Japan. Treasury Management Profile Together we thrive

Transcription

1 Japan Treasury Management Profile 2018 Together we thrive

2 2 3 Contents Introduction and Purpose Introduction and Purpose 3 Legal and Regulatory 6 Taxation 8 Banking 13 Payment Instruments 14 Japan This is one of a series of Treasury Management Profiles designed for finance and treasury professionals worldwide. By providing a snapshot of banking, payments and cash management in selected locations, these profiles can help treasury managers to make informed decisions, manage risks effectively and take advantage of new opportunities. However, this information is not intended to be comprehensive and does not constitute financial, legal, tax or other professional advice. Accordingly you should not act upon the information contained in this document without obtaining your own independent professional advice. The materials contained in this document were assembled in May 2017 (unless otherwise dated) and were based on the law enforceable and information available at that time. Payment Systems 18 Cash Management 21 Electronic Banking 22 Trade Finance 24 Useful Websites 26 Facts and Figures Capital/Other major cities: Area: 377,915km 2 Population: 126.1m Languages: Currency: Country telephone code: 81 Tokyo/Yokohama, Osaka, Nagoya, Sapporo, Kobe, Kyoto, Fukuoka Japanese Japanese yen (JPY) Business hours: Banking hours: Stock exchanges: Leading share indices: 09:0017:00 (MonFri) 09:0015:00 (MonFri) Tokyo Stock Exchange, Osaka Securities Exchange, JASDAQ Securities Exchange, Nagoya Stock Exchange, Sapporo Securities Exchange TOPIX, Nikkei 225 J-Stock Index, JASDAQ Index Weekend: National holidays: Source: Saturday and Sunday , 8 Jan, 12 Feb, 21 Mar, 30 Apr, 35 May, 16 Jul, 11 Aug, 17, 24 Sep, 8 Oct, 3, 23 Nov, 24, 31 Dec Sectoral distribution of GDP (% of GDP): Source: publications/resources/the-worldfactbook/index.html. Agriculture 2.9%, Industry 26.2%, Services 70.9% (2016 estimate) Government Legislature Constitutional monarchy with a bicameral Diet (Kokkai) composed of the House of Councillors (Sangi-in) and the House of Representatives (Shugi in). House of Councillors: 242 members are elected to serve sixyear terms. House of Representatives: 475 members are elected to serve four-year terms. Head of state Emperor Akihito, titular head of state since 7 January Political leader Shinzo Abe, prime minister since 26 December The prime minister is designated by the Diet from among its members and appointed to office by the Emperor. Each term of office does not exceed four years. The next elections to the House of Councillors are scheduled to be held in July 2019.

3 4 5 Country credit rating Fitch Ratings rates Japan for issuer default as: Term Issuer Default Rating Short F1 Long A Long-term rating outlook Stable Source: November Exchange rate & Interest rate (%) Economy Exchange rate* (JPY/USD)** Interest rate (MMR) (%) NA NA Unemployment (%) NA NA Consumer inflation*** (%) 0.3 Ø NA GDP volume growth*** (%) NA NA GDP (JPY tr) GDP (USD bn) 5,906 5,955 4,943 4,621 4,382 4,939 GDP per capita (USD) 46,384 46,834 38,928 36,450 34,621 38,661 BoP (goods/services/income) as % GDP ** * Official rate. ** Period average. *** Year on year Q4 Consumer inflation & GDP volume growth (%) Year Q1 Q2 Q Sources: IMF, International Financial Statistics, November 2017 and 2017 Yearbook; and World Trade Organization Exchange rate (JPY/USD) Consumer inflation % Interest rate (MMR) GDP volume growth % Sources: IMF, International Financial Statistics, November 2017 and 2017 Yearbook

4 6 7 Legal and Regulatory Central bank The Bank of Japan (BoJ) is a semi-governmental institution operating in accordance with the Bank of Japan Act and its amendments. Bank supervision The Financial Services Agency (FSA) supervises the banking sector in Japan. Resident/non-resident status A company is considered resident in Japan if it has its principal office or head office located in Japan. Companies that are considered resident in countries that have a double-tax treaty with Japan are not considered resident in Japan. Bank accounts Residents Foreign exchange accounts and domestic currency (JPY) accounts can be held by residents both domestically and abroad. Resident domestic currency accounts are freely convertible into foreign currency. Non-residents Non-resident bank accounts are permitted in both foreign and domestic currency. Non-resident domestic currency accounts