 days.
 Agreement on overtime and holiday work
This must be filed in advance if workers will be required to work in excess of statutory working hours (morethan 8 hours per day or 40 hours per week) or on statutory holidays (1 day per week) at a businessestablishment.
 Employment regulations
Any business ordinarily employing 10 or more workers must draw up and submit a copy of its employment
regulations without delay.
Note: “Employees” here also includes representatives of corporations, such as representative directors.

15

SECTION 1 Incorporating Your Business
1.6.4
Public employment security authorities(SECTION 4 Human Resource Management for details)
Notification of coverage of establishment by employment insurance (including notification of acquisition of
insured status)
This must be filed within 10 days of first hiring workers.

1.6.5

Pension authorities (SECTION 4 Human Resource Management for details)

 Notification of first-time coverage by health/employees’ pension insurance
File within 5 days of first hiring employees at a corporation or other establishment covered by social insurance.
 Notification of acquisition of insured status under health/employees’ pension insurance
File within 5 days of hiring employees.
 Notification of addition/removal of dependents of insured employees
File within 5 days if a person (employee) covered by health insurance has dependents.
 Notification of acquisition of type 3 insured status under the National Pension
File within 5 days if a spouse of an insured person (employee) is a dependent.
Note: “Employees” here also includes representatives of corporations, such as representative directors.

16

1.7

Closure of branch offices or subsidiary companies

1.7.1

Closure of a branch office and resignation of all representatives in Japan
Branch offices can be closed down in two ways: by registering the closure of a branch office or by registering
the resignation of all representatives in Japan. A Japanese branch office’s register will not be closed unless all
representatives in Japan resign. This is because it is possible for business to be continued in Japan as long as
representatives are registered. Conversely, a branch office in Japan is closed down when all its representative
directors in Japan resign. The approach commonly adopted in practice is to only register the resignation of all
representatives in Japan. In order to register the resignation of all representatives in Japan, the following
procedure must normally be completed. Creditors of the branch office must be given a period of no less than
one month prior to the closure to submit objections to the closure of the branch office.
General flow of procedures for resignation of all representatives in Japan
1

Decision on branch office closure and resignation of all representatives in Japan by foreigncompany2Call for creditors with objections to the branch office closure, on an individual basis andthrough a notice in official gazettes, to submit claims

3

Notification of tax agent to tax authorities

4

Branch office closure (no sooner than one month after call/notice in 2. above)

5

Preparation of affidavit regarding closure of branch office and resignation of all representatives
in Japan

6

Attestation of affidavit by embassy consul or similar official

7

Application for registration of resignation of all representatives in Japan with the Legal Affairs
Bureau8

Acquisition of certificate on registered closure information (about two weeks after registration
application)

9

Notification of branch office closure to tax authorities, etc.

These procedures for closing a branch office must also be completed when upgrading a branch office to a
subsidiary company. Because a branch office cannot be directly reorganized into a joint-stock corporation(Kabushiki-Kaisha (K.K.)) or a limited liability company (Godo-Kaisha (LLC)), the branch office closure
procedures and the subsidiary company establishment procedures must be carried out simultaneously. In such
instances, however, the branch office's assets may be passed on to the subsidiary through investment in kind.
Once the resignation of all representatives in Japan has been registered, the register is closed without a date
being entered for the branch office’s closure. Although it is normally sufficient for the date of closure to berecorded in the affidavit, it is necessary to register both (1) branch office closure and (2) resignation of all
representatives in Japan if a date of closure is required in the register. Where the address of a representative inJapan and the branch office fall under the jurisdictions of different regional legal affairs bureaus, it may benecessary that a registration application similar to that for registration of transfer of a business office is made to
the bureau with jurisdiction over the representative’s address.
17

SECTION 1 Incorporating Your Business
1.7.2

Dissolution and liquidation of a subsidiary company
The following procedures must be completed when dissolving/liquidating a subsidiary company. Creditors of
the subsidiary company must be given a period of no less than two months prior to the liquidation to submit
objections to the liquidation of the subsidiary company. Should the subsidiary company have negative net assets,
the corporation cannot independently complete the liquidation procedures below but instead must follow special
liquidation procedures under the direction of a court.
General flow of procedures for dissolving/liquidating a subsidiary company(Kabushiki-Kaisha (joint-stock corporation) / Godo-Kaisha (LLC))
1

Resolution at the general meeting of shareholders or equivalent on the dissolution of thesubsidiary company and the appointment of a liquidator

2

Application to the Legal Affairs Bureau for registration of the dissolution of the subsidiarycompany and the appointment of a liquidator

3

Notification to tax authorities of the dissolution of the subsidiary company and theappointment of a liquidator

4

Call for creditors with objections to liquidation of the subsidiary company, on an individual basis
and through notices in official gazettes, to submit claims

5

Preparation of a balance sheet and inventory of property at dissolution

6

Approval by a general meeting of shareholders or equivalent of the above balance sheet andinventory of property (notification delivered to members in the case of a limited liability
company)7

Ascertainment and distribution of residual assets

8

Resolution approving conclusion of liquidation at the general meeting of shareholders orequivalent (no sooner than two months after the call and placement of notices in 4 above)

9

Application for registration of the completion of liquidation of the subsidiary company with theLegal Affairs Bureau

10

Acquisition of certificate on registered closure information (approx. two weeks after application
for registration)

11

Notification of completion of liquidation of the subsidiary company to tax authorities, etc.

18

Reference
1. Consultation with specialists on business establishment
Attorneys-at-law, judicial scriveners and administrative scriveners (gyoseishoshi lawyers) are among thespecialists who may be consulted on the establishment of branch offices and companies. These specialists canbe asked to prepare various documents on a client's behalf (e.g., documentation related to the establishment ofJapanese branch offices and Japanese corporations, transfers of location, changes of executives, changes ofbusiness purposes, increases in capital, organizational changes, mergers, dissolution, etc.). Filing of commercial
registration applications for submission to the Legal Affairs Bureau as attorney-in-fact is the exclusive province of
judicial scriveners and attorneys-at-law.

2. Procedures for establishing a representative office
Representative offices aimed at the collection and provision of information may be freely established without
any registration requirements under the Companies Act; no notification need be provided to tax offices, as
representative offices do not engage in business operations in Japan and thus are not subject to corporate tax.
However, representative offices established by foreign banks, insurance companies, securities companies, orother financial institutions are exceptions; prior notification must be provided to the Financial Services Agency
for such representative offices (as stipulated in the Banking Law, Securities Exchange Law and other laws).
A bank account opened by a representative office will ordinarily be registered jointly in the name of the office
and an individual representative, as in "(name of representative), Japan Representative Office, (name ofcompany)."The documentation generally required for a representative office to open a bank account is asfollows:-

Passport of representative-

Resident card of representative-

Company brochure-

Leasing agreement-

Bank seal

19

SECTION 2 Visas and Status of Residence
2.1

Entry procedures
Any foreign national wishing to enter Japan must have a valid passport, which, in principle, contains a visa
corresponding to his/her purpose of entry into Japan obtained in advance from a Japanese embassy, consulate orother Japanese diplomatic mission abroad (hereinafter, "Japanese diplomatic mission abroad"). Upon landing inJapan, the foreign national must then be screened by, and receive a landing permission stamp from, an immigration
officer at the port of entry, who will decide on the foreign national's status of residence and period of stay (however,as discussed later in 2.6 and 2.8 below, this visa requirement does not apply to entry by nationals of countries withwhich Japan has reciprocal visa exemption arrangements for temporary visitor visa or to entry by foreign nationals
having re-entry permission).

2.2

Relation between visa and status of residence
Within the context of entry and residence procedures, visa and status of residence are two terms easily andoften confused.

2.2.1

Visa
A visa is a recommendation required for entry into Japan received in advance from a Japanese diplomatic
mission abroad that certifies that the passport is a valid passport and that there are no impediments to allowing thepassport holder to enter Japan within the scope of that visa (however, as discussed later in 2.6 and 2.8 below, thisvisa requirement does not apply to entry by nationals of countries with which Japan has reciprocal visa exemption
arrangements for temporary visitor or to entry by foreign nationals having re-entry permission).

2.2.2

Status of residence
Foreign nationals entering and residing in Japan must generally receive landing permission upon arriving at theirport of entry, at which time their status of residence in Japan will be determined. In other words, the status ofresidence constitutes the grounds on which a foreign national is permitted to stay in Japan; it is a qualification
enabling the foreign national to carry out the activities stipulated in the Immigration Control and Refugee
Recognition Act and to reside in Japan for the purpose of carrying out those particular activities. The scope ofactivities in which a foreign national may engage during his/her stay in Japan is determined according to his/her
status of residence. Except where a permit to engage in an activity other than that permitted by the status ofresidence is obtained, the foreign national must not, in principle, engage in any activities generating an income
other than those permitted by his/her status of residence.

20

2.3

Process from acquisition of Certificate of Eligibility to acquisition of visa
Visas are applied for and received at Japanese diplomatic missions abroad. However, Japanese diplomatic
missions abroad may be unfamiliar with circumstances in Japan, leading to delays and other difficulties in screening
applications for long-term stay visas such as those for foreign nationals seeking to work in Japan. In light of this, theImmigration Bureau in Japan often screens these applications to determine whether or not the activities intended by
the foreign national wishing to enter and reside in Japan correspond to the conditions for the visa being sought; if it
is determined that these activities do in fact meet the visa conditions, a Certificate of Eligibility is issued. If thisCertificate of Eligibility is presented to a Japanese diplomatic mission abroad together with a visa application, theconditions for entry/residence will ordinarily be deemed satisfied and a visa promptly issued. A Certificate of
Eligibility is not applicable to temporary visitor visa.

Flowchart from application for Certificate of Eligibility to visa acquisition andentry into Japan (general example)
In Japan

Application for Certificate of Eligibility (submitted to Immigration Bureau in Japan) by the applicant or his/her
proxy
Issue of Certificate of Eligibility (by Immigration Bureau in Japan); sent to applicant or his/her proxy in Japan*

Outside Japan

If a foreign national who has applied for a Certificate of Eligibility is already in Japan on a temporary
visitor status of residence when the Certificate of Eligibility is issued, that foreign national may be able tochange his/her temporary visitor status of residence to the status of residence approved in theCertificate of Eligibility while still in Japan, without the need to apply for and receive a visa at a Japanesediplomatic mission outside Japan.

Visa application accompanied by Certificate of Eligibility at Japanese diplomatic mission abroad
Visa issue at Japanese diplomatic mission abroad

In Japan

Entry into Japan (landing permission: In principle, it shall be acquired within three months from the issuancedate of Certificate of Eligibility); presentation of passport and visa, submission of Certificate of Eligibility, andreceipt of seal of landing verification in passport at port of debarkation, and issuance of resident card toforeign nationals residing in Japan for the mid to long term

(Note) At Narita, Haneda, Chubu, Kansai, Shinchitose, Hiroshima and Fukuoka Airports, besides having a seal of landing verification stamped in their
passports, mid-to long term residents will be issued a resident card. At other ports of entry/departure, a seal of landing verification will bestamped in the passport and a resident card will be issued after a mid-to long-term resident follows the residency procedure at the municipal
office of the city/town/village. (Basically, a resident card will be mailed by the Regional Immigration Bureau to the reported place of residence).
A resident card will be issued to mid-to a long-term residents when granted permission pertaining to residence, such as landing permission,
permission for change of resident status and permission for extension of the period of stay (see 2.7).

21

SECTION 2 Visas and Status of Residence
2.4

Types of working statuses

2.4.1

Principal working statuses related to investment in Japan
Below are shown the principal statuses of residence related to investment in Japan and the activities authorizedin Japan for each status- For more information: Immigration Bureau, Ministry of Justice “Immigration control IMMIGRATION 2015”(2.Equitable immigration control for all persons, List of Status of Residence)<Table 2-1>
Business Manager
Engineer/Specialist in
Humanities/
International Services

Activities to manage trades and other business in Japan or get engaged inadministration of the relevant business.
Activities to engage in services that require skills or knowledge pertinent to physicalscience, engineering or other natural science fields, or jurisprudence, economics,sociology or other human science fields or activities to engage in services that require
specific ways of thought or sensitivity based on experience with foreign culture, on thebasis of a contract with a public or private organization in Japan.

Intra-company

Activities on the part of personnel who are transferred to business offices in Japan for a

Transferee

limited period of time from business offices that are established in foreign countries by
public or private organizations which have head offices, branch offices or other businessoffices in Japan and who engage at the business offices in the activities described under

Legal/Accounting
Services
Skilled Labor"Engineer" or "Specialist in Humanities/International Services."
Activities to engage in the legal or accounting business. An applicant must be a foreign
attorney, a foreign certified public accountant or those with some other legal
qualifications.
Activities to engage in services that require industrial techniques or skills belonging to
special fields, on the basis of a contract with a public or private organization in Japan.

2.4.2

Documentation needed when applying for a Certificate of Eligibility
The following documentation is generally needed when applying for a Certificate of Eligibility for all working
statuses:(1)

Application for Certificate of Eligibility(2)

One full-face photograph (4 cm in height x 3 cm in width)(3)

Return-mail envelope (with 392 yen postage affixed)(4)

Document certifying academic qualifications (may not be necessary in some cases)(5)

Curriculum vitae (may not be necessary in some cases)(6)

Certified copy of the company register of an inviter in Japan(7)

Company brochure of an inviter in Japan(8)

Copy of financial statements or business plan of an inviter in Japan(9)

Copy of information returns for total table or copy of notification on the establishment of an inviter in Japansuch as salary-paying office

In addition to the above, submission of a copy of an employment agreement, certificate of employment, foreigncompany's business brochure, business license, and similar documents will be required depending on the type ofstatus of residence.

222.4.3Documentation needed when applying for a working visa
The following documentation is generally needed when applying for a working visa at a Japanese diplomatic
mission abroad after a Certificate of Eligibility has been issued:

2.4.4

(1)

Application for visa

(2)

Passport(3)

Certificate of Eligibility and copy thereof(4)

Full-face photograph (1-2 photos, 4.5 cm in height x 4.5 cm in width)

Relation between type of operation in Japan and status of residence
A foreign company can establish a business presence in Japan in one of three ways, as described in 1.1 "Types ofoperation in Japan”. Typically, however, companies do so by establishing a representative office, branch, or
subsidiary company. The relationship between each of these types of operation and the status of residence of theirrepresentatives is determined by the conditions and criteria for each status, but the following is generally likely to be
applicable:
Representative of representative office ---- "Intra-company Transferee"
Representative of branch --------------------- "Intra-company Transferee" or "Business Manager"
Representative of subsidiary company ----- "Business Manager"
The status of residence of foreigners (except persons falling under the category of "Business Manager")
employed by a representative office, branch or subsidiary company will be "Intra-company Transferee" or otherstatuses matching each employee's academic/work record and the nature of his/her work in Japan("Engineer/Specialist in Humanities/International Services", etc.).

2.4.5 Status of residence for foreign IT professionals
Foreign IT professionals are generally considered to fall under the status of residence for "Engineer/Specialist in
Humanities/International Services". If a professional is deemed highly skilled by the "points-based system" based on
educational background, work experience, annual income, etc. and gains the status of residence for Advanced
specialized/technical activities: "Class 1 (b) Highly Skilled Professional", the person may be eligible for preferential
immigration treatment (See 2.11). If a person wants to obtain the status of residence for "Engineer/Specialist in
Humanities/International Services", then the person has to have an income equal to or higher than the amount aJapanese would earn in the same job and should fall under any of the following:(1) Majored in subjects related to skill/knowledge in the field of natural sciences or humanities and graduated fromuniversity, or received education at a similar level or higher(2) Majored in subjects related to skill/knowledge in the field of natural sciences or humanities and completed a
specialized course at an advanced vocational school in Japan (Only those who have been given the diploma or
Advanced diploma")(3) Have more than 10 years of work experience (including the period spent majoring in the related subjects atuniversity, etc.)
However, (1) to (3) above are not required if the person has one of the IT qualifications or has passed one of the IT
exams specified in announcements by the Minister of Justice.

23

SECTION 2 Visas and Status of Residence
2.5

Temporary visitor visa and status
Temporary visitor status covers tourism, recuperation, sports, visits to relatives, field trips, participation in shortcourses or meetings, business liaison and similar activities undertaken staying temporarily in Japan. Holders of
temporary visitor status may not engage in working activities. Some concrete examples of the type of person
involved in business who would be covered by this status are as follows:-

Persons staying in Japan for the purpose of field trips and inspections (e.g. plant tours and trade fair visits)-

Persons participating in short courses and briefings organized by companies-

Persons participating in conferences and other meetings-

Persons sent to Japan for business liaison, business negotiations, contract signing, after-sales service,advertising or publicity, market research or other short-term business activities
Market research and other activities in preparation for investing in and commencing a business in Japan arenormally considered to fall under temporary visitor status. The periods of stay of temporary visitor status are 90
days, 30 days, and designated numbers of days up to 15 days.

2.6

Reciprocal visa exemptions for temporary visitor
The countries listed on the website of the Ministry of Foreign Affairs of Japan have concluded reciprocal visa
exemption arrangements with Japan, and nationals of these countries wishing to engage in activities that fall within
the scope of a temporary visitor are not required to receive a visa to enter Japan. However, these visa exemption
arrangements will naturally not apply to foreign nationals intending to work or engage in other activities forcompensation.
-

List of countries that have visa exemption arrangements with Japan
Ministry of Foreign Affairs of Japan website: http://www.mofa.go.jp/j_info/visit/visa/short/novisa.html

24

2.7

Resident card and residency management system
Under the residency management system for foreign nationals in Japan, “resident cards” are issued to foreign
nationals. For details of the residency management system and resident card, please see the following website:
Immigration Bureau of Japan website:-

http://www.immi-moj.go.jp/newimmiact_1/pdf/language/007.pdf

2.7.1

What are resident cards?
Resident cards are cards issued to foreign nationals residing legally in Japan for the mid- to long-term who haveresident status under the Immigration Control Act (“mid- to long-term residents”) when they are granted aresidence-related permit, such as landing permission, permission for change of status of residence, and permission
for extension of period of stay. Mid- to long-term residents carry a resident card while living in Japan, and areincluded in the Basic Resident Register like Japanese nationals. In addition to a photograph of the bearer (excluding
those cards which expire by the bearers’ 16th birthdays), the resident card contains information such as the bearer’s
identity, address, and status of residence. Should any of these details change, the bearer is required to notify theauthorities.

2.7.2

Who are issued resident cards?
Resident cards are issued to mid- to long-term residents who do not come under any of (1) through (6) below:
(1)
(2)
(3)
(4)

Persons granted permission to stay for 3 months or lessPersons granted “Temporary Visitor” status
Persons granted “Diplomat” or “Official” status
Persons recognized by Ministry of Justice ordinance as equivalent to foreign nationals coming under any of(1) to (3) above(5) Special permanent residents(6) Persons with no resident status

2.7.3

Information recorded on resident cards
The following information is included on resident cards:
(1)
(2)
(3)
(4)
(5)
(6)
(7)

2.7.4

Name, date of birth, sex, and nationality or region
Place of residence (address of main residence in Japan)
Status of residence, period of stay, and date of expiration of period of stay
Type and date of permission
Number, date of issue, and date of expiration of resident card
Working restrictions (if any)
Details of permission to engage in activities other than that permitted under the status of residence
previously granted (if any)

Period of validity of resident cards
Resident cards are valid for certain periods. These are as follows.
<Table 2-2>
Age

Permanent residents

Non-permanent residents

16 or older

7 years from date of issue

Expiration date of period of stay

Under 16

Until 16th birthday

Earlier of expiration date of period of stay or
16th birthday

25

SECTION 2 Visas and Status of Residence
2.7.5

Notification requirements regarding resident cards
Mid- to long-term residents are required to notify the authorities in the event of any change in the details enteredin the resident card and certain other matters during the period of stay. These notifications regarding resident cards
are of the following types: (1) notification of place of residence and (2) notification of item other than place ofresidence.
(1)

Notification of place of residence (performed at municipal office)1) Foreign nationals newly arriving in Japan (mid- to long-term residents)
Mid- to long-term residents must visit the municipal office where they live with their resident card (orpassport if a resident card was not issued at the time of entry to Japan) to file notification of place ofresidence within 14 days of establishing a place of residence.
2) Foreign nationals moving into a new address (mid- to long-term residents)
Mid- to long-term residents who have changed their place of residence must visit their new municipal
office with their resident card to file notification of their place of residence within 14 days of moving to
the new residence.

(2)

Notification of items other than place of residence (performed at a regional immigration bureau)
When filing any of the following notifications or applications, foreign nationals are required to bring their
passport, photo, and resident card. A new resident card will as a rule be issued on the day of notification orapplication.
1) Notification of change of name, date of birth, sex, nationality/region
Notification must be filed within 14 days of the change of name, date of birth, sex, or
nationality/region.
2) Application to update period of validity of resident card
A permanent resident or a foreign resident of Japan younger than 16 years old whose resident card
expires on his/her 16th birthday is required to apply to renew the period of validity of the resident card
before it expires.
3) Application for re-issuance of resident card
In case of loss or theft of a resident card, foreign residents must apply for re-issuance within 14 days ofnoticing this (or the day of reentry to Japan if noticed outside Japan).

The above notifications and applications must be made in person at a regional immigration bureau by theindividual concerned. However, if that person is under the age of 16 or unable to do so because of illness, etc., a
co-resident family member must file the notification or application on his/her behalf. If approved by the director of aregional immigration bureau, a legal representative or any of the following persons requested by the individual may
submit documents or complete other procedures related to notifications and applications on his/her behalf:-

An employee of a host institution or charitable corporation approved by the director of a regional
immigration bureau-

An attorney or an administrative scrivener (gyoseishoshi lawyer) who files a notification regarding
documents submission with the director of a regional immigration bureau by way of the bar association oradministrative scrivener association to the attorney or administrative scrivener belongs

In certain cases, family members, cohabitants, and persons equivalent to cohabitants of the individual who havebeen approved by the director of a regional immigration bureau may also complete procedures related to
notifications and applications on behalf of the individual.

26

2.7.6 Notifications required by the residency management system
Notification concerning organization to which foreign resident belongs (submitted to a regional immigration
bureau)1)

Notification regarding organization to which foreign resident belongs
In the case that a mid- to long-term foreign resident with “Engineer/Specialist in Humanities/International
Services” or another working status (excluding “Artist,” “Religious Activities,” and “Journalist”), or “Student”
or another learning status, leaves the organization (employer or educational institution) to which he/shebelongs (due to termination of contract) or moves to another organization (on a new contract), or such anorganization changes its name, location, or ceases to exist, he/she is required to file notification of such fact
within 14 days by any of the following: visiting a regional immigration bureau (bringing his/her resident cardwith him/her), posting notification to the Tokyo Regional Immigration Bureau (enclosing a photocopy ofhis/her resident card), or submitting notification online using the “Immigration Bureau’s Electronic
Notification System” at
https://www.ens-immi.moj.go.jp/NA01/NAA01SAction.do;jsessionid=005DB75B6B8F1A2DCBD375A4D6E3F
F4AS02?hdnGng=L2.

2)

Notification regarding spouse
A mid- to long-term foreign resident who is married, has resident status of “Dependent” or similar, and loses
his/her spouse by death or divorce is required to file notification of this fact within 14 days by visiting a
regional immigration bureau (bringing his/her resident card with him/her), posting notification to the Tokyo
Regional Immigration Bureau (enclosing a photocopy of his/her resident card), or submitting notification
online using the “Immigration Bureau’s Electronic Notification System” at
https://www.ens-immi.moj.go.jp/NA01/NAA01SAction.do;jsessionid=005DB75B6B8F1A2DCBD375A4D6E3F
F4AS02?hdnGng=L2.

27

SECTION 2 Visas and Status of Residence
2.8

Re-entry permission

2.8.1

What is re-entry permission?
A foreign national residing in Japan who wishes to leave Japan temporarily within his/her permitted period ofstay and, after traveling to his/her home country or a third country, to enter and reside in Japan again with the same
status of residence as before needs to apply for and receive re-entry permission. Under this system, a foreign
national who receives re-entry permission before leaving Japan does not need to apply for an entry visa again at aJapanese diplomatic mission abroad prior to re-entering Japan, and can reside in Japan after re-entry with the same
status of residence held prior to leaving Japan. Please note that departing Japan without receiving this re-entry
permission will result in forfeiture of the status of residence and the period of stay previously granted.

2.8.2

Types of re-entry permits
There are two types of re-entry permits: single re-entry permit, which allows only one re-entry into Japan during
the period of validity, and multiple re-entry permit, with which one can leave and re-enter Japan any number oftimes during the period of validity. Multiple re-entry permit is especially convenient for those persons who must
often travel back and forth between Japan and the parent company or other foreign business locations. It is notpossible to obtain re-entry permission exceeding the permitted period of stay in Japan. In addition, persons staying
in Japan on a temporary visitor status of residence are not normally eligible for re-entry permission.

2.8.3

Application method
As a general rule, the foreign national must personally appear at the Regional Immigration Bureau (or branch
office thereof) having jurisdiction for the location in which he/she resides to apply for re-entry permission. However,if the foreign national is under the age of 16 or is unable to appear personally due to illness or some other reason, aparent or spouse may apply on his/her behalf. The applicant also need not appear personally at the Immigration
Bureau if applying through an application agent who has been authorized by the Immigration Bureau or has
registered with the Immigration Bureau as an application agent.

2.8.4

Necessary documentation, fees, etc.
-

Application for re-entry permission-

Passport (re-entry permit will be delivered into the passport)-

Resident card (or alien registration certificate deemed equivalent to a resident card)-

Payment of fees through the purchase of revenue stamps
3,000 yen for single re-entry permit
6,000 yen for multiple re-entry permit

2.8.5

Special re-entry permit system
The introduction of the new residency management system from July 9, 2012 was accompanied by the
introduction of a new “special re-entry permit” system. Under this system, foreign nationals in possession of a valid
passport and resident card who declare their intention when they leave to re-enter Japan within 1 year of theirdeparture to continue their activities in Japan are no longer, in principle, required to obtain a re-entry permit.
However, if the period of stay will expire less than 1 year after departure, they must re-enter Japan before theexpiration of this period of stay.
(Note) This special re-entry permit system also applies to foreign nationals in possession of a passport stating “A resident card is to be issued later”.

28

2.9

Family members accompanying working foreign nationals
Spouses and children dependent on working foreign nationals are granted a "Dependent" status of residence
and are permitted to engage in the day-to-day activities of a dependent spouse or child of a working foreign national
residing in Japan. Activities such as attendance at school fall within the scope of activities of a "Dependent," butwork for compensation is in principle prohibited; part-time work ( in principle no more than 28 hours per week) is
possible if permission to engage in activities other than that permitted under the status of residence previously
granted is received.
Applications for Certificates of Eligibility and subsequent visa for "Dependents" may be submitted at the sametime as those applications for the working foreign national, but applications for "Dependents" may also be submitted
after the working foreign national has first received status of residence to work in Japan.

2.10 Extension of period of stay and change of status of residence
2.10.1 Extension of period of stay
The period of stay is decided together with the status of residence when the foreign national lands in Japan orchanges his/her status of residence, and the foreign national may only reside in Japan for this stipulated period ofstay.
Consequently, a foreign national wishing to continue the same activities in Japan with his/her present status ofresidence beyond this stipulated period of stay must apply for an extension of this period of stay no later than thelast day of that period of stay. Extensions will not be granted if the purpose of the stay has already been completedor there are other problems connected with the status of residence.
Applications for extensions of periods of stay may be submitted from around three months before the expiration
date of the period of stay if the period of stay is at least six months. If a foreign national applies for an extension
before his/her period of stay expires (excluding where made by a foreign national granted permission to stay for 30days or less) and no decision has been made on the application by the expiration date, he/she may remain in Japan
under the same status of residence until the date on which a decision is made on the application or two months
have elapsed from the original expiration date, whichever is the shorter period.
Regarding period of stay, please refer to the following web site,Immigration Bureau, Ministry of Justice “Immigration control IMMIGRATION 2015”

2.10.2 Change of status of residence
A foreigner residing in Japan who wishes to cease the activities in which he/she is currently engaged and toengage exclusively in activities belonging to a status of residence other than that which he/she presently holds must
apply and receive permission for a change of status of residence. For example, a foreign national dispatched from aparent company in a foreign country to a subsidiary in Japan and currently residing in Japan on an "Intra-company
Transferee" status of residence who wishes to resign from the company to which he is dispatched and to invest in
and operate his own company needs to apply and receive permission for a change to "Investor/Business Manager"
status of residence.
However, applications for a change in status of residence are not automatically approved, and permission will not be
granted if the new activities do not correspond to the requirements and criteria of the status of residence sought.
If a foreign national has applied for a change in status of residence (excluding applications made by persons
granted a period of stay of not more than 30 days) and no decision has been made on the application by the
expiration date of the period of stay granted in respect of the applicant's status of residence, the applicant may
remain in Japan under the same status of residence until the date on which a decision is made on the application or
two months have elapsed from the original expiration date, whichever is the shorter period.

29

SECTION 2 Visas and Status of Residence
2.11 Points-based preferential immigration treatment for highly skilled foreign professionals
2.11.1 What is the points-based system for highly skilled foreign professionals?
It is the preferential immigration treatment system for highly skilled foreign professionals who receive at least acertain number of points (70 points) by utilizing the points-based system for highly skilled foreign professionals,
which was designed to promote acceptance of highly skilled foreign professionals who can be expected tocontribute to Japanese economic growth, etc. and have a high level of ability. For the highly skilled foreign
professional who newly enters Japan, the status of residence "Class 1 Highly Skilled Professional" and preferential
treatment are provided first. For the foreign professional who has stayed in Japan for more than three years after
receiving the status of residence called Class 1 Highly Skilled Professional, Class 2 Highly Skilled Professional andfurther preferential treatment are provided.
For details of the system, please see the following website :Immigration Bureau of Japan website : http://www.immi-moj.go.jp/newimmiact_3/en/index.html

2.11.2 Point evaluation
As requested by applicants, the activities of highly skilled foreign nationals are classified into the following
categories. Points are assigned for “educational attainment,” “professional experience,” “annual salary,” “research
performance,” etc. based on the nature of the category of activity.
(1)

Advanced academic research activities: "Class 1(a) Highly Skilled Professional"(2)

Advanced specialized/technical activities: "Class 1 (b) Highly Skilled Professional"(3)

Advanced business management activities: "Class 1 (c) Highly Skilled Professional"

2.11.3 Relaxations of requirements for certification as a highly skilled foreign professionals
In order to promote acceptance of highly skilled foreign professionals, there have been the following relaxationsof requirements for certification:-

Annual income(1) Abolishment of the minimum annual income criterion for Advanced academic research activities: Class 1(a)Highly Skilled Professional(2) Abolishment of the minimum annual income criteria by age group for Advanced specialized/technical activities
and Advanced business management activities, and introduction of a common minimum annual income
criterion for all age groups, which is now reduced to 3 million yen(3) If a foreign national is transferred from an overseas office, the income received from the office can be
included in his/her annual income when calculating annual income points-

Education and Japanese language skills(1) Additional points given to certain higher degrees (such as Master of Business Administration) on top of thepoints for an academic degree(2) Rise in the points given to a degree obtained at a higher educational institution in Japan from 5 to 10(3) Rise in the points given to Japanese language proficiency from 10 to 1530

2.11.4 Preferential treatment
In case of "Class 1 Highly Skilled Professional":(1)

Permission to engage in multiple types of activity during stay in Japan(2)

Granting of 5-year period of stay(3)

Relaxation of residence requirements for granting of permission for permanent residence (eligibility for(4)

Preferential processing of immigration and residency procedures(5)

Permission for spouse of highly skilled foreign professional to work

(6)

Permission for accompaniment by parent of highly skilled professional under certain conditions(7)

Permission for accompaniment by domestic worker employed by highly skilled person under certain conditions

permanent residence in around 5 years)

In case of "Class 2 Highly Skilled Professional":(1)

Permission for almost all types of working status activities in addition to the activities as "Class 1 Highly Skilled
Professional"(2)

Granting of open-ended period of stay

Granting of the preferential treatments indicated in (3) - (7) above

2.12 Promoting acceptance of foreign entrepreneurs
Promoting to increase foreign entrepreneurs in the national strategic special zones
The Tokyo Metropolitan Government, Fukuoka city and Niigata city, etc. have started accepting applications for the"Program to increase foreign entrepreneurs" taking advantage of the special provisions of the Immigration Control Act for
the national strategic special zones .
If foreign nationals wish to start a business in Japan, they have to obtain a status of residence for a "Business
manager". For the acquisition of this status of residence, according to current rules, they are required to invest at least 5
million yen or employ at least 2 full-time staff members as well as to open a business place for the business. However, in
the "Program to increase foreign entrepreneurs", foreign nationals intending to start a business in above mentioned
autonomous bodies may be given the status of residence for a "Business manager" for 6 months without meeting theabove-mentioned requirements for the status, provided that they submit the required documents including their businessplan to the such autonomous bodies and that the autonomous bodies approve such business plan. This will allow theforeign entrepreneurs to make preparations for the establishment of their business, including satisfying theabove-mentioned requirements, while staying in Japan.

For more information about the Program to increase foreign entrepreneurs, visit the link below:
 Tokyo Metropolitan Government：http://www.seisakukikaku.metro.tokyo.jp/invest_tokyo/english/invest-tokyo/fhr.html
 Fukuoka city：http://www.city.fukuoka.lg.jp/keizai/r-support/business/startupviza_english.html

31

SECTION 2 Visas and Status of Residence
Reference
1. Consultation with specialists for procedures
In Japan, administrative scriveners (gyoseishoshi lawyers) are among the specialists who can provide advice on
the immigration procedures described above.
Administrative scriveners that have registered with the Immigration Bureau to serve as application agents areknowledgeable on immigration control procedures and can act as agents for the submission of applications to the
Immigration Bureau for certificates of eligibility, extensions of period of stay, changes of status of residence, andre-entry permissions, etc. (As individual administrative scriveners work in distinct specialties within theirbroad-ranging profession, not all administrative scriveners are registered in this way to act as application agents).
Administrative scriveners can also offer guidance on documents needed for applications, provide advice on
preparing documents and, when necessary, can act as agent in preparing the documents. Use of these services
exempts foreign applicants and companies employing foreigners from the need to appear personally at the
Immigration Bureau and enable entry procedures to be proceeded accurately and promptly.

2. Flowchart of procedures for establishment of operations in Japanand acquisition of visa/status of residence
The following diagram depicts the sequence of procedures that are typically completed in order to establish andregister the establishment of a new operation in Japan (subsidiary company or branch office) represented by aforeign national, along with the procedures for acquisition of a visa and status of residence.
In Japan

Entry to Japan on "Temporary visitor" visa

Research and preparations for establishment of operations in Japan (subsidiary company or branch office)Registration of establishment of operations (Japanese subsidiary company or branch office) or preparation forestablishment of operations (preparation of articles of incorporation, etc.)

Application for Certificate of Eligibility by applicant or proxy at Immigration Bureau in Japan

Certificate of Eligibility issued and sent to applicant or proxy in Japan by Immigration Bureau in Japan* If a foreign national who has applied for a Certificate of Eligibility is already in Japan on a temporary visitor status ofresidence when the Certificate of Eligibility is issued, that foreign national may be able to change his/her temporary visitor
status of residence to the status of residence approved in the Certificate of Eligibility while still in Japan, without the need toapply for and receive a visa at a Japanese diplomatic mission outside Japan.

Outside Japan

Application for working visa at Japanese diplomatic mission abroad (presentation of Certificate of Eligibility
required)Issue of working visa by Japanese diplomatic mission abroad

In Japan

Entry into Japan (landing permission: In principle, it shall be acquired within three months from the issuancedate of Certificate of Eligibility): Presentation of passport and visa, submission of Certificate of Eligibility, andreceipt of seal of landing verification in passport at port of debarkation, and issuance of resident card to foreign
nationals residing in Japan for the mid to long term

(Note) At Narita, Haneda, Chubu, Kansai, Shinchitose, Hiroshima, and Fukuoka Airports, besides having a seal of landing verification stamped in their
passports, mid-to long term residents will be issued a resident card. At other ports of entry/departure, a seal of landing verification will bestamped in the passport and a resident card will be issued after a mid-to long-term resident follows the residency procedure at the municipal
office of the city/town/village. (Basically, a resident card will be mailed by the Regional Immigration Bureau to the reported place of residence)

32

3.1

Overview of Japanese corporate tax system for investment in Japan

3.1.1

Neutrality of tax system with respect to mode of business presence (branch or subsidiary)Corporations engaged in economic activities in Japan are subject to taxes in Japan on the profits generated bythose economic activities. Steps have been taken, however, to ensure that the tax system does not impose unfair
burdens on multinational corporations engaged in economic activities in Japan on the basis of the mode of theirbusiness presence in Japan.
Income of corporations established in Japan is, as a rule and with the exception of certain non-taxable andtax-exempt income, subject to taxation, regardless of where it was generated (i.e., the source country of income),
but when that income includes profits earned in foreign countries that are taxed in the source countries of that
income, foreign tax credits are available whereby taxes paid in a foreign country may be credited within certain
bounds against Japanese taxes owed for the purpose of eliminating double taxation between the source country ofincome and Japan.
Regarding Japanese branches of foreign corporations, measures such as only certain income is subject totaxation in Japan, have been implemented to avoid international double taxation in Japan. The scope of taxable
income of Japanese branches of foreign corporations has changed significantly from the business year commencing
on or after April 1, 2016. Under the new regulation applicable from the business year commencing on or after April
1, 2016, Japanese branches, head office, etc. shall be respectively deemed to be an independent corporation andsubject to taxation. Due to this, the income of a Japanese branch subject to taxation will be the income attributable
to the Japanese branch (permanent establishment) which is the income earned by the Japanese branch on the basisthat if the branch is deemed to be a company which is separated/independent from the head office, etc. as well asother prescribed income. When calculating the income attributable to the Japanese branch (permanentestablishment), the profits/losses from the internal transactions between the branch and head office, etc. are to berecognized based on the presumption that transactions are conducted with the arm's length prices. With the change
in the scope of taxable income of Japanese branches (permanent establishment), new foreign tax credits have also
become available to foreign corporations. When the income that the Japanese branch (permanent establishment)
has earned in a third country which is attributable to the Japanese branch (permanent establishment) is taxable in
the third country, foreign tax credits are available whereby taxes paid in the third country may be credited withincertain bounds against Japanese taxes owed to avoid international double taxation.

3.1.2

Withholding at source and self-assessment/payment
Multinational corporations engaged in activities in Japan that earn income subject to taxation in Japan calculate
and pay the taxes owed through withholding procedures or self-assessed income tax procedures according to theirform of corporation and type of income.

33

SECTION 3 Taxes in Japan
3.2

Domestic-sourced income

3.2.1

Domestic-sourced income in the business year commencing by March 31, 2016
Below is the typical example of the domestic-sourced income that forms the basis to determine the tax
treatment on foreign corporations. Please note that the specific scope of taxation differs by the mode of activity of aforeign corporation in Japan, as will be described later.