are freely convertible into foreign currency. must be reported to the BoJ for balance of payments purposes after the end of the reporting month. All capital transactions (i.e. loans, credits) of JPY 100 million or above between resident and non-resident bank accounts must be reported. Non-residents may be subject to other reporting requirements, if capital transactions exceed JPY 100 million. Transactions data is submitted electronically through an online reporting system, the BOP System. Companies are responsible for submitting all transactions data directly to the BoJ. Exchange controls The Japanese yen (JPY) is Japan s official currency. Foreign exchange controls in Japan are administered by the Ministry of Finance (MoF), the Ministry of Economy, Trade and Industry (METI) and the BoJ. Foreign exchange can be traded on a forward basis in all foreign currencies. All profits earned abroad are required to be remitted back to Japan. The MoF must be notified via the customs authorities of all imports and exports of cash, including cheques, promissory notes and securities, greater than JPY 1 million, or its equivalent in foreign currency. Exports and imports of gold in excess of 1kg in weight must also be reported. Anti-money laundering/counter-terrorist financing 1 Japan has implemented anti-money laundering and counterterrorist financing legislation. Notable legislation includes: The Act on the Prevention of Transfer of Criminal Proceeds 2007, as amended 2011 and 2014; The Act on Punishment of Financing of Offences of Public Intimidation 2002; The Law Concerning Punishment of Organised Crime and Control of Criminal Proceeds (Act No 136 of 1999; and The Foreign Exchange and Foreign Trade Act of 1949 (last major amendment in 2004). A Financial Action Task Force (FATF) member, Japan observes most of the FATF+49 standards. Japan is also a member of the Asia/Pacific Group on Money Laundering (APG) and has observerjurisdiction status on the Council of Europe s MONEYVAL Committee. In June 2014, the FATF expressed its concern about Japan s lack of progress in addressing numerous and serious deficiencies in its AML/CTF framework. The FATF called on Japan to promptly address these AML/CTF weaknesses. The Japan Financial Intelligence Centre (JAFIC), housed within the National Police Agency, is the country s financial intelligence unit. The JAFIC is a member of the Egmont Group. Customer identification is not required for one-off cash transactions below JPY 2 million (except for suspicious or unusual transactions). Financial institutions in the broadest sense must record and report suspicious transactions to the JAFIC. Customer identification records must be maintained for at least seven years after account closure or the date of the last transaction. All individuals entering and leaving Japan must report physically transported currency and monetary instruments (including securities and gold weighing more than 1kg) exceeding JPY 1 million, or its equivalent in foreign currency, to the customs authorities. Interest is offered on demand deposit accounts (except for JPYdenominated current accounts). Multi currency accounts are popular in Japan, as they allow companies to take advantage of higher interest returns than are obtainable on JPY deposits. Overdraft facilities are available to residents and non residents. Reporting All non-trade transactions between residents and non-residents in excess of JPY 30 million, or its equivalent in foreign currency, Controls apply to capital transactions made by insurance companies. They are not permitted to have more than 30% of their overall assets denominated in foreign currency. Prior declaration is required for outward direct investment by residents in certain industry sectors such as arms manufacturing, narcotics, leather products and fisheries. Prior declaration is required for inward direct investment by foreign investors in certain industry sectors, including agriculture, oil, mining, leather products and air or maritime transportation. Account opening procedures require formal identification of the account holder and (for legal entities) beneficial owners (owning more than 25% of shares or voting rights). Financial institutions have to identify clients for domestic or international transactions, including wire transfers, over JPY 100,000. Businesses must also report all foreign currency exchanges in excess of JPY 1 million per month. 1. Data as at May 2017.