3.2.2

(1)

Business Income derived from business activities in Japan(2)

Consideration for providing certain services rendered in Japan such as engineers(3)

Rent of real estate and other properties in Japan(4)

Proceeds from the transfer of real estate in Japan(5)

Income derived from the management of assets in Japan(6)

Interest on deposits and savings deposited to offices in Japan(7)

Dividends received from domestic corporations(8)

Interest on loans for business operations in Japan(9)

License fees, royalties and usage fees for machinery and equipment received from business
operation in Japan

Domestic-sourced income in the business year commencing on or after April 1, 2016
As described in 3.1.1, types of domestic-sourced income and taxable scope have also changed from the businessyear commencing on or after April 1, 2016. The major domestic-sourced income in the business year commencing
on or after April 1, 2016 is as follows. In addition, the concept of domestic-sourced income has drastically changed,
and it has been determined that the income, which is attributable to Japanese branches and falls under 3.2.1 (1),(6), (7), (8) and (9) above, is included in the following (1), (2) and (6):(1)

Income attributable to permanent establishment(2)

Income derived from the management/holding of assets in Japan(3)

Proceeds from the transfer of assets in Japan(4)

Consideration for providing certain services rendered in Japan such as engineers(5)

Rent of real estates and other properties in Japan(6)

Other domestic-sourced income

34

3.3

Overview of corporate income taxes(corporate tax, corporate inhabitant tax, enterprise tax)

3.3.1

Establishment of corporations/branches in Japan and tax notification
When a Japanese corporation or a branch office is newly established in Japan in accordance with Japanese law
tax notification pertaining to start-up must be submitted to tax authorities within a prescribed period after
establishment. In the case of a branch office etc, different rule will apply depending on the timing of thecommencement of business year as described below.
<Establishment of Japanese branches, etc. of foreign corporation and tax notification (business year commencing
by March 31, 2016)>
When a Japanese branch office etc is newly established in Japan (i.e., where (1-A) of 3.3.4 Table 3-5 businessyear commencing by March 31, 2016 applies), tax notification pertaining to start-up must be submitted to tax
authorities within a prescribed period after establishment. Tax notification must also be submitted when a foreign
corporation generates income subject to corporate tax in Japan without establishing a branch office (i.e., where (2)of 3.3.4 Table 3-5 business year commencing by March 31, 2016 applies) or when carrying out business activities
through locations or parties meeting the conditions below instead of opening a branch office (i.e., where (1-B) of
3.3.4 Table 3-5 business year commencing by March 31, 2016 applies).
Cases where a foreign corporation carrying out activities without establishing a branch office is required tosubmit tax notification:(1)

When construction, installation, assembly or other works, or control and supervision of such works extends
for a period of more than one year.

(2)

When engaging in business through certain agents, as described below:- Parties having and frequently exercising the authority to conclude business agreements on behalf of that
foreign corporation.
- Parties storing assets on behalf of that foreign corporation in a volume/quantity corresponding to theordinary requirements of customers and delivering those assets in response to customers' requests.

- Parties who regularly carry out an important portion of the work required for order acquisition,
consultation and other activities aimed at the conclusion of business agreements solely or primarily onbehalf of a foreign corporation.
<Establishment of Japanese branches, etc. of foreign corporation and tax notification (business year commencing
on or after April 1, 2016)>
When a Japanese branch office etc is newly established in Japan (i.e., where (1) of 3.3.4 Table 3-5 business year
commencing on or after April 1, 2016 applies), tax notification pertaining to start-up must be submitted to tax
authorities within a prescribed period after establishment. Tax notification must also be submitted when a foreign
corporation generates income subject to corporate tax in Japan without establishing a branch office (i.e., where (2)of 3.3.4 Table 3-5 business year commencing on or after April 1, 2016 applies).

35

SECTION 3 Taxes in Japan
3.3.2

Corporate income taxes and tax rates
The taxes levied in Japan on income generated by the activities of a corporation include corporate tax (nationaltax), local corporate tax (national tax), corporate inhabitant tax (local tax), enterprise tax (local tax), and special
local corporate tax (a national tax, although filings and payments are made to local governments along with thosefor enterprise tax) (hereinafter collectively referred to as "corporate taxes"). Except in instances requiring
exceptional treatment, the scope of income subject to corporate inhabitant tax and enterprise tax is (including
special local corporate tax; the same applies below) determined, and the taxable income calculated, in accordancewith the provisions for corporate tax. Corporate inhabitant taxes are levied not only on income but also on a percapita basis using the corporation's capital and the number of its employees as the tax base. Corporations having
paid-in capital of more than 100 million yen are subject to enterprise tax on a pro forma basis (see 3.3.3).
The income calculated for each business year is used as the tax base for determining these corporate taxes to belevied on a corporation's income. Other corporate taxes include corporate taxes on reserves for retirement pensions,etc. (suspended in the case of business years commencing by March 31, 2017).
The tax rates for corporate tax, corporate inhabitant tax and enterprise tax on income (tax burden on corporate
income) and per capita levy on corporate inhabitant tax for each taxable year are shown below. The rates for local
taxes may vary somewhat depending on the scale of the business and the local government under whose
jurisdiction it is located.
Please note that applicable tax rates will vary according to the timing.
<Table 3-1 Effective tax rates (standard tax rates basis) (rounded to two decimal places)>
Small and medium-sized enterprises*1

Up to 4 million yen

Over 4 million yen
to 8 million yen

Over 8 million yen

Enterprises*3other than small
andmedium-sizedenterprises*1

April 1, 2015 to March 31, 201621.42%

23.20%

34.33%

32.11%

April 1, 2016 to March 31, 201721.42%

23.20%

33.80%

29.97%

33.80%

29.97%

33.59%

29.74%Start dateof a business year

Taxable income

Brackets

April 1, 2017 to March 31, 2018
On or after April 1, 2018*2

*2

(Reference rate )25.99%(Reference rate*2)
25.99%(Reference rate )27.57%(Reference rate*2)
27.57%* 1 Small and medium-sized enterprises meeting the all three conditions below.
- Paid-in capital is 100 million yen or less. This does not apply to wholly-owned subsidiaries of large corporations with paid-in capital of 500
million yen or more.
- Corporate tax amount is 10 million yen or less per annum and taxable income is 25 million yen or less per annum.
- Offices or factories located in up to two prefectures.
* 2 As the extension of the special measures of reduced tax rates for small and medium-sized enterprises has not been announced, the rates arereference tax rates on the assumption that the special measures will be abolished on March 31, 2017.
* 3 Enterprises other than small and medium-sized enterprises are the enterprises with the paid-in capital of over 100 million yen and offices orfactories located in at least three prefectures. The effective tax rates for these enterprises are calculated using the standard tax rates.

<Table 3-2 Tax burden on corporate income (rounded to two decimal places)>
Business year commencing between April 1, 2015 and March 31, 2016
(applicable only to the small and medium-sized enterprises meeting the conditions specified in * 1 of <Table 3-1>)
Brackets of taxable income

Up to 4 million yen

Over 4 million yen to 8 million yen

Over 8 million yen

Corporate tax
Local corporate tax
Corporate Inhabitant taxes
1. Prefectural
2. MunicipalEnterprise tax
Special local corporate tax

15.00%
0.66%

15.00%
0.66%

23.90%
1.05%

0.48%
1.46%
3.40%

0.48%
1.46%
5.10%

0.76%
2.32%
6.70%

1.47%

2.20%

2.89%

Total tax rate

22.46%

24.90%

37.63%(Note) The rates for corporate inhabitant tax and enterprise tax are shown using Tokyo as an example.

36

(Sample calculation of tax where taxable income is 10 million yen : Total amount of tax is 2,647,200 yen)Brackets of taxable income
Corporate tax
Local corporate tax
Corporate Inhabitant taxes
1. Prefectural
2. MunicipalEnterprise tax
Special local corporate tax

Up to 4 million yen

Over 8 million yen

Total amount

4,000,000 yen x 15%=600,000 yen
4,000,000 yen x 0.66%= 26,400 yen

Over 4 million yen to
8 million yen
4,000,000 yen x 15%=600,000 yen
4,000,000 yen x 0.66%= 26,400 yen

2,000,000 yen x 23.90%=478,000 yen
2,000,000 yen x 1.05% =21,000 yen

1,678,000 yen

4,000,000 yen x 0.48%=19,200 yen
4,000,000 yen x 1.46%=58,400 yen
4,000,000 yen x 3.40%= 136,000 yen
4,000,000 yen x 1.47%= 58,800 yen

4,000,000 yen x 0.48%=19,200 yen
4,000,000 yen x 1.46%=58,400 yen
4,000,000 yen x 5.10%=204,000 yen
4,000,000 yen x 2.20%=88,000 yen

2,000,000 yen x 0.76% =15,200 yen
2,000,000 yen x 2.32% =46,400 yen
2,000,000 yen x 6.70%= 134,000 yen
2,000,000 yen x 2.89%= 57,800 yen

53,600 yen

73,800 yen

163,200 yen
474,000 yen
204,600 yen

Business year commencing between April 1, 2016 and March 31, 2017
(applicable only to the small and medium-sized enterprises meeting the conditions specified in * 1 of <Table 3-1>)
Brackets of taxable income

Up to 4 million yen

Over 4 million yen to 8 million yen

Over 8 million yen

Corporate tax
Local corporation tax
Corporate inhabitant taxes
1. Prefectural
2. MunicipalEnterprise tax
Special local corporate tax

15.00%
0.66%

15.00%
0.66%

23.40%
1.03%

0.48%
1.46%
3.40%
1.47%

0.48%
1.46%
5.10%
2.20%

0.75%
2.27%
6.70%
2.89%

Total tax rate

22.46%

24.90%

37.04%

Business year commencing between April 1, 2017 and March 31, 2018
(applicable only to the small and medium-sized enterprises meeting the conditions specified in * 1 of <Table 3-1>)
Brackets of taxable income

Up to 4 million yen

Over 4 million yen to 8 million yen

Over 8 million yen

Corporate tax(Reference rate)
19.00%*1
1.96%(Reference rate)
19.00%*1
1.96%

23.40%
2.41%

0.19%
1.14%
5.00%
abolished

0.19%
1.14%
7.30%
abolished

0.23%
1.40%
9.60%
abolished(Reference rate)
27.29%*1(Reference rate)
29.59%*1

37.05%

Local corporation tax
Corporate inhabitant taxes
1. Prefectural
2. MunicipalEnterprise tax
Special local corporate tax
Total tax rate

* 1 As the extension of the special measures of reduced tax rates for small and medium-sized enterprises has not been announced, the rates are reference tax
rates on the assumption that the special measures will be abolished on March 31, 2017.

<Table 3-3 Per capita levy on corporate inhabitant tax>
Over
Over
Over
Over
Over
Over
Over
Over

Capital amounts
5,000,000,000 yen--5,000,000,000 yen--1,000,000,000 yen
Or under 5,000,000,000 yen
1,000,000,000 yen
Or under 5,000,000,000 yen
100,000,000 yen
Or under 1,000,000,000 yen
100,000,000 yen
Or under 1,000,000,000 yen
10,000,000 yen
Or under 100,000,000 yen
10,000,000 yen
Or under 100,000,000 yen--Or under 10,000,000 yen--Or under 10,000,000 yen

Employee number
Over 50
Or under 50
Over 50
Or under 50
Over 50
Or under 50
Over 50
Or under 50
Over 50
Or under 50

37

Per capita levy
3,800,000 yen
1,210,000 yen
2,290,000 yen
950,000 yen
530,000 yen
290,000 yen
200,000 yen
180,000 yen
140,000 yen
70,000 yen

SECTION 3 Taxes in Japan
3.3.3

Imposition of enterprise tax on a pro forma basis
Corporations whose capital or investment exceeds 100 million yen are taxed on a pro forma basis using income,added value, and capital as the taxable base. The standard tax rates for income, added value and capital are as
follows.
<Table 3-4 Tax rates of enterprise tax on a pro forma basis>
Business year commencing between April 1, 2015 and March 31, 2016
Income levy

Example: Tokyo
1.755 %

Standard tax rate
1.6 %Over 4 million yen and up to 8 million yen per year

2.53 %

2.3 %Over 8 million yen per year

3.4 %Up to 4 million yen per year

3.1 %0.72 %

Added value levy

0.756 %
0.3 %
0.315 %
93.5% of income levy calculated by thestandard tax rate

Capital levy
Special local corporate tax(Note) Tax rates may differ from the standard tax rate depending on the local government concerned.

Business year commencing between April 1, 2016 and March 31, 2017
Income levy

Example: Tokyo

Standard tax rate

Up to 4 million yen per year

0.395 %

0.3 %Over 4 million yen and up to 8 million yen per year

0.635 %

0.5 %Over 8 million yen per year

0.88 %

0.7 %

1.26 %

1.2 %

0.525 %

0.5 %Added value levy
Capital levy

414.2% of income levy calculated by thestandard tax rate

Special local corporate tax(Note) Tax rates may differ from the standard tax rate depending on the local government concerned.

Business year commencing between April 1, 2017 and March 31, 2018
Income levy

Example: Tokyo

Standard tax rate

Up to 4 million yen per year

1.995 %

1.9 %Over 4 million yen and up to 8 million yen per year

2.835 %

2.7 %

3.78 %

3.6 %Added value levy

Over 8 million yen per year

1.26 %

1.2 %Capital levy

0.525 %

0.5 %to be abolished (to be reflected on the corporate
enterprise tax)

Special local corporate tax(Note) Tax rates may differ from the standard tax rate depending on the local government concerned.

3.3.4

Scope of income subject to corporate tax
The income of corporations established in Japan is subject to taxation in Japan regardless of where it was
sourced. Corporations established in foreign countries are grouped into one of the following tax classifications
according to when the business year started, and the respective domestic-source income specified in 3.2.1 or 3.2.2
is subject to corporate tax, local corporate tax, corporate inhabitant tax and enterprise tax in Japan corresponding totheir classifications. (Note, however, that foreign corporations without PE in (2) of Table 3-5 are not subject tocorporate inhabitant tax and enterprise tax.)

38

<Table 3-5 Overview of taxation of corporate tax and income tax on foreign corporations>
Business year commencing by March 31, 2016
(1) Foreign corporations with PEClassification
Types of income (See 3.2.1)(1-A) Corporations(1-B) Corporations conducting(2) Foreign

having a certain fixed

construction works that take more thancorporations

place of business, such

one year or having an agent satisfying

without PE

as a branchcertain requirements

Income derived from business activities in

Exemption

Japan
Domestic-sourced income

Consideration for dispatch business suchas engineers

Corporate tax

Rent of real estate and other properties inJapanTransfer of real estate in Japan

Corporate tax
Corporate tax

Management of assets in Japan
Interest on deposits and savings

Corporate tax

Withholding at

Dividends etc.

(attributable tosource only (notWithholding at

Interest on loans

domestic

attributable tosource only

Usage fees and other fees

business)domestic business)(Note) Permanent Establishments (PE) are locations, sites, agents, etc. of the foreign corporations falling under the following:
Foreign corporations having a certain fixed place of business(*1), such as a branch, sub-branch, business establishment, office, or factory in Japan.
(*1) However, the following locations do not fall within the definition of a “certain fixed place of business”:(a) A fixed location used by a foreign corporation solely for publicity/advertising, information provision, market surveys, basic study, andother activities auxiliary to the performance of its business (see 3.3.5).
(b) A fixed location used by a foreign corporation solely for the purchasing of its assets.
(c) A fixed location used by a foreign corporation solely for the storage of its assets.
Foreign corporations conducting business through the locations or parties stipulated in 3.3.1(1) or (2) above.

Business year commencing on or after April 1, 2016
Classification(1) Foreign corporations with PE
Income attributable to PE

Types of income (See 3.2.2)(2) Foreign

Domestic-sourced income notcorporations

attributable to PE

without PE

Income from business activities
Management/holding of assets in Japan
Domestic-sourced income

Transfer of real estate in Japan
Consideration for dispatch business such

Corporate tax

as engineers
Rent of real estates and other properties inJapan

Corporate tax

Corporate tax

Other domestic-sourced income
Interest on deposits and savings (3.2.1(6))
Dividends etc. (3.2.1(7))

Withholding at source onlyInterest on loans (3.2.1(8))
Usage fees and other fees (3.2.1(9))

39Withholding at
source only

SECTION 3 Taxes in Japan
3.3.5

Income of representative offices, etc.
Representative offices, etc., through which a foreign corporation engages in business in Japan are not supposed
to derive any income subject to corporation tax from publicity/advertising, information provision, market surveys,
basic study and other activities auxiliary to the performance of its business (see 3.3.4).

3.3.6

Calculation of income subject to corporate tax
The amount of income used as the tax base for corporate taxes on income for each taxable year is determinedby making the necessary tax adjustments to corporate profits calculated using accounting standards generally
accepted as fair and appropriate. Costs and expenses incurred in earning profits are deductible, except in certain
exceptional instances (examples provided below).
Foreign corporations face no restrictions on the locations in which costs and expenses deductible fromJapan-sourced taxable income may be incurred. However, detailed statements of costs and expenses incurred
overseas and deducted from income in Japan must be prepared, and these costs and expenses must be allocatedfairly in the prescribed manner.
Examples of items for which there are limits on deductible costs and expenses:

3.3.7

-

Corporate taxes and penalties-

Nondeductible amount for donations-

Nondeductible entertainment expenses-

Amount of allowance reserves transferred-

Amount exceeding depreciable limit of depreciable and deferred assets-

Write-down of assets-

Compensation or retirement benefits for directors

Taxation of retained earnings of family corporations
A Japanese corporation that is a family corporation and meets certain conditions is subject to taxation of retained
earnings as well as corporate tax on ordinary income. Taxation of retained earnings is calculated by multiplying thetaxable amount of retained earnings (obtained by subtracting the retained earnings deductible from the amount ofretained earnings in each business year) by the special tax rate. The special tax rate varies according to the taxable
earnings. If the annual taxable earnings does not exceed 30 million yen, it is subject to a tax rate of 10%. However,if the taxable earnings exceeds this amount, a rate of 15% is charged on the amount in excess of 30 million yen and
up to 100 million yen, and any amount in excess of 100 million yen is taxed at a rate of 20%.

40

3.3.8Treatment of losses
Net losses under income in each business year are carried forward for the next nine years (or ten years in thecase of losses arising during the business years beginning on or after April 1, 2018). Losses may only be carriedforward in this way if a blue form tax return is filed for the business year in which the loss arose, and a final tax
return is then filed every subsequent year. Note that if a corporation has paid-in capital in excess of 100 million yen
or is a wholly owned subsidiary of a large corporation with paid-in capital of at least 500 million yen (including
foreign corporations), the amount of loss that may be deducted from income cannot exceed 80%* of income.
Certain corporations, such as prescribed small and medium-sized enterprises that file a blue form return, are also
allowed to carry back a loss to the business year commencing not more than one year prior to the date ofcommencement of the business year in which the loss arose, and are allowed to receive a full or partial refund of theamount of corporate tax in the business year in which the loss was carried back.
* The deductible percentage of 80% will be lowered in a phased manner as follows.
Business year commencing between April 1, 2015 and March 31, 2016

65%

Business year commencing between April 1, 2016 and March 31, 201760%

Business year commencing between April 1, 2017 and March 31, 201855%

Business year commencing on or after April 1, 201850%

However the deductible percentage is 100% for a certain period if the corporation is an unlisted company,
undergoing reconstruction, etc.

3.3.9

Corporate reorganization tax system
If a corporation transfers assets as a result of a split, merger, or investment in kind ("reorganization”), gain orloss from the transferred assets is subject to taxation in principle. However, reorganizations meeting certain
conditions, such as certain reorganizations between corporations that are wholly owned/owning directly or indirectlyin ownership or those between corporations that are owned/owning 50% directly or indirectly in ownership,
undertaken for the purpose of a joint venture, are treated as "qualified reorganizations," and qualify for defermentof taxation of gain or loss on the transferred assets.

3.3.10 Filing of tax return and payment of corporate taxes(1)

Final tax return and tax payment
Corporations must file a final tax return for corporate tax, local corporate tax, corporate inhabitant tax,
enterprise tax, and special local corporate tax on their income within two months from the day following thelast day of each taxable year. However, an extension of the deadline for filing a final tax return may berequested, with approval from the director of the taxation office, when a corporation is unable to file a final
tax return because the accounting auditor has not completed the audit or because accounts remain
unsettled for other unavoidable reasons. The income and tax amounts to be entered in the final tax return
must be calculated in accordance with the statement of accounts approved by the general meeting ofstockholders.
The calculated tax must also be paid within this period. The payment deadline will not be extended even if
the deadline for filing of a final tax return is extended as described above. Therefore, interest tax andoverdue tax for the extended period are imposed (as deductible expenses) if the tax payment is madeduring the extended period. Any interim payment made in advance on the amount of tax owed shall be
deducted from the total amount to be paid.

(2) Interim tax return and tax payment
Corporations whose taxable years exceed six months must file an interim return, within two months fromthe day following the end of the first six months of the taxable year, an interim tax return for the period
starting on the first day of that taxable year and ending on the day six months thence, and must pay theinterim amount of tax owed (excluding instances where the amount of tax calculated using the prescribed
formula does not exceed a certain amount).
41

SECTION 3 Taxes in Japan(3) Blue form returns
Tax return forms for corporations come in two formats: white form and blue form. A corporation may file a
blue form tax return with approval from the appropriate national tax office. Corporations filing blue form tax
returns enjoy a variety of tax benefits. To receive approval from the tax office to file a blue form tax return,a corporation must submit an application for approval prepared in the prescribed format no later than the
day prior to the starting day of the taxable year. Newly established subsidiary companies and foreign
corporations establishing new branch offices in Japan must submit the application for approval no later thanthe day prior to either the day following three months since and including the date of the establishment of
the corporation/branch or the last day of the corporation's/branch's initial taxable year after establishment,
whichever comes first, if intending to file a blue form tax return from the taxable year in which the date ofestablishment occurs.

3.3.11 Remittances to home country
Remittances made by subsidiary companies to their parent company arise from business-to-business
transactions, and so are generally regarded as payments of costs/expenses, distributions of profits, loans (orrepayments of loans), and so forth depending on the nature of the transaction concerned. Certain of thesecosts/expenses are deducted when calculating the income of the payer subsidiary companies. Some of thepayments regarded as income of the parent company (e.g., payments of interest, dividends or usage fees) require
withholding of income tax at the source at the time of payment (see 3.4.4).
On the other hand, tax treatment on the remittances made by a branch of a foreign corporation to its head officevaries depending on the business year. In case of the business year commencing by March 31, 2016, theremittances cannot as a general rule be treated as expenses by the payer branch when calculating the taxable
income of the branch. In case of the business year commencing on or after April 1, 2016, as mentioned in 3.1.1, theprofits/losses from the internal transactions are to be recognized based on the presumption that the Japanesebranch is a corporation which is independent from the head office.

3.4

Overview of withholding income tax
Japan’s tax filing system is based as a rule on self-assessed income tax payment where individuals (tax payers)
calculate their annual income and tax amount, and file tax returns by themselves. In addition, a tax withholding
system where companies (salary payers) collect income tax on the date of payment and pay the tax on behalf ofindividuals (income earners), is also introduced for specific incomes. Withholding income tax is assessed against
payments of certain taxable income, whether paid to an individual or a corporation. Income subject to withholding
income tax is determined in accordance with the type of income and the classification of the recipient of that
income.

3.4.1

Withholding at source and payment procedures
Persons/companies who pay income subject to withholding at source must pay the taxation office the amount oftax withheld at source no later than the 10th day of the month following that the income was paid. However, whena payer with a domicile or business office in Japan pays income to a non-resident or a foreign corporation in anothercountry, the withholding income tax may be paid by the last day of the month following that the income was paid.
Regarding withholding tax paid on residents’ salaries, certain professional fees, a special exemption is provided forsmall businesses with fewer than 10 persons on the payroll that allows them to make a prescribed election to pay
withholding income tax in six-month installments twice a year (by July 10 and by January 20).

42

3.4.2

Withholding tax on residents (individuals)
Payments made in Japan of the following or other prescribed income to residents are subject to withholding at
source:3.4.3-

Interest-

Dividends-

Salary, wages, bonuses and similar compensation-

Retirement allowances-

Compensation, fees, etc., to certain professionals

Withholding tax on domestic corporations
Payments made in Japan of the following or other prescribed income to domestic corporations are subject towithholding at source:

3.4.4

-

Interest-

Dividends

Withholding tax on non-residents and foreign corporations
Upon the payments made in Japan of the income described in 3.2.1 (2), (3), (4), (6), (7), (8) and (9) above (Incase of the business year commencing on or after April 1, 2016, prescribed domestic-sourced income described in
3.2.2 (2) - (5) above) to a non-resident or a foreign corporation, or such payments made overseas by payers with adomicile or business office, etc. in Japan, tax should be withheld. Of these payments, payments of certain
categories of income as prescribed for non-residents and for foreign corporations to a non-resident or a foreign
corporation with a permanent establishment within Japan are exempt from withholding taxation, provided that acertificate from the taxation office is presented to the payer attesting that the income will be attributed to thatpermanent establishment and will be added to business income subject to self-assessment for tax purposes.

3.5

Tax treaties
Japan has concluded tax treaties with many countries for the purposes of avoiding double taxation of income
internationally and preventing tax evasion.
The provisions of tax treaties supersede those of domestic law. In determining the tax liability in Japan ofindividuals and corporations domiciled in a country with which Japan has a tax treaty, the location of the source ofincome deemed taxable income under Japanese law (specifically the provisions concerning where the income uponwhich taxation is based is generated), may at times be amended to accord with these tax treaties. Provisions havealso been established in Japan for reducing the tax on, or exempting from tax, various types of income sourced inJapan.
Japan’s Tax Convention Network website: http://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm

43

SECTION 3 Taxes in Japan
3.6

Overview of consumption tax
The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject
to consumption tax. The consumption tax rate is 8% (inclusive of local consumption tax rate of 1.7%). Although theconsumption tax rate is scheduled to increase to 10% (inclusive of local consumption tax rate of 2.2%) from April 1,
2017*1, a reduced consumption tax rate will also be introduced at the same time. The reduced tax rate of 8%(inclusive of local consumption tax rate of 1.76%) will be applied to food and beverages, except for alcoholic drinks
and dining out, and newspapers published more than twice a week (based on a subscription contract).
(1)

Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in(2)

Import transactions: cargo retrieved from a bonded zone

Japan by an enterprise for consideration.
Financial transactions, capital transactions and certain transactions in the areas of medical care, welfare andeducation are deemed non-taxable. Export transactions and export-like transactions such as international
communications and international transport are exempt from consumption tax.
*1 On June 1, 2016, Prime Minister Shinzo Abe announced that the rise in the consumption tax to 10% and the introduction of
the reduced tax rate would be postponed until October 2019.

3.6.1

Self-assessment and payment
Enterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) andparties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods
and procedures respectively provided for them. (If the amount of consumption tax on the taxable base of anenterprise (unless a tax-exempt enterprise) is less than the amount of consumption tax on purchases calculated as
being deductible by the prescribed method, the shortfall is refunded by filing.) In the case of the prescribedcross-border supplies of electronic commerce by foreign enterprises, the Japanese enterprises who receive theprovision of services or foreign enterprises who provide the services are responsible for tax filing.
To ensure that double taxation does not occur at the production and distribution stages, a scheme has been
adopted allowing the deduction of consumption tax on purchasing from consumption tax on sales.

3.6.2

Deduction of purchase tax
Consumption tax on purchasing (receipt of the transfer or rental/lease of assets or the provision of services fromanother party) may be deducted from consumption tax on the taxable base when calculating the amount ofconsumption tax to be paid. The amount of this deduction is limited, however, depending on the percentage oftaxable sales. In order for the consumption tax on the purchase to be deducted, both account ledgers and invoicesthat describe certain matters have to be retained. For the prescribed cross-border supplies of electronic commerceby foreign enterprises, only the consumption tax on the purchases that are subject to the reverse charge system*1

and the purchases that are received from the registered foreign enterprises can be deducted. If taxable sales*2during the base periodamounted to 50 million yen or less, the product of consumption tax on the taxable basemultiplied by a given percentage determined by industry, may be considered the consumption tax on purchasing forthe current taxable year and allowed as a deduction if the prescribed notification is submitted to the director of the
tax office.
It should be noted that documents to be retained in order for the consumption tax on purchases to be deducted
will change with the introduction of the reduced consumption tax rate on April 1, 2017. Between April 1, 2017 andMarch 31, 2021, in addition to the account ledgers and invoices that describe certain matters as before, accountledgers and invoices indicating tax rate categories for separate accounting and the items of which are subject to the
reduced consumption tax rate have to be retained. After the introduction of a so-called ‘invoice system’ on April 1,
2021, qualified invoices issued by registered taxable enterprises need to be retained.

44

3.6.3Tax exempt enterprises*1*2Enterprises whose taxable sales are 10 million yen or less for the base period(excepting enterprises thathave opted to be taxable) and that meet certain conditions are exempt from consumption tax filing/liability for thecurrent year. However, enterprises can elect to be taxable enterprises if the prescribed notification is submitted tothe director of the tax office. A company that has no base period, such as a newly established company, whose
capital at the start of the taxable year is 10 million yen or more and in certain other cases, cannot be a tax-exempt
enterprise in that taxable year.
In case where a corporation’s base period is not one year, the taxable sales during the base period are the amount obtained by prorating thebalance during the below-mentioned base period in the prescribed manner.
Base period: The base period is the full accounting period two years prior to current accounting year. A corporation may not have a full baseperiod if it was a) newly established or b) changed its accounting period during the two-year prior period. The base period for such corporation
is found by combining all accounting periods that commenced during this two-year prior period.

*1
*2

3.7

Overview of individual tax system
All individuals, regardless of nationality, are classified as either residents or non-residents. Individual income tax
comprises self-assessed income tax and withholding income tax. Self-assessed income tax will be levied on theindividual's income for the calendar year.

3.7.1

Concept of residence and taxable income(1)

Residents
Persons having a domicile in Japan* and persons having a residence in Japan for one year or more aretermed residents. The worldwide income of residents, regardless of the location of the source of income, issubject to income tax.
(Note) Non-permanent residents : Residents having no Japanese citizenship and having a domicile or residence in Japan for five years or lesswithin the period of ten years are non-permanent residents. The scope of taxation for non-permanent residents corresponds to thatfor residents, but tax will not be assessed in Japan on income sourced outside Japan as long as that income is not paid within Japan or
is not remitted to Japan. However, the salary paid based on the work in Japan is applicable to domestic-sourced income even if it ispaid outside Japan, and income tax will be assessed summing the salary paid within and outside Japan.

(2)

Non-residents
Persons not qualifying as residents are termed non-residents. Japanese income tax for non-residents will beassessed on income sourced within Japan. As described in 3.4.4 above, the scope of taxable income forwithholding tax on non-residents is covered under the provisions for domestic-sourced income, so, except in
special cases, taxation for non-residents is now more commonly completed only through withholding at
source procedures.
* "Domicile" as used above refers to the principal base and center of one's life. "Residence" refers to a location in which an individual
continually resides for a certain time but which does not qualify as a base and center of his/her life.

<Table 3-6 Scope of personal taxable income>Category of income

Income other than foreign-sourced
incomePaid outside
Japan

Paid within Japan
Type of residence
Residents

Permanent residents

Foreign-sourced income
Paid within
Japan

Paid outside Japan
Remitted toJapan

TaxableNon-permanent residents
Non-residents

Non-taxable

45

Other

SECTION 3 Taxes in Japan
3.7.2

Self-assessed income tax(1)

Self-assessed income tax on residents
Income is calculated using methods established for each of a number of income classifications. The tax is
calculated by subtracting the various income deductions from the total amount of income and thenmultiplying the difference, which is the amount of taxable income, by the progressive tax rates below. Any
withholding income tax levied on the income beforehand will be deducted from the calculated tax.

(2) Self-assessed income tax on non-residents
Non-residents are classified by their circumstances into (a) non-residents having an office, etc., in Japan, (b)non-residents continuously engaged in construction or assembly in Japan for one year or more, or doing
business through a designated agent in Japan, or (c) other non-residents.
Taxable income is calculated within the scope of income established for each classification. The method oftaxation for non-residents will also change in terms of income tax pertaining to 2017 or later. The amount ofself-assessed income tax levied on non-residents is, as a rule, calculated in the same manner as for residents(subject to certain limits such as non-application of applicable income deductions and foreign tax deductions).
Non-residents who earn salary income paid for services provided in Japan and not deemed subject towithholding tax in Japan must file a return and pay a 20.42% tax on the total amount of that salary.
(3) The tax rates for self-assessed income tax on individual income (in the case of residents and of aggregate
taxation of non-residents) are as shown below.
<Table 3-7 Individual income tax rates>
Brackets of taxable income(4)

Tax rates---

Or under 1,950,000 yen

5%Over 1,950,000 yen

Or under 3,300,000 yen

10%Over 3,300,000 yen

Or under 6,950,000 yen

20%

Over 6,950,000 yen

Or under 9,000,000 yen

23%Over 9,000,000 yen

Or under 18,000,000 yen

33%

Over 18,000,000 yen

Or under 40,000,000 yen

40%

Over 40,000,000 yen

---

45%

Income tax on employment income is calculated based on the amount obtained by deducting the following
employment income deductions from income.
<Table 3-8 Employment income deductions>
Employment income

Employment income deductions

Up to 1,625,000 yen

650,000 yen

Over 1,625,000 yen and up to 1,800,000 yen(employment income) x 40%

Over 1,800,000 yen and up to 3,600,000 yen(employment income) x 30% + 180,000 yen

Over 3,600,000 yen and up to 6,600,000 yen(employment income) x 20% + 540,000 yen

Over 6,600,000 yen and up to 10,000,000 yen(employment income) x 10% + 1,200,000 yen

Over 10,000,000 yen and up to 12,000,000 yen
Over 12,000,000 yen *(employment income) x 5% + 1,700,000 yen*
2,300,000 yen* From 2017 onwards, employment income deduction for the income of over 10,000,000 yen will be 2,200,000 yen.

46

3.7.3

Withholding income tax
The withholding income tax for residents and non-residents is as described in 3.4.2 and 3.4.4.

3.7.4

Filing and payment
Residents must submit an income tax return for the income earned each year, except when tax payment
procedures have been completed through withholding at source, and must pay the tax owed between February 16
and March 15 of the following year. Persons whose total income does not exceed total deductions and persons who
receive salary income subject to withholding tax at source (year-end adjustment) from only one payer notexceeding 20 million yen in that year and who have no other income exceeding 200,000 yen do not, as a rule, needto file a return.
As a rule, non-residents file and pay taxes following the same regulations as residents. However, non-residents
leaving Japan without designating a tax agent and reporting this fact to the director of the taxation office must
submit an income tax return and pay the tax owed prior to leaving Japan.

3.7.5

Restoration income surtax
From January 1, 2013, to December 31, 2037, individuals and corporations will be subject to a 2.1% restoration
income surtax on the amount of withholding tax on income and self-assessed income tax. For example, the tax rate
under domestic law for withholding tax on interest paid to a foreign corporation is 20%, to which will be added
restoration income surtax (20% x 2.1%), resulting in a total 20.42% tax withheld at source.
Note that a restoration income surtax is not levied where the withholding tax rate provided for under domestic
law is reduced or eliminated by tax treaty.

3.7.6

Individual inhabitant taxes, individual enterprise tax"Individual inhabitant taxes" is the collective term for prefectural tax and municipal tax on individual income, andpersons having a domicile etc. in Japan as of January 1 each year are subject to these taxes. Individual inhabitanttaxes consist of an income-graded component and a flat-rate (fixed amount) component etc. The income-graded
component is assessed on income for the preceding year and, except in special cases, taxable income for thesetaxes is calculated in accordance with the provisions for calculating income for income tax purposes. Individual
inhabitant tax returns must be filed by March 15, but persons submitting self-assessed income tax returns do nothave to file again for individual inhabitant tax. The standard rates of individual inhabitant taxes for theincome-graded component are as shown below.
<Table 3-9 Standard rates of individual inhabitant tax (income-graded component)>
Prefectural tax rate

Uniformity

4%

Municipal tax rate

Uniformity

6%(Note) The standard rate of tax for the flat-rate component is 1,000 yen for prefectural inhabitant tax and 3,000 yen for municipal inhabitant tax. For 10
years from 2014 to 2023, however, these rates will respectively be 1,500 yen and 3,500 yen.
Tax rates may differ from the standard tax rate depending on the local government concerned.

Individuals engaged in certain businesses specified in local tax laws must pay enterprise taxes. Taxable income
for enterprise tax purposes is generally calculated in accordance with the provisions for calculating income forincome tax purposes, except where special stipulations apply. Returns must be filed by March 15, and taxes must be
paid in August and November in accordance with tax notices issued by the prefectural government. Individual
enterprise tax rates range from 3% to 5%, depending on the type of business.

47

SECTION 3 Taxes in Japan
3.7.7 Inheritance tax and gift tax(1) Taxpayers and scope of taxable properties<Table 3-10 Inheritance & gift taxpayers and scope of taxable properties>
No address in Japan
Heir/Devisee or Legatee/DoneeAddress inJapan

Decedent/Donor

Japanese nationality
Address in Japan
within the prior 5
years

No address in Japanover the prior 5 years
or moreNo Japanesenationality

Address in JapanNo address
in Japan

Address in Japan within theprior 5 years

Both domestic and foreign properties are taxable
Only domestic
properties aretaxableNo address in Japan overthe prior 5 years or more

Hereinafter, a decedent and/or donor is called a person who gave properties and an heir, devisee, legatee and/or
donee is called a person who received properties.
(2) When expatriates received properties by inheritance/gift while in Japan
If a person has an address in Japan at the time of inheritance/gift, the person who received the properties is an
inheritance and gift taxpayer. In this case, regardless of the nationality of the person who received the properties
and the address of the person who gave the properties, all of the properties acquired are taxable. In other words,
not only properties located in Japan but also properties located outside the country are subject to inheritance/gift
tax. Even in the case of expatriates having acquired a property outside Japan by inheritance and so on from theirfamily living in their home country while the expatriates stay in Japan as a representative, the property is subject toJapanese inheritance/gift tax.
(3) When expatriates passed away or gave a gift while in Japan
When a foreign resident acquired a property by inheritance and so on from an expatriate in Japan, if the addressof the person who gave the properties at the time of giving the properties was in Japan, all of the properties
acquired are subject to inheritance/gift tax, regardless of the nationality of the person who received the properties.
In other words, not only properties located in Japan but also properties located outside the country are subject tothe inheritance/gift tax. Even in the case of expatriates having passed away by an accident etc. while in Japan as arepresentative and their family to inherit such property are living in their home country, the property is subject toJapanese inheritance/gift tax.
(4) After expatriates have returned home on completion of their business in Japan
When both the person who gave the properties and the person who received the properties have no address inJapan, only the properties located in Japan are subject to inheritance/gift tax. So properties located outside Japan is
not within the scope of the inheritance/gift tax. However, in the case of the person who received the properties
possessing Japanese nationality, not only the properties located in Japan but also the properties located outside thecountry are subject to inheritance/gift tax if either the person who gave the properties or the person who received
the properties had an address in Japan within the five years prior to the time of the inheritance/gift.
(5) Tax rates of inheritance tax and gift tax
The rates are between 10% to 55% for both the inheritance tax and gift tax, but there is a difference between
the inheritance tax and the gift tax in the taxable amount each tax rate is applied.

48

(6) Foreign tax credits
If a person who has acquired a property located outside Japan by inheritance or gift and the property is subject
to a tax corresponding to the inheritance/gift tax in the country where the property is located, a certain amount of
the tax imposed in the foreign country will be credited against the tax in Japan by the provisions of the foreign tax
credits to avoid double taxation.

3.8

Other principal taxes
There are a variety of other taxes levied on income, the acquisition/ownership of assets, consumption and othertransactions in addition to those described above. Taxes levied on the ownership of assets to which manybusinesses are subject include the fixed asset tax (depreciable property tax) and the city planning tax. Land,
structures and depreciable assets for business use are subject to a fixed asset tax (depreciable property tax) of
1.4%, payable by the owners of said property as of January 1 each year. The city planning tax is surtax on the fixed
asset tax, and is levied at a rate of 0.3% on land and structures within city planning zones. Companies in major
cities such as Tokyo and Osaka having facilities exceeding 1,000 square meters in floor space and/or having morethan 100 employees are subject to business office taxes. The tax rates are 600 yen per square meter of floor spaceand 0.25% of the total amount of employee salaries.
Furthermore, there is a registration and license tax levied for the registration of real estate/companies and theissue of business licenses, as well as a stamp duty payable as a tax on stipulated documents. Gift tax, inheritancetax (see 3.7.7) and other special-purpose taxes must also be borne in mind.