5 8 9 Taxation 1 Japanese consumption tax (JCT), similar to a European-style VAT, is levied at a standard rate of 8% on all taxable goods and services, and on all taxable goods imported into Japan. Resident/non-resident A company whose principal office or head office is located in Japan is considered to be a Japanese resident, unless it is regarded as resident in another country under a Japanese double tax treaty. Local management is not required. Tax authority National Tax Agency (NTA). Tax year/filing A corporation selects its fiscal year when it begins operations in Japan. The accounting period must not exceed 12 months. A branch s tax year is generally the same as the tax year of its head office. Companies must file a national and local corporation tax return within two months of the end of their accounting period. A onemonth extension may be available. Companies may file either a blue or a white return. The blue return carries a wide range of privileges, such as deductions, including tax loss carryforwards and accelerated depreciation. To use this form, firms must apply before the beginning of the applicable tax year and must meet certain requirements in relation to their accounting systems and recordkeeping. Companies must file interim returns within two months of the end of the first six months of each fiscal period, paying estimated tax on the basis of the income reported in the interim return. The estimated tax paid with the interim return may be either: One-half of the total tax paid in the previous taxable year; or The tax due on income resulting from the actual results of the first six months. A Japanese domestic parent corporation and its 100%-owned domestic subsidiaries may elect to file a consolidated tax return for national tax purposes only, i.e. local taxation is calculated on a standalone basis. Once such a group has been approved to enter into the consolidated tax regime, in principle, the group cannot voluntarily revoke this status. Consolidated taxable income is calculated for the consolidated group as a single tax unit, by aggregating the separate taxable income of each subsidiary in the group and applying necessary adjustments. Consolidated tax liability is calculated based on consolidated taxable income multiplied by the applicable tax rate, adjusted for various tax credits. The group s consolidated tax liability is allocated to the individual corporations in the group based on the taxable income or loss of each corporation. In principle, when forming/joining the consolidated group, existing subsidiaries are subject to the mark-to-market rule, and the separate return limitation year rule (under which a subsidiary s net operating losses (NOLs) incurred before joining the group can be carried forward and offset only against its own taxable income). There are some exceptions to these rules for subsidiaries held for more than five years and subsidiaries that meet certain requirements. Corporate taxation A resident corporation is taxed on worldwide income; a foreign corporation generally is taxed only on certain Japanese-sourced income. The corporate tax rate for a branch is the same as for a subsidiary. The national standard corporation tax rate of 23.4% applies to ordinary corporations with share capital exceeding JPY 100 million. Companies must also pay local inhabitants tax, which varies with the location and size of the firm. The inhabitants tax, charged by both prefectures and municipalities, is comprised of the corporation tax levy (levied as a percentage of national corporation tax) and a per capita levy (determined based on capital and the number of employees). 1. All tax information supplied by Deloitte Touche Tohmatsu ( and Deloitte Highlight, The local enterprise tax, another tax imposed by the prefectures, is classified as an income-based tax and factor-based tax. The factor-based enterprise tax has three components: progressive rates of up to 3.6% of taxable profits, 1.2% of a value-added factor and 0.5% of share capital and capital surplus. The effective tax rate for corporations (inclusive of the inhabitants and local enterprise taxes), based upon the maximum rates applicable in Tokyo to a company whose paid-in capital is over JPY 100 million, is approximately 30%. There is no alternative minimum tax. A 2.1% surtax applies on the withholding tax for certain Japanese-sourced income. Dividends received by a resident corporation from another resident corporation are entirely excluded from taxable income for corporation tax purposes, if the recipient holds 100% of the dividend paying corporation for a certain period. If a corporation owns 33.3% or more of the shares in a dividend paying corporation for at least six months before the date when the right to receive a dividend is determined, the dividend (less the dividend receiving resident corporation s interest expense allocated to the dividend) would be excluded from taxable income. If a corporation holds less than 33.3% of the shares or holds 33.3% or more, but for less than six months before the dividend determination, 50% of the dividend (less the dividend receiving resident corporation s interest expense allocated to the dividend) is excluded from taxable income. Japanese companies are effectively able to exclude 95% of foreign dividends received from their tax calculation. However, there is no longer foreign tax credit relief. In order to qualify for the exemption, the Japanese company must have held at least 25% of the shares of the foreign entity paying the dividend for at least six months prior to the dividend declaration date. Only 60% of a company s taxable income may be offset by NOLs. SMEs with share capital of not more than JPY 100 million are exempt from the NOL restrictions, unless the SMEs are owned by a large corporation. NOL carryforwards may be further restricted in certain situations, including a change of ownership of more than 50% in connection with a discontinuance of an old business and commencement of a new business. The NOL carryforward period is nine years for NOLs incurred during fiscal years ended on or after 1 April (SMEs may carryback