3.9

Other principal corporate taxation regarding international transactions

3.9.1

Foreign tax credits and system of exclusion of dividends from foreign subsidiaries
In order to avoid double taxation of income internationally, a domestic corporation is allowed to credit foreigntaxes imposed on a certain income up to the creditable limit. This foreign tax credit system provides; (1) credits forforeign taxes paid directly by a domestic corporation on income earned by it outside Japan ("direct tax credits"); (2)credits for amounts of tax that have been specially reduced or exempted in a country under the provisions of a tax
convention with that country ("tax-sparing credits"); and (3) credits for foreign taxes corresponding to the income ofa specified foreign subsidiary or similar entity that has been combined with the income of a domestic corporation
under so-called anti-tax haven taxation system.
A Foreign Dividend Exclusion system has been introduced to avoid international double taxation. This allows
domestic corporations to exclude from their taxable income a certain amount of dividend income from qualifying
foreign subsidiaries (i.e., firms that meet shareholding requirements and other conditions).

3.9.2

Transfer pricing taxation
In order to prevent corporations from setting the prices for transactions with a parent company or otheroverseas affiliate at a different amount from ordinary (i.e. arm's -length) prices so as to transfer profits overseas, atransaction is treated as having occurred at the arm's length price and the amount of tax calculated accordingly if
the income derived from the transaction differs from the arm's length price. As a reporting system that enables eachcountry’s tax authorities to grasp the overall pictures of global companies’ business activities has been established,corporations belonging to certain multinational enterprise groups have to submit a prescribed report from the fiscal
year of their ultimate parent company beginning on or after April 1, 2016 onwards.

3.9.3

Anti-tax haven taxation: CFC (Controlled Foreign Company) rule
In order to prevent domestic corporations from evading taxes by retaining income through a foreign subsidiaryestablished in a so-called tax haven, a domestic corporation is taxed by including in its taxable income an amountcorresponding to its interest in the retained earnings of that foreign subsidiary.

49

SECTION 3 Taxes in Japan
3.9.4

Thin-capitalization taxation
If a corporation's borrowing from an overseas controlling shareholder exceeds three times its equity (or analternative reasonable ratio), interest on borrowing corresponding to the excess cannot be deducted from taxable
income.

3.9.5

Japanese earnings stripping rules
Deductions for payments of interest, etc. by corporations to parent companies or other affiliates are now
disallowed to the extent that such interest exceeds 50% of the adjusted taxable income. However, this shall not
apply in the case that the amount of interest paid to affiliates does not exceed 10 million yen or if interest payments
to affiliates are not more than 50% of the total amount of that corporation’s interest expenses.
Note that where interest payments are subject to both these rules and the rules on thin-capitalization taxation
described in 3.9.4 above would apply, the rules under which the non-deductible amount would be greater shallapply.

3.10

Handling of corporate, local, and consumption taxes depending on capital amount
Main items that have different handling in the taxation systems depending on the amount of paid-in capital or
the amount of capital, etc., are as summarized below.

3.10.1 Corporate tax, corporate inhabitant tax and enterprise tax
Main items that have different handling in the taxation systems of corporate tax, corporate inhabitant tax andenterprise tax depending on the amount of paid-in capital and the amount of capital, etc., are as shown in Table
3-11 below. In order to be eligible for each special measure, various requirements, including (successive) filing of ablue form tax return, have to be satisfied. Please check the details of the requirements with tax professionals
individually.
<Table 3-11 Handling of corporate tax and local tax depending on capital amount >Items

Paid-in capital requirements

Remarks (special measures)

Reduced corporate tax rate

100 million yen or less *1

Applicable to the reduced tax rate of 15% for the part ofannual taxable income of 8 million yen or less (see 3.3.2)

Per capita levy on corporate

Depending on amount of

Taxation depending on the amount of capital, etc., theinhabitant tax

capital, etc. *2 *3

number of employees working at a place of business, etc.,
or a combination of these (see Table 3-3 in 3.3.2)

Enterprise tax on a pro forma

100 million yen or less

Exemption (see 3.3.3)

100 million yen or less *1

Tax exemption on retained earnings (see 3.3.7)

100 million yen or less *1

Not applicable to the provision of the maximum amount ofbasis
Special tax rate for certain family
corporations
Carry-over of losses

loss that may be deducted from income *4 (see 3.3.8)
Refund for carry-back of losses

100 million yen or less *1

Being able to receive a refund of the tax paid by offsetting
the loss in the current business year against the income
made in the previous business year (see 3.3.8)*1 The following corporations are not eligible for the special measures described in the Remarks even if their paid-in capital is
100 million yen or less.
-A corporation that is completely dominated by a large corporation (a corporation whose paid-in capital or investment
exceeds 500 million yen, a mutual company defined in the Insurance Business Law or a certain other company)- A domestic corporation that is completely dominated by large corporations and one of all the large corporations have all theshares of or a stake in the domestic corporation50

* 2 The total amount of the increase or decrease of capital etc. resulting from free capital increases or dispositions of deficits
that have been made since a certain past year, which is added to or subtracted from the capital etc. prescribed in the
Corporate Tax Law or other certain amount of capital etc.
* 3 The amount of capital etc. is the sum of the paid-in capital and the capital reserve or the amount of investment in the caseof the amount of capital etc. as of the end of a business year is less than the amount of capital and the capital reserve or theamount of investment (applicable to the business years commencing on or after April 1, 2015).
* 4 However, unlisted corporations and corporations in the middle of reconstruction are eligible for a deduction rate of 100% fora certain period of time regardless of the amount of paid-in capital.
* 5 In addition to the above, there are special measures depending on the amount of capital in the treatment of deductions of
the allowance for bad debts, special provisions for taxation on entertainment expenses, various special write-offs and tax
deductions.

3.10.2 Consumption tax
The main items that have different handling in the taxation system of consumption tax depending on theamount of capital are as shown in Table 3-12 below. Please make sure to check whether or not the requirements for
exemption from the consumption tax are satisfied with tax professionals individually.
<Table 3-12 Handling of consumption tax depending on capital amount >Items

Paid-in capital requirements

Remarks (special measures)

Tax liabilityLess than 10 million yen

Exemption when a company that has no base period, such as a newly
established company, meets certain conditions (see 3.6.3)

Reference
Consultation with specialists on accounting and tax support
Certified public accountants and tax accountants are specialists providing accounting and tax support tocompanies operating in Japan. Both are qualification recognized by law, and only persons with these qualifications
may engage in legally stipulated monopoly businesses. Certified public accountants enjoy a monopoly on theperformance of audits under the Certified Public Accountant Law, while tax accountants have a monopoly on tax
agent services, preparation of tax documentation and tax consultations under the Certified Tax Accountant Law. In
addition to their respective monopoly businesses, both provide multi-faceted services such as accounting andbusiness consulting.

51

SECTION 4 Human Resource Management
4.1

Application of laws
Japan has a number of laws pertaining to labor and the protection of workers. These include: the Labor
Standards Act which sets forth the minimum standards on working conditions; the Industrial Safety and Health
Act which sets forth the minimum standards on working conditions regarding health and safety; and the
Minimum Wage Act. These laws apply in principle to all enterprises in Japan, regardless of whether the employer
is Japanese or foreign, or the company is a foreign or Japanese-registered corporation. They also apply toforeign workers in Japan provided that the foreign workers meet the definition of workers under these laws.

4.2

Recruitment

4.2.1

Recruiting methods
Japan has a government-run employment agency known as "Hello Work" with offices throughout Japan.
Hello Work offers free support for people looking for work and companies looking for workers; all industries arecovered by the agency. Similarly, some regional public organizations and education institutions such asuniversities also provide employment services for free. There are also many privately-run employment agencies;
these come in several types, including executive search-type agencies, as well as those which build up a
database of registered potential employees and employers, and where the agency collects fees on a contingency
basis (i.e., when someone from their database is successfully employed with a company). Japan also has a wide
range of newspapers, magazines (e.g., job-transfer magazines, industry-specific magazines, etc.), and Internet
websites through which companies can find employees.

4.2.2

Legislation on recruitment
As far as labor contracts are concerned, the principle of freedom of contract applies to the hiring of workers,
and allows an employer to decide what kinds of workers and how many to hire. There are, however, some
restrictions. For instance, under the Equal Employment Opportunities Act, employers must afford equal
opportunities regardless of sex when recruiting and hiring workers. For that reason, employers may not specify
male or female employees when advertising situations vacant, with the exception of a few specific positions.

52

4.3

Labor contracts

4.3.1

Working conditions
When hiring workers, companies enter into labor contracts with each worker. At that time, the employer must
notify the employees in writing of the following employment conditions.
-

The term of the agreement (or where there are no provisions pertaining to term, the fact that there are noprovisions pertaining to term).
The workplace, and the duties that the employee will have to perform.
Matters pertaining to start and finish times, work in excess of regular working hours, breaks, days off andleaves.
Methods of determining, calculating and paying wages; the wage calculation period and payment times.
Matters pertaining to resignation and dismissal (including all grounds for dismissal).

(Note) In the case of part-time workers, the employer must in addition specify in writing whether they will be eligible for pay increases,
retirement allowances, and/or bonuses.

Any part of a labor contract that does not meet the standards laid down by law is invalid. For example, acontract containing provisions such as "the company may dismiss the worker at any time for any reason," "thebasic wage shall include all overtime pay," and "social insurance fees shall be borne entirely by the worker" (inthe case of a business establishment covered by social insurance) is invalid insofar as these provisions areconcerned.
It is also illegal to impose a penalty for non-fulfillment of a labor contract. For example, it is illegal to include
a clause such as the following: "If a worker retires within two years of joining the company, he/she must pay tothe company the sum of 500,000 yen." However, this does not preclude an employer from claiming damages
from a worker for losses actually incurred.

4.3.2

Term of labor contracts
Labor contracts generally do not stipulate a term. Where a term is specified, however, it must be no longer
than three years except in a few special cases. However, a worker may resign by notifying his/her employer at
any time as long as at least one year has elapsed since the date of the start of the contract term.

4.3.3

Probation period
Employers are allowed to set a limited period of probation prior to fully employing somebody, so as to see
whether or not the probationary employee is able and suitable for the job. Probation periods generally last for
about three months. However, it should be noted that if the employer decides not to fully employ somebody
during or after the probation period, this refusal to employ is treated in the same manner as dismissal of an
employee; in order for such a refusal to be legally allowed, valid reasons for refusal (which were not evident at
the time of probationary employment) must have come to light during the period of probation, and it must be
objectively reasonable for the employer to refuse to fully employ that person for the aforementioned valid
reasons.

4.3.4

Re-assignment, external assignment, and dispatch of workers to other companies
Japanese companies frequently redeploy their workers through internal re-assignment and external
assignment, and such redeployments may often require a worker to relocate. Generally, employers haveconsiderable discretion when it comes to changing a worker's duties or temporarily assigning him or her toanother company if this is reasonably necessary to business.
However, if a company dispatches workers in its own employment in a regular basis to another company withwhich they have no contracts of employment to supply labor subject to the directions and orders of that othercompany, the dispatching company is then classified as engaging in "worker dispatching undertakings" (see4.3.9). To engage in worker dispatching undertakings, a company must have obtained a government permit.

53

SECTION 4 Human Resource Management
4.3.5

Disadvantageous change of a labor contract to the worker
Working conditions such as wages, working hours, etc. may be changed by agreement between thecompany and the worker. Although the company may not change the working conditions in principle in a mannerdisadvantageous to the worker by changing the rules of employment, if the change to the rules of employment
is reasonable in light of the extent of the disadvantage to be incurred by the worker, the need for changing theworking conditions, the appropriateness of the contents of the changed rules of employment, the status ofnegotiations with a labor union or the like, or any other circumstances pertaining to the change to the rules of
employment, the working conditions that constitute the contents of a labor content shall be in accordance withsuch changed rules of employment.

4.3.6

Governing law
In the case of international contracts, which country's law to use as the governing law may be determined byagreement between the parties (see Article 7 of the Law on the General Rules on Application of Laws), and labor
contracts are no exception. However, legislation that is clearly intended to protect workers as a matter of policy,
such as the Labor Standards Act, will be compulsorily enforced in the forum state regardless of any suchagreement. Even if a worker agrees to the law of a region other than that in which labor services are provided
being used as the governing law for a labor contract, he/she may claim the benefit of specific forcible provisions(“relative mandatory law”) in the region in which labor services are provided by indicating to the employer thathe/she wishes that such provisions should be applied. If a labor contract does not stipulate the governing law, it
is assumed to be the law of the region in which labor services are provided.

4.3.7

Written guarantee of good conduct
When hiring a worker, a company may require that a guarantee of good conduct be provided by a relative of
the worker or similar guarantor, and such a guarantee is held to be legally valid. The term of this guarantee isdeemed to be three years if not specified, and up to a maximum of five years where a term is specified.

4.3.8

Corporate directors and executive officers, etc. ("directors, etc.")
The contractual relationship between a company and directors, etc. is, as a rule, considered to take the formof an engagement agreement as opposed to a labor contract. Accordingly, the relationship is, as a rule, subject
to the Companies Act rather than labor law. If a director, etc. does not have the right to represent a company
and is employed in a manner very similar to that of a worker, he/she may be simultaneously subject to labor law
as a dual worker/director, etc.

54

4.3.9Use of workers employed by other companies
Use of workers of other companies can be made in three ways: worker dispatching, contracting, andtemporary transfer.
(1)

Worker dispatching
As a rule, temporary workers can be placed at companies to perform any duties other than port transport,
construction and security, as well as some medical work. The period where the same temporary worker isallowed to work in the same organizational unit in the client is limited to a maximum of three years. If aplacement lasts continuously for more than three years, the temporary worker must be, as a rule,
employed directly by the client. However, a temporary worker employed by the dispatching business
operator without employment period is not applicable for the period limitation. Companies where
temporary workers are placed are prohibited from then placing those workers with other companies.

(2) Contracting
If workers employed by one company (company A) are subject to the independent personnel
administration, directions, and orders of company A, though actually performing work at another company(company B), the arrangement is treated as a contracting relationship. In such case, company B cannot
give directions or orders to the workers concerned.
(3) Temporary transfer
It is also permitted for workers employed by one company (company A) to enter new employment
contracts with another company (company B) to provide labor subject to the directions and orders ofcompany B for a specified period under an agreement between company A and company B.
(Note) It is legally banned that a company (Company-A) which has directly recruited a worker and has him work under its supervision
gets another company (Company-B) and the worker apparently make labor contract and treats him a dispatched or seconded
worker to the Company-A from the Company-B (Article 44 of Employment Security Act).

4.3.10 Corporate Reorganization and Labor Contracts
Recently corporate reorganization is actively undertaken amid the advance in aggravation of enterprisecompetition and easing of regulations. How the labor contract is treated under such reorganization shall be, if it
is divided into merger, business transfer, and company split, as follows:(1)

MergerIn the event of an enterprise’s merger, all rights and obligations are universally succeeded. Thus, in boththe case of consolidation-type merger (where a new company is formed as a result of a merger) and thecase of absorption-type merger (where an existing company initiates a merger), the company surviving
after the merger succeeds all labor contracts.

(2)

Business Transfer
If an enterprise transfer all or some of its businesses to another enterprise, succession of the rights andobligations is determined by parties concerned (individual succession). Thus, succession of labor contract
is determined by the agreement among the assignor company, the assignee company, and the worker.
Labor contract is not succeeded to the assignee company if either the assignee company or the worker
refuses the succession of the labor contract.

(3)

Company Split
Company split has two types. One is incorporation-type company split where the company-A splits a partor all of the rights and obligations concerning the company-A’s undertaking, and the other isabsorption-type split where the company-C absorbs a part or all of the company-A’s undertaking. Then,the labor contract of the worker who is mainly engaged in succeeded undertaking is succeeded to the
newly found company or the absorbed company by operation of law.

55

SECTION 4 Human Resource Management
4.4

Wages

4.4.1

Principles of wage payment
Employers must pay wages in legal tender, directly to the employee, not less than once per month, and on a
specified date. However, employers are allowed to remit wages into a bank account specified by the employee
where the employee agrees to that method of payment, and may also deduct social insurance premiums, taxes
and similar expenses from wages.

4.4.2

Guarantee of minimum wage
The minimum wage is determined according to region and industry. Where an employee is subject to two
different minimums, the employee is entitled to the higher of the two minimum wages. The employer must pay
the employee a wage that is not less than the minimum wage. The minimum wages in main prefectures are as
follows (effective from October 1, 2015).

4.4.3

Prefectures

Minimum hourly wage (yen)Prefecture

Minimum hourly wage (yen)

Tokyo

907

Chiba

817

Kanagawa

905

Hokkaido

764

Osaka

858

Miyagi

726

Aichi

820

Hiroshima

769

Hyogo

794

Fukuoka

743

Wage system
It is typical for Japanese companies to pay wages on a monthly basis, and to pay employees summer andwinter bonuses. One characteristic of Japanese wages is the make-up: monthly wages usually include a basic
wage and a range of allowances, which may include accommodation, family and transportation allowances.
Another characteristic is that the amount paid in bonuses makes up a relatively high proportion of total wages*1

paid to employees . An effect of the high proportion of wages made up of various allowances and bonuses
consequently is to lower the rate of overtime pay paid for work outside normal working hours. This system also
allows labor costs to be immediately reduced in the event of a recession, for example. Although more businesses
are adopting a yearly wage system, there are often few benefits for employers in practice under Japanese labor*2

law . Further information is available through the Basic Survey on Wage Structure statistics collated regularly
and provided by the Ministry of Health, Labor & Welfare in both Japanese and English.
*1
*2

4.4.4

According to Japan Business Federation (“Keidanren”) statistics, the average bonus paid by private-sector companies in FY2015 was 4.9
months' worth of monthly base pay (for non-managerial positions in all industries).
Whether or not a yearly wage system is introduced or extra wages are paid for overtime work is irrelevant. If a company in Japan
introduces a yearly wage system, it almost always only covers management-level employees.

Severance pay system
Almost all enterprises in Japan have some form of severance pay system. Normally when a worker leaves anenterprise, his/her employer will make a one-off payment calculated according to factors including length ofservice and reason for leaving the enterprise. This is not subject to social insurance contributions and is treatedmore favorably for tax purposes than ordinary pay. Provided that certain conditions are met, an enterprise that
contributes to a severance pay reserve held by a government, financial, or similar institution may recognize
these contributions as expenses for accounting purposes.

56

4.5

Legislation on working hours, breaks and days off

4.5.1

Working hours, breaks, days off(1)

Working hours must, in principle, not exceed 40 hours per week or eight hours per day excluding breaks(this is known as "statutory working hours"). However, some businesses are permitted to have theiremployees work up to 44 hours per week at a maximum of eight hours per day. These businesses include
retail and beauty services, cinemas and theatres, businesses related to health and hygiene, as well as
restaurants and entertainment businesses with less than 10 regular employees.

(2)

In the event that an employee works six hours, the employer must give that employee not less than a 45
minute break; this increases to a one hour break where working hours exceed eight hours.

(3)

Employers must grant employees at least one day off per week, or four days off in any four-week period(this is known as "statutory days off"). Sundays or public holidays need not necessarily be days off, andother days may be selected as employees' days off instead by agreement between the employer andemployees.

4.5.2

Agreements on overtime and work on days off
Any employer that requires workers to work in excess of statutory working hours or on statutory days offmust submit a Notification of Agreement on Overtime and Work on Days off to its local Labor Standards
Inspection Office. If employers force employees to do overtime work or work on days off without submitting a
Notification of Agreement on Overtime and Work on Days off, they may be penalized.
Even if employers submit a Notification of Agreement on Overtime and Work on Days off, there arelimitations for overtime work and work on days off as follows.
<Table 4-1>
Period1 week2 weeks

4 weeks

1 month

2 months

3 months

1 yearLimit

15 hours

27 hours

43 hours

45 hours

81 hours

120 hours

360 hours

However, the extension of working hours to a certain amount of hours beyond the limitations can be includedin the Agreement through the appropriate labor-management procedures on a certain period only if there are
exceptional circumstances for the extension of working hours beyond the set limitations above.

4.5.3

Employers' "obligation to ascertain and calculate working hours"
The Labor Standards Act contains provisions on working hours, holidays, nighttime overtime work, and otherworking conditions. Employers are therefore under an obligation to properly ascertain and control working
hours.

57

SECTION 4 Human Resource Management
4.5.4

Overtime payment
Companies must pay an increased rate of wages as set forth in the table below to employees who work in
excess of statutory working hours, work on statutory days off or work late at night (between 22:00 and 05:00)<Table 4-2>
Rate of increase(1) Work in excess of statutory working hours

25%(2) Work in excess of statutory working hours exceeding 60 hours in a month*1

50%(3) Work on statutory days off

35%(4) Work late at night (between 10 p.m. and 5 a.m.)25%(5) Work late at night in excess of statutory working hours(6) Work late at night in excess of statutory working hours exceeding 60 hours in a month(7) Work late at night on statutory days off
*1

4.5.5

50%
*1

75%
60%

Rates of increase in items (2) and (6) reflect revisions to the Labor Standards Act that took effect on April 1, 2010 (there was previously
no special rate for these categories of overtime work). These new rates of increase will not apply to small and medium-sized enterprises
for the time being. Moreover, under the new revisions, employers are allowed to offer paid leave in lieu of additional wages for overtime
work if agreed upon in a labor-management agreement.

Exceptions for managers and supervisors
Persons in positions of management or supervision and persons handling confidential administrative work
who are closely involved in management are not subject to the regulations on working hours, breaks and daysoff (with the exception of regulations on night work). Whether he or she is regarded as a manager/supervisor iscomprehensively judged by facts such as those below;-whether the decision-making process of his or her labor conditions and labor management are closely
involved in management-whether he or she is given the practical authority and business status of a manager/supervisor, regardless of
his/her business title-whether there is a strict limitation for working hours, such as office hours-whether he or she is given the appropriate financial treatment of a manager/supervisor, such as salary,allowance and bonus

58

4.5.6

Modified working hour system
Some jobs entail large peaks and troughs in the number of working hours according to the year, month or
week. In some of these cases, companies are allowed to adopt a system of calculating working hours whereby
the company need not pay increased rates in certain weeks or on certain days even where employees work in
excess of statutory working hours, provided that the employees involved work no more than the statutory
number of working hours on average within a predetermined period. In this case, however, a labor-managementagreement must be entered into or appropriate provisions included in work rules before a flexible system can be
adopted.
(1)

System of annual modified working hours
Employees' working hours must not exceed 40 hours on average per week for a specified period of morethan one month but not more than one year. If a company adopts this system, even workers whose
statutory working hours are 44 hours per week, under the exemptions detailed in 4.5.1 (1), are subject tothe aforementioned 40-hour average.

(2)

System of monthly modified working hours
Provided that provisions are drawn up prohibiting employees' working hours from exceeding 40 hours*1

on average per week for a specified period of not more than one month, the employer may have
employees work in excess of 40 hours in a specified week or in excess of eight hours on a specified day.
(3)

Flextime system
Another system under which working hours can be adjusted within a monthly period is the flextime
system. Under this, the total number of working hours that a worker must work during a fixed period of
not more than one month is established, and workers are free within limits to determine what time they
start and stop work each day provided that they meet the total number of working hours required.

(4)

Week-based modified working hours
Under this system, employers may have employees work for more than eight hours but not more than 10hours per day without having to pay increased rates of wages, provided that employees' working hours do
not exceed 40 hours per week. It should be noted, however, that this system is limited to retailers, inns
and restaurants with less than 30 regular employees. Furthermore, if a company adopts the system, evenworkers whose statutory working hours are 44 hours per week, under the exemptions detailed in 4.5.1(1), are subject to the aforementioned 40-hour average.
*1 Under this system, the working hours of workers whose statutory working hours are 44 hours per week under the exemptions

detailed in 4.5.1 (1) shall remain 44 hours.

59

SECTION 4 Human Resource Management
4.5.7

System of discretionary working hours
If employees work outside companies or if the progress of work is considerably left to employees, anordinary method of calculating working hours may be unsuitable. For such case, there is a “deemed working
hour system” under which employees are deemed to have worked for a certain period of time. If the deemed
working hours exceed statutory working hours, increased rates of wages will occur for the excess hours.
(1) System of deemed working hours outside the workplace
This system is to deem that employees have worked for prescribed working hours where it is difficult to
calculate the employees’ working hours because the employees work outside the workplace for sales, media
coverage or other reasons. However, in general, if the employees need to work in excess of the prescribedworking hours in order to provide the services, it will be deemed that the employees have worked for “hours
generally required to perform those services” or “hours prescribed in the labor-management agreement”.
(2) Discretionary working system for professional services
For certain services that are highly professional and difficult to provide specific instructions pertaining to themeans of performing services and the allocation of time, by prescribing working hours in thelabor-management agreement and submitting that agreement to the Labor Standards Inspection Office, itwill be deemed that the employees worked for the hours prescribed in the agreement regardless of theactual working hours.
(3) Discretionary working system for planning services
For a person who engages in services such as planning, plan proposal, research and analysis in which themethod of performing those services must be left to the employee’s discretion to a large extent, if certain
matters are resolved with the majority votes of four-fifth or more of the committee members at thelabor-management committee, and the matter is registered to Labor Standards Inspection Office, it will bedeemed that the person worked for the hours resolved at the labor-management committee regardless of
the actual working hours.

60

4.5.8Paid leave
Employers must grant 10 days' paid leave to employees that worked for six consecutive months from thetime of hiring and who worked on not less than 80 per cent of all schedule work days. This paid leave may betaken consecutively or separately. Where an employee's application to take paid leave will hinder the normal
business operations, the employer may require the employee to take such paid leave at a different time. The
number of days of paid leave available to employees increases in proportion to employees' length of service as
set forth in the following table.
<Table 4-3>
Years of service

0.5

1.5

2.5

3.5

4.5

5.5

6.5

Leave days granted

10

11

12

14

16

18

20

The right to annual paid leave expires after two years. In other words, annual paid leave left over from one
year may be carried over and taken the next year only. For instance, if an employee is awarded 10 days' paid
leave in 2004, but opts not to take paid leave in that year, the employee may carry those days over to 2005 anduse them in addition to any leave days which become available in 2005. However, those 10 days awarded to theemployee in 2004 cannot be carried over to 2006 or beyond. It should also be noted that employees that havebeen continuously employed at the same company for not less than seven years and six months can take amaximum of 40 days' paid leave in any one year, including days that became available within that year and thosecarried over from the previous year. Companies are not required to compensate for the right to annual paid leavethat has expired. The same apples to the cases where there is unused leave at the time of an employee leaving
the company.
While annual paid leave previously had to be taken in units of whole days, up to five days' worth of paid leave
per year can now be taken in hourly units if agreed upon in a labor-management agreement (under revisions to
the Labor Standards Act that took effect on April 1, 2010).
Part-time workers are granted annual paid leave in proportion to the number of prescribed working days thatthey work.
Employers are not required to grant paid leave days in addition to those described above to cover days on
which employees did not work as a result of any non-work-related illness or injury. It should also be noted thatmost Japanese companies grant a few additional paid leave to employees for marriage, death of close relatives,and childbirth by the employee's spouse, etc.

61

SECTION 4 Human Resource Management
4.5.9

Maternity, childcare and family care leave(1)

Maternity leave
If an employee of expectant mother requests permission for leave of absence six weeks prior to the
expected date of delivery (14 weeks in the case of multiple pregnancies), the employer must approve therequest. Furthermore, employers are, in principle, prohibited to cause any female employee to work for aperiod of eight weeks commencing from the day following that on which the employee gave birth.

(2)Childcare leave
If an employee with a child aged less than one-year-old requests permission for a leave of absence (bythe child's first birthday in principle, or up to the age of 18 months if certain conditions are met), theemployer must approve the request. Employers may deem employees who have worked at the company
for less than one year to be ineligible for childcare leave, provided, however, that the employer does so by
stipulating to that effect in a labor-management agreement.

(3)

Exemption from non-scheduled work, obligation for short-time working system, and limitation of overtimework
If an employee with a child aged less than three years old requests to be exempted from non-scheduled
work, he/she must not be made to work in excess of prescribed working hours. If an employee with achild aged less than three years old requests to take short-time working hour system, he/she must beallowed to do so. If an employee with a child of preschool age requests to be exempted from
non-scheduled work, he/she must not be made to work overtime in excess of 24 hours in a month or 150
hours in a year.

(4)

Family care leave
If an employee with a family member who has been judged to require a certain level of nursing carerequests permission for a leave of absence to provide such nursing care (up to a maximum of 93 days intotal per that family member), the employer must approve such a request once only for each occasion
that a family member falls into a condition requiring full-time nursing care. Employers may deem
employees who have worked at the company for less than one year and those whose employment willterminate within 93 days ineligible for family care leave, provided, however, that the employer does so by
stipulating to that effect in a labor-management agreement.

(5)

Leave of absence to nurse a child or to take care of family
If an employee with a child of preschool age requests to nurse his/her sick or injured child, he/she may
take a leave of absence of up to five days per year (or up to 10 days per year if he/she has two or morechildren of preschool age). In addition, if an employee with a family member requiring nursing carerequests permission for a leave of absence to nurse such a family member, he/she may take a leave ofabsence of up to 5 days per year (or up to 10 days per year if he/she has two or more of such family
members).

The above periods of leave may be unpaid. Under certain conditions, however, an employee may receive
certain benefits under health insurance coverage during the above period (1) and under employment insurance
coverage during the above periods (2) and (4).
The Japanese government has set a target that 30% of leadership positions should be filled by women by
2020.

62

4.5.10Investigations by labor standards inspectors
Labor standards inspectors are public employees given the role under Japanese labor standards legislation ofentering any kind of business establishment to ensure legal compliance and assist the improvement of working
conditions.
A recent focus of investigations has been on the nonpayment of overtime pay, and information published by
the Ministry of Health, Labour and Welfare shows that outstanding overtime pay of at least 10 million yen was
paid by 196 companies (adding up to 11 billion in total) in FY2014.

4.6

Work rules
Work rules are specific rules for the workplace containing working conditions such as working hours andwages, as well as rules that employees must comply with when working for business reasons. Employers with 10
or more regular employees must draw up the work rules and submit these to the local Labor Standards
Inspection Office. Establishments with fewer than 10 workers are also encouraged to draw up work rules. Where
work rules are established, they have the same legal force as labor contracts insofar as they are reasonable incontent.

4.6.1

Items to be included in work rules
Work rules must at a minimum contain the following items.
(1)

Start and finish times, breaks, days off, leave of absence (including childcare and family care leave), andwork shift arrangements where work is to be performed by two or more teams of workers.

(2)

Methods of determining, calculating and paying wages (excluding special bonuses and other pay), wage
calculation periods and dates of payment, as well as matters pertaining to wage raise.

(3)

Matters pertaining to resignation or dismissal (including grounds for dismissal).

Any arrangements established regarding the following matters must be included in the work rules:(4)

Retirement allowances(5)

Extraordinary wages, etc.

(6)

Responsibility for meal expenses, etc.

(7)

Safety and hygiene(8)

Job training(9)

Workers' accident compensation(10) Awards and disciplinary measures(11) Other matters

4.6.2

Obligation to inform
Employers are required to inform workers of the work rules or any labor-management agreements asprovided for in the Labor Standards Act.

63

SECTION 4 Human Resource Management
4.7

Safety and hygiene
Employers are obliged to pay due consideration to safety and hygiene matters so as to avoid illness or injury
to workers in the course of work.

4.7.1

Health check-up upon hiring
When hiring a regular employee, employers must have the new employee undergo a predetermined healthcheck-up before hiring him/her.

4.7.2

Periodic health check-up
Employers must have all regular employees undergo a health check-up by a doctor once per year (or at least
once every six months in the case of employees engaged in specific kinds of work which may damage theemployees' health including late night work and work involving X-rays).

4.8

Resignation and dismissal
If an employee on a labor contract with no set term of agreement wishes to resign (i.e., the employee wishes
to terminate the labor contract by notifying the employer of his/her intention to do so), the employee can do soby providing two weeks' notice. Furthermore, although there is no firm legal precedent, the prevalent doctrine isthat even if a company work rules stipulates that employees must give more than two weeks' notice, it is without
effect in cases where the rule sets an unreasonable period. On the other hand, employers can only dismiss anemployee (i.e., the employer terminates the labor contract by notifying the employee of its intention to do so)
after satisfying several criteria. The burden of proof is on the employer in the case of a dispute.

4.8.1

Approved grounds for dismissal
An employer is only allowed to dismiss an employee if there are objectively reasonable grounds for dismissal,
and dismissal is deemed to be appropriate in light of socially accepted ideas. Furthermore, all possible grounds
for dismissal must be clearly stated in the work rules if the dismissal of an employee is to be valid. In Japan,
moreover, termination of an employment contract by the payment of a certain amount of money is notrecognized as a matter of course by law (except where an amicable settlement is reached between the parties
concerned). As it is exceedingly difficult to judge the validity of dismissal in concrete cases, it is recommended
that employers first obtain the advice of a specialist in labor law (such as an attorney or labor and social security
attorney).
There is considerable precedent in case law to the effect that it is necessary to meet the following four
criteria when making employees redundant as part of company restructuring (i.e., dismissal of employees inorder to reduce staff numbers as a result of deteriorating business performance) in order for the redundancies tobe deemed reasonable.
(1)

Necessity
The company must prove that its business circumstances are such that redundancies are unavoidable andnecessary.

(2)

Effort to avoid redundancy
The company must prove that it has made serious managerial efforts to avoid redundancies such as byre-assigning staff and advertising for voluntary redundancies.

(3)

Reasonable selection
The company must prove that the standards by which it selected those to be made redundant arereasonable, and that redundancies were carried out fairly.

64

(4)

Reasonable process
The company must prove that it conducted sufficient consultations with workers and labor unions.

In order to help preserve jobs in situations where employees would otherwise have to be made redundant as
part of company restructuring, there exists a system of "Employment Adjustment Subsidy," which is paid by thegovernment to companies that temporarily lay off employees instead of making them redundant. The subsidy
covers two thirds (one half in the case of large enterprises) of the cost of allowances paid for temporary layoffs,
subject to a maximum amount.

4.8.2

Restrictions on dismissal
Employers cannot dismiss employees in the following situations, and are subject to penalties forinfringement.
(1)

While an employee is on leave from work as a result of illness or injury incurred in the course of work, orfor 30 days following the completion of such leave.

(2)

While an employee is on maternity leave of six weeks prior to (14 weeks in the case of multiple
pregnancy) and eight weeks after the childbirth, or for 30 days following the completion of such leave.

4.8.3

Cases where dismissal is invalid
The following cases of dismissal do not have legal effect:(1)

Dismissal of a female worker during pregnancy or within one year of giving birth.

(2)

Dismissal due to a worker's having reported an illegal act committed by his/her employer to the relevant
authorities.

4.8.4

Dismissal procedures
If an employer wishes to dismiss an employee, the employer must give the employee at least 30 days' notice.
If the employer wishes to dismiss the employee summarily and without notice, the employer must pay theemployee 30 days' wages at the time of dismissal (this payment of wages in rule of notice is known as a "notice
allowance"). However, in the situations described below, employers may dismiss employees without notice andwithout paying a notice allowance so long as the employer obtains the approval of the head of the local Labor
Standards Inspection Office.
(1)

The company is unable to continue its business as a result of natural disaster or other such unavoidable
circumstances.

(2)

The dismissal of the employee is unavoidable and the result of causes attributable to the employee.
- An employee commits an act in the workplace that constitutes a crime under the Penal Code, including
theft, embezzlement or causing injury.
- An employee breaches the rules or expected standards of behavior of the workplace, or exerts anegative influence on any other worker.
- An employee makes a false statement in his/her resume that is likely to be a factor in the decision tohire him/her.
- An employee is absent without leave and without due cause for a period of (generally) two weeks or
more, and fails to respond to orders to report for work.
- An employee is repeatedly late for work, leaves work early or is absent without leave, and fails toimprove his/her punctuality despite repeated warnings.

65

SECTION 4 Human Resource Management
4.8.5

Dismissal in practice
In Japan, it is not so usual for legal steps to be taken when an employer wishes to dismiss a worker for somereason. In practice, the employer will explain to the worker the business or job situation in order to persuade
him or her to resign, and ultimately the worker will usually be persuaded to resign voluntarily. It is also often
common for various conditions to be discussed (such as the topping up of a worker's severance pay) to
encourage a worker to agree to resign.

4.8.6

Covenant not to compete
In Japan, freedom of choice of occupation is guaranteed by the Constitution. Accordingly, an agreement thatprohibits working for a competitor for a certain period after leaving his/her former employer is only valid if theterm, geographical scope, professional field concerned, and similar restrictions are reasonable andcommensurate compensation is provided. Regarding trade secrets, both the disclosure of former employers'
trade secrets by workers and questioning by enterprises of workers about such trade secrets are prohibited bylaw under the Unfair Competition Prevention Act.

4.8.7

Termination of office, resignation and dismissal of directors
The office of directors of Kabushiki-Kaisha (joint-stock corporations) terminates upon expiration of their termof office. Moreover, directors may resign at any time at their own discretion. However, if it causes a vacancy inthe position, the directors may not be released from their obligations as directors until new directors take office.
Directors might be dismissed upon a resolution of the General Meeting of Shareholders at any time andregardless of the reasons. However, if the company dismisses the directors before the expiration of the term ofoffice without any justifiable reason, the company must indemnify for damage caused by that dismissal.

4.9Japan's social security system
Japan has a universal insurance system whereby everybody residing in Japan must, in principle, take part in
the public health (medical) insurance and pension insurance system.

4.9.1

Labor and social insurance systems
Japan has four different kinds of insurance system which companies are legally obliged to take part in; allworkers that meet certain criteria are covered by the insurance.
(1)

Workers' Accident Compensation InsuranceThis covers any illness or accident incurred by workers as a result of work or while commuting to or from
work.

(2)

Employment InsuranceThis provides for workers that become unemployed and helps to maintain stable employment such as byproviding financial aid and subsidies.

(3)

Health Insurance and Nursing Care Insurance
These cover medical and nursing care expenses incurred by workers.

(4)

Employees' Pension InsuranceThis provides for benefits to workers in their old age, or in the case of death or disability.

Generally, Workers' Accident Compensation Insurance and Employment Insurance are known collectively as"labor insurance," while Health, Nursing Care and Employees' Pension Insurances are referred to collectively as"social insurance."
A company must enter these insurance systems when first incorporating or hiring staff by submitting laborand social insurance notification forms to the relevant authorities. The company usually pays insurance
premiums by deducting the portion of the premiums payable by employees from their wages, and paying thesetogether with the portion of the premiums payable by the company to the relevant authorities.
664.9.2Workers' Accident Compensation Insurance<Table 4-4>
Application

As a rule, this is compulsorily applicable to all workers. Principals of small and medium businesses(representative director, etc.) may be specially approved for coverage if they apply.

Benefit

Benefits are paid for any illness, injury, disability or death incurred as a result of an accident caused by a work or
while commuting to or from work.

Premium

Premiums are generally calculated as a certain percentage of each worker's total wage. The rate of premium
depends on the kind of business carried out at the workplace; the maximum premium rate was 8.8% (formetal/non-metal/coal-mining industries) and the minimum is 0.25% (for finance, insurance
telecommunications and broadcasting industries) (revised on April 2015). The employer bears the burden of
paying premiums.
0.002% is added to the above premium to fund benefits for asbestos-induced diseases.

Notification

Notifications must be submitted to the local Labor Standards Inspection Office within a period of 10 days
starting on the day following that on which participation in the insurance program was established.

4.9.3

Employment Insurance<Table 4-5>
Application

In principle, this applies to all general workers. However, to qualify for Employment Insurance, part-timeworkers' prescribed working hours must not be less than 20 hours per week, and they must expect to be
employed for not less than 31 days. Employees dispatched to Japan from an overseas company head office who
enroll in a scheme equivalent to employment insurance overseas are exempt from this insurance.