losses for one year). Various tax credits are available, including an R&D credit. There is a tax incentive for investment in productivity improving assets (PIAs), which are depreciable assets that are directly used for production, sales or service provision activities or other revenueproducing activities conducted by companies. PIAs do not include assets used in head office or back office functions. Under this incentive, taxpayers may take special depreciation or a tax credit for investments in PIAs if certain requirements are met. Other tax incentives are available for increasing wages and salaries (for fiscal years starting between 1 April 2013 and 1 March 2018), and for creating additional new employment (effective until 31 March 2018). However, only one of these two salary growth/job creation credits may be claimed in a fiscal period. Special tax incentives have been introduced for qualified companies doing business in designated regions/zones. Advance tax ruling availability Japan has a limited advance ruling system. Written rulings generally are available to the public and the availability of a ruling is subject to certain restrictions (e.g. no hypothetical cases). Capital gains tax Capital gains of a resident Japanese company are not subject to separate or preferential taxation. Instead, all such gains must be reported when realised and are taxed with other ordinary corporate income. Capital losses generally are deductible. Withholding tax (subject to tax treaties) Up to 31 December 2012, the withholding tax rates on

6 10 11 payments to non-residents were generally 20% (15% on bonds and deposits). From 1 January 2013 to 31 December 2037, an additional special reconstruction income tax of 2.1% is applicable to the withholding tax levied on certain payments made by Japanese companies to non-residents. This increases the withholding tax rate on dividends, loan interest, royalties or technical services fees paid to a non-resident to e.g % (i.e. 20% + (20% x 2.1%)). If a reduced withholding tax rate or exemption is available under a tax treaty, that treaty rate is unchanged. Tax treaties/tax information exchange agreements (TIEAs) Japan has exchange of information relationships with 78 jurisdictions, through 67 double tax treaties and 11 TIEAs. Japan, as part of the OECD/G20 Base Erosion and Profit Shift (BEPS) initiative, is a signatory of The Multilateral Competent Authority Agreement (MCAA). Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on some key indicators of economic activity within multinational enterprises (MNE). With country-by-country reporting, the tax authorities of jurisdictions where a company operates will have aggregate information annually relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. The reports will also cover information about which entities do business in a particular jurisdiction and the business activities each entity engages in. The information will be collected by the MNE group s country of residence, and will be exchanged through exchange of information. Country-by-country reporting obligations apply for tax periods beginning on or after 1 January The first exchanges under the MCAA will begin in , based on 2016 information. Thin capitalisation Japan s thin capitalisation rule primarily restricts the deductibility of interest payable (including certain guarantee fees) by a Japanese corporation, and a foreign corporation liable to pay corporation tax in Japan, to its foreign controlling shareholder (or certain third parties) if the interest is not subject to Japanese tax in the hands of the recipient. A foreign controlling shareholder is defined as a foreign corporation or non resident individual that: Directly or indirectly owns 50% or more of the total outstanding shares of the Japanese corporation (i.e. a parentsubsidiary relationship); Is a foreign corporation in which 50% or more of the total outstanding shares are directly or indirectly owned by the same shareholder that directly or indirectly owns 50% or more of the shares of the relevant Japanese entity (i.e. brother-sister relationship); or Otherwise exercises control over the Japanese entity. This rule is also applicable in situations involving certain third parties, including situations where: A third party provides a loan to the Japanese entity that is funded by a back to-back loan arrangement with the foreign controlling shareholder; A third party provides a loan to the Japanese entity that is guaranteed by a foreign controlling shareholder; or A third party provides a loan to the Japanese entity based on arrangements involving bonds and certain repo transactions. There is a debt-to-equity safe harbour ratio of 3:1 (2:1 for certain repo transactions). This effectively means that there will be a restriction only if the debt from the foreign controlling shareholder (or specified third party) exceeds three times the amount of net equity the shareholder/third party owns and the total debt exceeds three times the equity. In such a situation, interest expenses calculated on the excess debt are treated as non-deductible expenses for Japanese corporate income tax purposes. If the taxpayer can demonstrate the existence of comparable Japanese corporations that have a higher debt-toequity ratio, that higher ratio may be used. Withholding tax (subject to tax treaties) Payments to: Interest Dividends Royalties Other income Branch remittances Resident companies 0%/20%* 7%/20% None None NA Non-resident companies % /20.42% Earnings stripping Where net interest payments to related persons (i.e. interest payments to related persons less relevant interest income) exceed 50% of adjusted taxable income in a fiscal year, the excess portion is non deductible. For these purposes, related persons is broadly defined, and includes similar controlling and affiliate relationships to those discussed under Thin capitalisation. The rules also can apply to interest payments to certain third parties (e.g. where a third party provides a loan that is guaranteed by a related person). To summarise, adjusted taxable income is taxable income without applying certain provisions (including