Benefit

Benefits are paid for a predetermined period when the insured worker leaves his/her job; the amount ofbenefits are determined according to the reason for leaving the job, the length of time for which the insured wascovered, the insured party's age, etc. There are also a number of benefits available for the purpose ofmaintaining stability of employment.

Premium

Premiums are calculated as a certain percentage of each worker's total wage. The insurance premium rate was
1.10% (the employer paying 0.7% and the worker paying 0.4%) with the exception of a few kinds of job(revised on April 2016).

Notification

Notifications must be submitted to the local Public Employment Security Office within a period of 10 days
starting on the day following that on which participation in the insurance program was established.

67

SECTION 4 Human Resource Management
4.9.4

Health Insurance and Nursing Care Insurance<Table 4-6>
Application

Benefit

Applicablebusinesses

All incorporated companies and sole proprietorships with five or more regular employees are
generally obliged to take part in the insurance. Branches and sales offices of overseas
companies are treated as incorporated businesses, and representative offices are treated assole proprietorships.

Insuredparties

Generally, all employees of the aforementioned applicable businesses are covered. Part-time
employees are covered where their prescribed working hours are not less than 75% of thoseof full-time employees*1. Employees dispatched from overseas company head offices arecovered, as are presidents and representative directors of incorporated companies. However,persons dispatched from the United States, Belgium, France, the Netherlands, the Czech
Republic, Switzerland, and Hungary to Japan who are enrolled in medical insurance in thesecountries are exempt from enrolling in Japan.

Dependents

Insured parties' lineal ascendants, spouses, children, grandchildren and siblings whose
livelihood is maintained mainly by the insured party are eligible to receive insurance benefits.

Nursing careinsurance

This applies only to those of 40 years or over.

Medicalexpenses

70% of expenses incurred for medical treatment at designated Insurance Medical Institutions(this refers to medical institutions which have been designated as acceptable for medical
insurance purposes; almost all medical institutions in Japan are designated) are covered byinsurance, while the insured party must pay the remaining 30%. This also applies to dental
expenses.

Overseas
expenses

If an insured party incurs medical treatment expenses at a medical institution while staying or
traveling overseas, he/she can apply to be reimbursed after returning to Japan. The amount of
medical expenses incurred overseas is converted into a comparable amount of Japanese
medical expenses, and 70% of that amount is reimbursed. It should be noted that this also
applies to foreign nationals insured under this system who receive medical treatment in theirown countries or other countries outside of Japan.

Excessive
medicalexpenses

If the amount of medical expenses (e.g., the portion of medical expenses payable by the
insured party) an insured party pays to a single medical institution within a single calendar
month exceeds a predetermined amount, the amount of expenses excess of that
predetermined level shall be reimbursed to the insured party as "Excessive medical expenses."

Premium

General insurance premiums for the Japan Health Insurance Association Run Health Insurance are 9.96% (inTokyo*2) of each insured party's standard monthly remuneration*3 (maximum: 1.39 million yen) and standard
bonus*4 (maximum: 5.73 million yen per year). For Nursing Care Insurance, premiums are 1.58%. In either
case, the insured party and the employer share the premiums equally (revised on April 2016).
In the case of Union Run Health Insurance*5, a certain amount of leeway in deciding insurance premiums isgranted to the managing union.

Notification

Notifications must be submitted to the local Pension Office or Health Insurance Union Office within a period offive days starting on the day following that on which participation in the insurance program was established.

Ineligibility for Health Insurance (National Health Insurance)
Application

People who are not eligible for Health Insurance coverage as described above must enter into the National
Health Insurance scheme run by their local city, ward, town or village government.

BenefitWith a few exceptions, National Health Insurance benefits are virtually the same as those under theabove-described Health Insurance.

Premium

Premiums are determined by each operating local government within certain limitations.

(Note) In Japan, everybody has an obligation to take out one of the above forms of public health (medical) insurance. Because you will
therefore inevitably have Health Insurance in Japan, if you choose to take out private insurance with an overseas company, it is betterto ensure that the coverage of that private insurance does not overlap with your Japanese public insurance coverage.
*1

*2
*3
*4
*5

From 1 October 2016, part-time employees working for an enterprise with more than 500 employees will also be insured where theirprescribed working hours are at least 20 hours per week receiving a monthly pay of at least 88,000 yen with a prospect of continuous
employment of at least one year.
Effective from September 2009, premium rates for health insurance administered by the Japan Health Insurance Association havechanged from a uniform rate to one that varies depending on prefecture.
Standard monthly remuneration refers to the division of the total amount of wages and other such payments into predetermined brackets.
Standard bonus refers to the amount of the bonus rounded down to the nearest unit of 1,000 yen.
Union Run Health Insurance refers to an insurance scheme provided by a union run by a company or a group of companies.

684.9.5

Employees' Pension Insurance<Table 4-7>
Application

Benefit

Premium

Notification

Applicablebusinesses

All incorporated companies and sole proprietorships those (with five or more regular
employees) are generally obliged to take part in the insurance. Branches and sales offices ofoverseas companies are treated as incorporated businesses, and representative offices aretreated as sole proprietorships.

Insuredparties

Generally, all employees of the aforementioned applicable businesses are covered (with the
exception of those over 70 years old). Part-time employees are covered where theirprescribed working hours are approximately 75% of those of full-time employees*1.
Employees dispatched from overseas company head offices are covered, as are presidents
and representative directors of incorporated companies.

Old-age
PensionThis is generally paid to people not less than 65 years old who have paid Employee's Pension
Insurance premiums (or been officially exempted from paying premiums) for not less than
25 years in total (this need not be consecutive). The amount of benefit is calculated
according to the amount of insurance premiums paid and the length of the period overwhich they were paid.

Disability
Pension

Where the illness or injury that causes disability occurs during the period when the disabled
party is insured under the Employees' Pension Insurance system, the regular pension or
lump sum shall be paid to the disabled party. The amount of benefit is calculated according
to the degree of disability, the amount of insurance premiums paid and the length of theperiod over which they were paid.

Survivor's
PensionIf an insured party, a person who is eligible to receive an old-age pension or a highly
disabled person receiving a disability pension dies, a survivor's pension shall be paid to that
person's surviving family.

Rate

Insurance premiums are 17.828% (until August 2016) or 18.182% (after the revision in
September 2016) of the insured party's standard monthly remuneration (maximum: 620,000yen) and standard bonus (maximum: 1.5 million yen); the insured party and the employer
share the premiums equally.

Pensionagreement

Japan has social security agreements with Germany, the U.K., South Korea, the U.S.,
Belgium, France, Canada (except Quebec), Australia, the Netherlands, the Czech Republic,
Spain, Ireland, Brazil, Switzerland, and Hungary. Any person insured in the pension systemof one of these countries who is sent to Japan is exempted from enrolling in the Japanesepension system upon submitting the appropriate notification at a Pension Office or otherappropriate agency. Japan has already signed agreements with Italy, India, Luxembourg,and the Philippines and governmental talks are underway with Sweden, China, Turkey, andSlovakia. Preliminary talks are also underway with Austria and Finland.

Payment
upon leaving

When a foreign national returns to his/her country without having received a pension, a
portion of the premiums he/she paid shall be refunded. The amount of a refund is calculated
according to the length of time that person was covered under Employees' Pension
Insurance and the amount of premiums paid.

Notifications must be submitted to the local Pension Office within a period of five days starting on the day
following that on which participation in the insurance program was established.

Ineligibility for Employees' Pension Insurance (National Pension Insurance)
Application*1

Every person aged between 20 and 59 (inclusive) residing in Japan and without Employees' Pension
Insurance must be a part of the national pension system. Premiums are a fixed amount per month (16,260
yen from April 2016 to March 2017) and participants in the system are eligible for Old-age Pension,
Disability Pension and Survivor's Pension as well as a payment upon leaving similar to that of theabove-mentioned Employees' Pension Insurance system.

From 1 October 2016, part-time employees working for an enterprise with more than 500 employees will also be insured where their prescribedworking hours are at least 20 hours per week receiving a monthly pay of at least 88,000 yen with a prospect of continuous employment of atleast one year.

69

SECTION 4 Human Resource Management
4.9.6

Labor and social insurance coverage of representative office
Labor insurance (Workers' Accident Compensation/Employment Insurance): From the aspect of legal theory,the labor insurance coverage of an individual, who is employed by a foreign corporation and working at the
representative office that has not been registered in Japan, varies depending on whether or not the individual,
including the representative of the office, falls under

the definition of "workers" under the Labor Standards Act

in Japan. However, since there are no established official documents issued in Japan regarding the foreign
corporation which is the employer as well as no handling standards used by the government in such a case, it iscurrently difficult for the government to recognize the representative of the office as a "worker". On the other
hand, with regard to other workers, if the representative is set as the employer, the workers can follow theprocedure in order to be covered by the insurance. Therefore, in many cases, the representatives are notcovered by the insurance. However, it does not mean that the representatives cannot be covered by the
insurance.
Social insurance (Health/Employees' Pension Insurance): In case of a representative office with less than 5
employees, voluntary coverage with the representative of the office as the employer (the representative does
not become the person insured) or voluntary coverage as the association without right capacity (registration)(including the representative) are available. If a representative office has n 5 or more employees and fall under
the prescribed kinds of businesses, as a general rule, insurance coverage is mandatory. However, with regard to
the procedure of including the representative as the person insured, the government does not have the specificrules for handling this matter; therefore, it is currently difficult. Accordingly, it is recommended to request theexpert if necessary.

704.9.7

Review of labor and social insurance systems<Table 4-8>
Insurance

Benefit

Premium rate(% of total annual wage)

Coverage

Employer pays

Worker pays

Remarks

Workers'
Accident
Compensation
Insurance

Benefits are paid ascompensation for
medical expenses,
work missed,
disability or death
incurred as a result ofwork or while
commuting to or fromwork.

All businesses that
employ workers musthave this insurance.

0.35% (Incases of import
and trade, andsales industries)－- Specialcoverageavailable for
employers- Premium rates
differ according
to industry

Employment
Insurance

Benefits are paid tounemployed workers,
workers on child careleave and the elderly.

All workers whose
prescribed working
hours are not lessthan 20 hours per
week must have thisinsurance.

0.7%

0.4%

Persons enrolled
in unemployment
compensation
programs
overseas are
exempt.

HealthInsurance andNursing Care
Insurance

Benefits are paid forillness or injury notarising as a result ofwork or while
commuting, and forchildbirth, etc.

4.98%
(5.77% if aged
40 or over)

4.98%(5.77% if
aged 40 orover)This premium
rate applies only
to Japan Health
Insurance
Association Run
Health Insurance(in Tokyo).

Employees'
PensionInsurance

Benefits are paid for
old age, disability anddeath.

All full-time workers
employed atincorporated
companies, as wellas part-time workers
whose prescribedworking hours were
not less than 75% of
full-time workers.

8.914%(9.091% from
September
2016)

8.914%(9.091% from
September
2016)

A system exists
under which
premiums are
partially returned
to foreign
nationals upon
withdrawal fromthe insurance
program.

Child Benefits
Contribution

Contribution to a social welfare system forchild benefit, and differs in nature from thewelfare benefits offered to workers throughtheir employers.

0.20%

15.144% until
August 2016(15.934% if
aged 40 orover):
15.321% from
September 2016
(16.111% if
aged 40 or over)

Total

－

14.294% until
August 2016
(15.084% if
aged 40 orover):
14.471% from
September
2016(15.261% if
aged 40 orover)

As of June 2016
* 0.002% will be added to the premium rate for Workers' Accident Compensation Insurance for the time being in order to fund benefits forasbestos-induced diseases.

71

SECTION 4 Human Resource Management<Table 4-9> Social security agreements already effective and in preparation
Country

Agreement effective

AggregatefromperiodGermany

February 2000

Exist

U.K.

February 2001

Not exist

Korea

April 2005

Not exist

U.S.

October 2005

Exist

Social security system subject to duplication prevention
Japan

Public pension system

Country

Public pension system

Public pension system/
Public medical insurance system
Public pension system/
Public medical insurance system/

Belgium

January 2007

Exist

Public pension system/

Public accident compensation insurance

Public medical

system for workers /insurance system

Public employment insurance system
Public pension system/

FranceJune 2007

Public medical insurance system/

Exist

Public accident compensation insurance
system for workers

CanadaMarch 2008

Exist

Australia

January 2009

Exist

Netherlands

March 2009

Exist

June 2009

Exist

Spain

December 2010

Exist

IrelandDecember 2010

Exist

BrazilMarch 2012

Exist

the Czech
Republic

Public pension system
Public pension system

Retirement pension security system
Public pension system/

Public pension system /Public medical

Public medical insurance system,

insurance system

employment insurance system

Public pension system

Public pension system

Public pension system

Public pension system

Public pension system/
Switzerland

March 2012

Exist

Public medical
insurance system

Hungary

January 2014

Exist

In preparation

Not exist

In preparation

Exist

Public medical insurance system
Public pension system/

Public medical

Public medical insurance system,

insurance system

employment insurance system

Public employment
insurance system

India

Public pension system/

Public pension system/

Public pension system/
Italy(excluding Quebec)

Public pension system

Public pension system/
Public employment insurance system
Public pension system
Public pension system/

Luxembourg

In preparation

Exist

Public pension system/

Public medical insurance system/

Public medical

Public accident compensation insurance

insurance systemsystem for workers /Public employment insurance system

The
Philippines

In preparation

Exist

Public pension system

Public pension system
As of June 201672

Reference
1. Corporate benefit costs
The expenses that a company spends on the welfare benefits of its employees can generally be divided into twogroups: statutory welfare expenses, which include labor and social insurance premiums, as well as other legally1required costs; and voluntary welfare expenses. According to a study* carried out in FY2014 (April 2014 throughMarch 2015), the portion of wages comprised of welfare benefits was 19.2%. Specifically, the aforementioned
statutory welfare expenses took up 14.8%, while voluntary welfare benefits amounted to 4.4% of the total(excluding lump-sum retirement allowances and retirement pensions).
Voluntary welfare benefits include providing accommodation, health check-ups and other health-related benefits,
general life assistance such as subsidized meals at in-house cafeterias, and the provision of recreational facilities.
The ratio of lump-sum retirement allowances and retirement pensions to the total cash wages was 9.8%.
*1 Performed by the Japan Federation of Economic Organizations (Since the numbers were rounded off, the total number may not be equal to thesum total.).

2. Labor unions
In Japan, the right of its labor unions to carry out their activities is guaranteed by law. Employers cannot employ
a person on the condition that he/she does not join a union, and cannot cause any disadvantage to an employee
because he/she is a union member. Furthermore, no company may refuse its labor union's request for collective
negotiations without due cause.
According to a survey by the Ministry of Health, Labour and Welfare, the unionization rate of Japan’s unions as ofJune 2015 was estimated to be 17.4%, which is on a declining trend. Examining labor unions by scale (only private
sector), we can see that workers at 45.7% of companies with 1,000 or more employees are unionized, while thesame can be said of only 12.2% of companies with employees of between 100 and 1,000. In the case of companies
with less than 100 employees, employees at only 0.9% of businesses are unionized.

3. Coverage of temporary workers by labor law
The term "Temporary worker" refers to a worker that enters into an employment contract with a temporary
staffing agency (the company that temporarily places the worker), and who, under the orders of the agency, reports
for work at a client company of that agency (i.e., a company that enters into a temporary worker placement contract
with the agency, and then accepts temporary placement of the worker), and who performs duties under the ordersof the client company.
Labor laws such as the Labor Standards Act, the Industrial Safety and Health Act, and the Equal Employment
Opportunity Act apply to temporary workers. Companies that accept placement of temporary workers bear the
responsibility of complying with the provisions of the Labor Standards Act pertaining to working hours, breaks anddays off; those companies may have temporary workers work overtime within the scope allowed by the Labor
Standards Act provided they enter into a labor agreement regarding workers' overtime with the agency that places
the temporary worker. In this case, the temporary staffing agency bears the responsibility to pay increased rate ofwages.
It is the temporary staffing agency's responsibility to ensure temporary workers' annual paid leave, and to supply
the client company with a replacement worker if necessary while the original temporary worker is on annual paid
leave. Furthermore, it is the temporary staffing agency rather than the client company that must take out labor
insurance (Workers' Accident Compensation Insurance and Employment Insurance) and social insurance(Employees' Pension Insurance and Health Insurance) for the temporary worker and pay the appropriate premiums.
If a client company accepts illegal supply of temporary workers (exceeding period limitations, disguised contract,
unauthorized supply service, etc.), a direct employment relationship is deemed to have been established between
the client company and the temporary workers at the time of accepting such supply of temporary workers.

73

SECTION 4 Human Resource Management
4. Consultation with specialists on human resource management
Labor and social security attorneys are human resource management experts with special nationallyadministered qualifications. As well as payroll accounting, they perform a range of services at companies' request,
including:(1)

Carrying out labor and social insurance-related procedures and other administrative work as a proxy forcompanies when hiring staff.

(2)

Consulting services in relation to safety and hygiene, as well as labor management (including drawing up
work rules, planning and redesigning wage structures, as well as settling employment problems).

(3)

Mediation in individual employment disputes.

(4)

Consulting and handling of claims regarding pensions.

(5)

Other employment-related tasks.

(Performance of services covered by (1) and (3) by persons other than labor and social security attorneys inprivate practice, certified social insurance labor and social security attorney corporations, or attorneys is prohibitedby law.)

74

Social and labor insurances procedures when setting up a company and hiring staff

START

Social insurance

Labor insurance

Yes
Registered as a company or
branchNo
Take out social insurance (Health
Insurance, Employees’ Pension
Insurance)
Submit notification (within 5 days) to
local agency Pension Office or Health
Insurance Union OfficeYes
5 employees or moreNoYes
1 employee or moreNo
END

Any employees other thandirectors and officers

Yes

Take out labor insurance (Workers'
Accident Compensation Insurance,
Employment Insurance)
Submit notification (within 10 days) toLabor Standards Inspection Office,Public Employment Security OfficeNo
END

Any possibility employees will
work outside statutory working
hours or on statutory days off

Yes

Submit Notice of Agreement
Pertaining to Overtime and Work on
Days Off to local Labor Standards
Inspection OfficeNo
Yes
10 employees or more
No
END

75

Compile work rules (employee
handbook) and submit copy to local
Labor Standards Inspection Office

SECTION 4 Human Resource Management
Annual procedures

Where enrolling in social insurance

Where enrolling in labor insurance

Procedures, payments to be made to:Local Pension Office (or, as a rule, toHealth Insurance Union Office ifenrolled therein)
Annual renewal (estimate calculation,
submit declaration of insurance
premiums)

Every May

Every July

Periodic calculation (Notice of Basic
Calculation)

When bonuses are paid

Notice of Payment of Bonus

When there are major changes
in wage amounts

Non-periodic revision (Notice of
Change)Upon payment of wages

Pay labor insurance premiums to Labor
Standards Inspection Office

Withhold portion of premiums payableby employee from employee's monthly
wages; pay by end of following month
together with portion payable byemployer

When hiring new employee
Submit Notice of Eligibility for Social
Insurance

When employee resigns
Submit Notice of Ineligibility forSocial Insurance

76

Withhold portion of employment
insurance premiums payable byemployee from employee's wages, andhold until annual renewal

Submit Notice of Eligibility for
Employment Insurance to Public
Employment Security OfficeSubmit Notice of Ineligibility for
Employment Insurance to Public
Employment Security Office5.1

Legislation on trademark and design
Japan's trademark system provides for the protection of the marks and logos that are used in commerce on
goods or services. By enabling trademarks to identify the source of goods or services, and to identify their
qualities and publicize them, the trademark system protects the commercial reputation of persons using
trademarks, thereby contributing to the development of Japan's industries and protecting the interests ofconsumers. Japan's trademark system is regulated by the Trademark Law.
Meanwhile, Japan's design system is regulated by the Design Law, which protects the attractive andcomfortably functional shape, pattern, color and other design characteristics of items relating to their external
appearances. Japan's Design Law protects new designs as the property of the designer, and also encourages theuse of designs, thereby promoting the creation of new designs and contributing to the development of Japan's
industry.

5.2

Japan's trademark system

5.2.1

Equality for both Japanese and foreign nationals
Japan's Trademark Law offers equal protection for Japanese and foreign nationals; the same trademark
registration process and conditions apply to those residents in Japan and overseas. Therefore, by offering proper
trademark protection to people who do not currently live in Japan and companies presently without head offices
or branches in the country, Japan's trademark system encourages future expansion into the Japanese market byoverseas businesses.

5.2.2

First-to-file rule
Trademarks do not have to be currently in use (either in Japan or overseas) in order to be registered inJapan; if the trademark owner has the intention of using the trademark in the future, it can be registered inJapan as long as certain criteria are met. Thus, it is very important for any foreign business that thinks it might
expand into Japan at some time in the future to consider applying for registration of trademarks in Japan before
entering the Japanese market. Note, however, that trademarks must be used within three years after
registration, or they may be nullified. Using your trademark just once within those three years is enough toprevent your trademark rights from being cancelled.

77

SECTION 5 Trademark and Design Protection Systems
5.2.3

Scope of protection
Under Japan's Trademark Law, trademarks are categorized as follows.
(1) Trademark consisting of characters
including Japanese characters,alphabetical characters and other foreign
characters.

SONY(2) Trademarks consisting of devices orsymbols.

(4) Three-dimensional
trademarks (this is a new
addition to the law included
in a revision in 1996; atpresent, dolls, spheres andthree-dimensional signs areprotected).

(3) Trademarks consisting of characters anddevices/symbols.

There is also a system known as Collective Trademark Registration, which was included in the law in the 1996
revision. While this differs from the types of trademark protection described above, it provides for theregistration of trademarks by any group comprised of businesses (with the exception of groups that are notofficial bodies corporate) for the purpose of allowing all members of the group to use the trademarks.
Specifically, the system aims to protect the unique brands and names used by groups formed to revitalize
regional economies and specific industries.
A system called the Regional Collective Trademark system was also introduced by a legal amendment in 2005
in order to protect and strengthen regional brands. This allows the registration of marks consisting of a regionalname and generic name for a commodity or service, such as Matsuzaka-Gyu (beef produced in the Matsuzaka
region in Japan) and Aomori-Ringo (apples produced in the Aomori region in Japan), provided that certain
requirements, such as being sufficiently well-known in a certain area, are met.
Formerly, a collective trademark application by the Society of Commerce and Industry, the Chamber ofCommerce and Industry and NPO Corporation were not accepted. However, according to a revision of theTrademark Law in 2014 (Enforcement on August 1, 2014), the Society of Commerce and Industry, the Chamberof Commerce and Industry and NPO Corporation are now entitled to file collective trademark applications.

5.2.4

Start of “New-type trademark” protection
Formerly, "New-type trademark" has not been in the scope of protection of trademarks.

However, many

Japanese companies have been requested to protect these trademarks, and in view of the fact that these
trademarks can gain a practical use by protection, (1) Sound marks (2) Color per se marks without delineated
contours, (3) Motion marks, (4) Position marks and (5) Hologram marks, which have already been broadly
protected overseas are in the scope of protection of trademarks, the revision of the Trademark Law was enacted
in 2014 and has taken effect since April 1, 2015. Thus, the trademark system of all of the said new-type
trademarks has been started. Examples of " Color per se marks without delineated contours" and “Motion marks”
are as follows.

78Color per se marks without delineated contours：Apl No. 2015-30535 NEXT Co., Ltd.

Motion marks：Reg No. 5816758 Toray Industries, Inc.

5.2.5

Protection of trademarks about retailers, etc.
According to a revision of the Trademark Law in 2006 (Enforcement on April 1, 2007), "Retail services, etc."
may now be accepted as designated services for the purpose of protection for the names of retail and wholesale
stores and the names of mail-order businesses (including online sales).
Therefore, it is now possible to register the names of stores, such as retail outlets, as well as the names ofindividual products.

5.2.6

Similarity of trademarks
Trademarks must be unique in order to be registered; the sound, the appearance and the meaning of every
trademark must not be similar to any other trademark.
(1)

Sound
This refers to the sound of the trademark as well as the pronunciation of any characters used therein.
Going by the standard of English language education in Japan, it can reasonably be assumed that mostJapanese people will be able to understand the pronunciation of English words or Japanese words written
in alphabetical characters correctly. However, the same cannot be said for words of other languages.
Therefore, in order to avoid confusion, it is preferable to add Japanese kana characters showing how topronounce the trademarks consisting of words in foreign languages other than English to ensure that theproper pronunciation is protected.

(2)

Meaning
This refers to the meaning inferred from the characters that comprise the trademark. In the case of a
trademark in a foreign script, the words "Black Cat", for example, would conjure up the image of a black
cat in the minds of Japanese people, however the German words "Schwarze Katze" or the Spanish words"Gato Negro" would not immediately spark the appropriate feline image in people's minds, and it ispossible that they are recognized as coined words which do not have a specific meaning. Therefore it ispossible that such trademarks could not exclude other trademarks which do cause people to imagine a
black cat if registered as trademarks. In this situation, it may be better to obtain separate protection for a
trademark which consists of a Japanese translation of the original foreign-language phrase.

(3)

Appearance
Trademarks consisting of characters that Japanese people are unable to recognize as written characters,such as Mongolian or Hindi, are treated as trademarks consisting of devices. This means that thetrademark owner is unable to reap any benefits that a trademark consisting of written characters may
have, so one idea is to apply for a separate registration of trademarks consisting of a Japanese translation
or Japanese characters denoting the pronunciation of the foreign-language phrase.

79

SECTION 5 Trademark and Design Protection Systems
5.3

Validity and term of trademark registration

5.3.1

Validity of registration
When a trademark is registered, that trademark is protected against unauthorized use of identical or similar
trademarks by any other person; such use may constitute a breach of civil or criminal law. Trademark owners are
disadvantaged by the illegal selling of fake brand-name goods. The trading of such bogus items is severely
punishable under Japanese law, and in many cases, illicit sellers of fake brand-name goods are charged withcriminal (as opposed to civil) offences.

5.3.2

RenewalOnce registered, a trademark is protected for 10 years starting from the registration date, assuming that thetrademark is not subsequently invalidated or cancelled. Protection can be renewed for further 10-year periods.

5.3.3

Protection of world famous trademarks
Because Japan's trademark system is generally operated on a first-to-file rule basis, therefore, if the ownerof the trademark wishes to protect his trademark legally, it has to be filed an application for registration to Japan
Patent Office and to be registered in principle. However, famous or known trademarks without taking any
procedures for filing are protected exceptionally assuming that they are only famous or known in Japan but also
in foreign countries.

5.4

Cancellation of trademarks

5.4.1

Non-use of trademarks
Under Japan's Trademark Law, trademarks can be registered even if they are not in use at the time under the
first-to-file rule. However, you should be fully aware that, if a trademark is not used at all within a period of three
years following registration, a petition for the cancellation of that trademark may be filed by an interested third
party. Incidentally, "use" of a trademark is not limited to the displaying of the trademark directly on a product;
the printing of a trademark in a pamphlet together with an image of the product, the use of the trademark in an
advertisement for the goods such as in a newspaper, or the displaying of goods featuring the trademark on an
Internet website all constitute "use."<Problematic point>
By the rapid spread of the Internet of these days, everyone can easily access many kinds of website in the world.
In such circumstances, when the trademark is used only on the website, there are arguments whether it could be
the use of the trademark under Japan's Trademark Law. If the trademark is used on the website obviously for the
purpose of the sales in Japan, it could be authorized that it is the use of the trademark. However, if the
trademark is used on the website for the purpose of the sales in foreign countries, there is a doubt whether it is
the use of the trademark under Japan's Trademark Law or not.

5.4.2

Cancellation of proxy registration
Japan's trademark system protects the right of duly authorized trademark owners. For instance, where
overseas-based goods or services are provided in Japan, and where the overseas company involved has enteredinto an agency agreement with a Japanese company, if that local agent applies for registration of the overseas
company's trademark without due cause or permission, the duly authorized trademark owner may file a petition
for the cancellation of the Japanese registration, and can thereby regain their trademark rights.

80

5.5

The registration process

5.5.1

Application and registration fees
Following a revision of the Trademark Law in 1992, Japan's trademark system has been operated under thesame international classification system as other countries; there are 45 classes of goods and services, as wellas those for goods and services unique to Japan. Applications can be made for individual classes or in several
classes at once (known as "multiple-class" applications). Since April 1, 2008, however, a notification of reasons
for refusal pursuant to the body of Article 3, Paragraph 1 of the Trademark Act is now issued if goods andservices in eight or more similar groups are designated per class due to operational requirements at the Japan
Patent Office.
It is always best to consult a professional advisor such as a patent attorney---known in Japan as abenrishi---when applying for trademark registration. Naturally, applying for and being granted registration of a
trademark incurs fees. The fees for this process in Japan are as follows.
(1)

Application feesa.

One trademark in one class: 12,000 yen.

b.

One trademark in multiple classes: 12,000 yen for the first class, and an extra 8,600 yen for each
additional class.

c.
(2)

Note that the above amounts are official fees only, and do not include patent attorney's fees, etc.

Registration fees
When filing an application, fees differ according to whether the application is for a single class or multiple
classes. Registration fees, on the other hand, are 28,200 yen per trademark per class regardless of thetype of application. Remember that, if you engaged a patent attorney, you will be charged fees in addition
to the above registration fees; these may include fees for the work involved in paying the official fees.

(3)

Renewal expenses
38,800 yen per class must be paid as a renewal registration fee at the time of renewal. As in the case of
applications and registrations, you will also be charged other fees, such as a fee for the work involved inpaying renewal registration fees, if you engaged a patent attorney.

81

SECTION 5 Trademark and Design Protection Systems
5.5.2

From application to registration
If the examination process goes smoothly, a trademark can be registered in as little as three months from thetime of filing the application. Generally, however, the examination takes approximately six months, and theregistration takes another one or two months. Allow about eight months after application to complete theprocess.
Payment of application fee

Application

Examination
Notice of reasons for rejection

Submission of reply to rejection
notice and amendments
Decision of registration
Payment of registration fee
Registration of trademark

Decision to deny registration

Publication in gazette
Appeal against decision of
rejection *1

Objections
Period ofProtection
10 years

Decision to uphold trademarks

Decision to cancel trademarks

Payment of renewal feesIntellectual Property High Court

Renewal of protection period
Period of protection can be renewed every 10 years

Supreme Court*1 Under revisions to the law in FY2008, the deadline for demanding an appeal was changed from 30 days to 3 months from the transmittalof the examiner's decision of refusal.

82

5.6

International registration of trademarks
In principle, to obtain trademark rights in Japan from within a foreign country, an application for registrationmust be filed with the Japan Patent Office. However, the following two schemes may be preferable alternatives.

5.6.1

Application under the Paris Convention
If you intend to apply for registration of a trademark in Japan only, or in a small number of countries, it may
be a good idea to file your application under the Paris Convention.

5.6.2

Application under the Madrid Agreement
Japan is also a signatory to the Madrid Agreement, so this is another alternative when making aninternational trademark application that includes Japan. Under this system, it is possible to file an international
application and register trademarks in specified countries based on the application you initially filed in your own
country. This is a particularly handy system for conglomerate companies with interests in many countries aroundthe world.

5.7

Protection of designs

5.7.1

Scope of protection
Under Japan's Design Law, protection is available for the form, pattern or color of an object or a combinationof these, which appeals visually to the viewer's sense of aesthetics. Put simply, Japan's system protects theshape, form and external appearance of an object.
(1)

Criteria
a. Visual appeal to aesthetic sense
Objects whose form cannot be recognized by the human eye, such as a single grain of powder, do
not meet this criterion.
b. Industrial usability
The design must be able to be recreated using an industrial (mechanical or hand-based) process
and must be able to be mass-produced.

(2)

Examination criteria
a. Novelty
No identical or similar design must have been in existence before the application was made; in otherwords, the design must be completely new.
b. Ease of creation
No design that is adjudged to be lacking creativity will be registered, regardless of whether or not it
is new.
c. Uniqueness
Designs that are either identical or similar to other designs for which applications have been filed or
which have been registered are not deemed to be newly-created designs, and will therefore not beregistered (except for the application filed by the same person).
d. Eligibility
From a standpoint of public interest, the following designs will not be registered.
- Designs that may breach public order and morals.
- Designs that may cause confusion with any item pertaining to the business of any other person.
- Designs consisting of only the minimum form necessary to ensure the functions of the object.
e. One design per application
Discrete applications must be made for each design. In some cases, however, several objects may
be deemed to comprise a "design of a set of objects" as long as certain criteria are met.
f.
Priority
If more than one application is filed for the registration of two identical or similar designs, theapplication filed first will be eligible for registration. If the same person files two identical or similar
design applications within a certain period, one of which is deemed as the original design and theother is deemed as a related design, both designs will be eligible for registration under the related
design system.

83

SECTION 5 Trademark and Design Protection Systems
5.7.2

Term of protection
Protection of design rights begins once a design is registered, and continues for 20 years. However, it isimportant to note that, contrary to trademarks, it is necessary to pay an annuity each year in order to maintainprotection. Furthermore, while design rights generally lapse upon the passing of 20 years, if the form of theregistered object becomes famous, it is possible to receive protection under the Unfair Competition Prevention
Law even after design rights lapse.

5.7.3

A protection system unique to Japan
Japan's Design Law provides a system of protection that is very unique to this country. Below are some major
examples of this.
(1)

Related design system
Under Japan's Design Law, not only are designs originally registered in relation to a certain object
protected, but similar designs related to that object and filed in a certain period are also protected.
However, if you feel that official advance confirmation is required regarding the extent to which yourdesign is similar to the one registered, you may register your design as a "similar design."(2)

Design of a set of objects
Under the provisions of Japan's Design Law, design applications and registration usually follow a
one-design-per-object principle, however there is an exception to that rule. This exception allows fordiscrete objects that common sense dictates are usually sold as a set---a knife, fork, and spoon, forexample---to be registered as a single design of a set of objects. Intelligent use of this system has theadvantage of helping keep costs to a minimum.

(3)

Secret designs
When a design is registered, it is generally published in the Design Gazette, however Japan offers asystem that allows a registered design to be kept a secret for a certain period upon application. This is
known as the "Secret Design" system. Because designs are influenced so strongly by fads and fashions,and because some products' periods of popularity tend to end sooner than others', this system aims toprotect the rights of the design-owners for a certain period of time. It should be noted, however, that thissystem tends to limit litigators' options when suing for infringement of rights, and so the system is usedinfrequently at best.

(4)

Partial designs
Because traditionally design rights have protected an entire object, protection could not be guaranteedagainst infringement by people who copied only parts of a design. However, under a revision to the law in1998, the partial design system was introduced allowing registration of parts of shapes or forms with
distinct characteristics. Thus, while it used to be that if somebody copied only part of a design they would
escape prosecution as long as the overall design was not similar, the new system allows registration ofpartial designs, meaning that infringements can be prosecuted. Indeed, this is one of the most important
aspects of Japan's Design Protection system.

(5)

Protection of screen designs
According to a revision of the Design Law in 2006, screen designs (such as the designs of operation
screens for programming DVD recorders, operation screens for selecting a person to call on a cellular
phone, and photo printer setup screens) under the certain conditions are now protected within the scopeof designs which forms a part of goods.

84

5.8

The registration process

5.8.1

Application and registration fees
Naturally, applying for and being granted registration of a design incurs fees. The fees for this process inJapan are as follows.
(1)

Application feesa.

16,000 yen per designb.

Note that the above amount is the official fee only, and does not include patent attorney's fees, feesfor design drawings, etc.

(2)

Registration fees
A registration fee is required when registering a design, however these fees differ from those of
trademarks. The design registration fee for the first year is 8,500 yen and an annuity must be paid eachyear in order to maintain the validity of the design rights. The annuities are as follows.

5.8.2

Years 1 through 3:

8,500 yen per year

Years 4 through 20:

16,900 yen per year

From application to registration
If the examination process goes smoothly, a design can be registered in as little as three months from thetime of application. Generally, however, the examination takes approximately six months, and the registration
takes another one or two months. Allow about eight months after application to complete the process.
Application

Payment of application fee

Examination
Notice of reasons for rejection

Submission of reply to rejection
notice and amendments
Decision of grant design
registration

If reply not submitted
or rejected

Payment of registration fee
Publication of design
establishment

Decision to deny registration

Publication in Gazette
Period ofprotection
20 yearsIntellectual Property High Court

Expiration of protection*1

Appeal against decision of
rejection *1

Supreme Court

Under revisions to the law in FY2008, the deadline for demanding an appeal was changed from 30 days to 3 months from the transmittalof the examiner's decision of refusal.

85

SECTION 5 Trademark and Design Protection Systems
5.9International Registration of Industrial Designs
Due to acceding to Geneva Act of Hague Agreement concerning the International Registration of Industrial Designs,

Japan Patent office has introduced the International Registration of Industrial Designs. According to a revision of theIndustrial Design Law in 2014, it is possible to file a design application with multiple offices overseas in one procedure
simultaneously. The Hague Agreement took effect on May 13, 2015 and has entered into force since the same day.

86Reference
1. Unregistered trademarks and designs
Under Japanese law, unregistered trademarks and designs may be protected from unauthorized use by otherpeople under the Unfair Competition Prevention Law. If a trademark or design is not registered but becomesgenerally known or famous in Japan after use, the trademark or design, as well as the form of the object that
becomes generally known, is protected. Furthermore, forms of new goods are protected for up to three years
from the date on which they were first sold in Japan, even if no patent, utility model right or design has beenregistered. This means that if any other person copies the form of that new product, protection is available
under criminal or civil law.

2. Consultation with specialists for intellectual property rights
The experts publicly authorized to act as agents in carrying out application procedures for intellectual
property rights such as patents, designs and trademarks, are, of course, patent attorneys; in Japan they are
known as benrishi. Regular lawyers (bengoshi) may also perform this work, however, because a very high levelof expert knowledge regarding intellectual property rights is required, it is most common for those who wish toacquire rights, or whose patent or trademark rights have been infringed, to hire a patent attorney. Furthermore,
under Japanese law, legal action pertaining to infringement of rights is currently the sole domain of lawyers(bengoshi), but starting in 2004, patent attorneys (benrishi) may also represent a client in court along with alawyer (bengoshi) as long as they pass certain national examinations.

Writer :SECTION 1. Sakiko AKIYAMA, Judicial Scrivener, Blakemore & Mitsuki
SECTION 2. Tomohide KOH, Administrative Scrivener (Gyoseishoshi Lawyer), LEGAL OFFICE COSMOPOLITANSECTION 3. Jun NAGAMINE, Certified Public Accountant, Nagamine Mishima Accounting Office
SECTION 4. Satoshi NAGAURA, Social Insurance and Labor Consultant, Nagaura Personnel Management Office
SECTION 5. Tetsuo TACHIBANA, Patent Attorney, Tachibana International Patent Office
Editor/Publisher :Invest Japan Department, Japan External Trade Organization (JETRO)
Copyright (c) 2016 JETRO. All rights reserved.

87www.investjapan.org

Japan External Trade Organization
Invest Japan Promotion Division, Invest Japan Department
Ark Mori Building, 6F, 12-32, Akasaka 1-chome,
Minato-ku, Tokyo 107-6006, Japan
Tel: +81-3-3582-5571 Fax: +81-3-3505-1990
Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying,recording or otherwise, without the prior permission of JETRO. All information in this publication is verified to the best of the writers' and the publisher's ability. However, JETRO
does not accept responsibilities for any loss arising from reliance on it.
(Notice for U.S. Users Only) This material is disseminated by the JETRO offices (New York, San Francisco, Los Angeles, Chicago, Houston and Atlanta), which are all registeredunder the Foreign Agents Registration. Act as agents of the Japan External Trade Organization, Tokyo, Japan. This material is filed with the U.S. Department of Justice where therequired registration statement is available for public inspection. Registration does not indicate approval of the contents of the material by the United States Government.

June 2016