offsetting brought-forward tax losses, the dividends received deduction, the foreign dividend exemption, etc.) and adding back net interest payments to related persons and certain other expenses. De minimis exceptions to the application of the earnings stripping rules exist for: Net interest payments to related parties not exceeding JPY 10 million; or Net interest payments to related parties that are not more than 50% of the total interest expenses. Where both the earning stripping and the thin capitalisation rules are applicable, the larger of the two potential disallowances will apply. To the extent the application of the above rules gives rise to non-deductible related-party interest, such interest expense may 20.42% 20.42% 20.42% None * Interest on loans is not subject to withholding tax. ** The 20% rate applies to dividends from unlisted shares. Dividends from listed shares received by companies are subject to withholding tax at 7%. be carried forward and deducted (within the limitation) against taxable income arising during the following seven fiscal years. Transfer pricing The prices of goods and services exchanged between internationally affiliated entities must be consistent with arm slength principles. Internationally affiliated entities are defined, among others, as those with a relationship consisting of a direct or indirect foreign shareholding of 50% or more, or a control in substance relationship. The burden is on the taxpayer to demonstrate that the pricing is reasonable. Failure to do so may give rise to a transfer pricing adjustment, at the discretion of the tax authorities. Advance pricing agreements on the reasonableness of the taxpayer s methodology and results may be obtained from the tax authorities. Controlled foreign companies (CFC) For Japanese tax purposes, a CFC may include any non-japanese company that has an effective tax rate of less than 20%, if the company is more than 50% controlled, directly or indirectly, by Japanese shareholders. A CFC is considered controlled by Japanese shareholders where Japanese shareholders own directly or indirectly more than 50% of the outstanding shares. Japanese companies that hold (together with their associated persons) 10% or more of the outstanding shares of a CFC must report their share of the taxable profits of the CFC on a current

7 12 13 Banking basis. When a company is classified as a CFC, the Japanese company generally is taxed on the taxable profits of the CFC on a pro rata basis corresponding to its shareholding. The CFC rules may be waived if a foreign subsidiary has fixed facilities engaged in business in the foreign country and conducts business activities in that country. Even if a CFC satisfies the above conditions, certain passive income is subject to tax in the hands of the Japanese parent company. Disclosure requirements Disclosure requirements apply to the 10% or more of shareholders of CFCs. Transactions with foreign-related parties should be disclosed (on Form 17(4)) and submitted with the tax return. Anti-avoidance Broadly applicable anti-avoidance rules are in place. Stamp duty Where there is a transfer of land, buildings or businesses or certain notes and agreements, there is a stamp duty on the seal that is placed on the agreement. This can range from JPY 200 to JPY 600,000. Cash pooling Japan has no specific tax rules for cash pooling arrangements. Real property tax The municipal fixed assets levy is assessed at an annual rate of 1.4%. A real estate acquisition tax of 3% to 4% of the assessed value applies at the time land or buildings are acquired, and a real estate registration tax is imposed on the assessed value of real property at rates ranging from 0.4% to 2%, depending on the type of transfer. An existing company may elect to be a consumption taxpayer if taxable sales for consumption tax purposes do not exceed JPY 10 million in the base period (two years before the current year, or the first six months of the prior year), subject to certain other conditions. A new company with share capital of less than JPY 10 million should be automatically exempt from filing consumption tax returns until taxable sales exceed JPY 10 million in the base period, or a timely consumption taxpayer election is filed. The election is binding for two taxable years. Other than this election, no registration procedures exist. Sales taxes/vat (incl. financial services) Japanese consumption tax (JCT), similar to a European-style VAT, is levied on all taxable goods and services and on all taxable goods imported into Japan. The standard rate is 8% from 1 April 2014, which is a combined national and local tax rate. There is a zero rate for certain categories of goods and services. Exports are exempt. Financial transactions/banking services tax There is no specific financial transactions tax in Japan. However, stamp duty could be applicable to certain documents. Share registration Share registration tax is assessed on the registration of new or additional share capital, at 0.7%. Payroll and social security taxes There is no payroll tax payable by employers. All Japanese companies, including subsidiaries of foreign companies, are resident employers. Non-Japanese companies may also be resident employers if they have an office in Japan. Resident employers are required to withhold employee income taxes and social security taxes at source. The employer must withhold the employee s contribution and make its own contributions to social security tax, which has several components. The highest combined employer portion is approximately %. The highest combined employee s portion is approximately %. The employer s contribution is deductible for corporation tax purposes. Overview There are four city banks, 64 regional banks and 16 trust banks operating in Japan. There are also 53 foreign banks, 16 bank holding companies and 14 niche banks, such as internet banks ebank, Sony Bank, Seven Bank and Japan Net Bank. The country s 64 regional banks are divided into two tiers depending on size and assets. Both tiers are treated the same for regulatory purposes. Japan s four city banks Bank of Tokyo-Mitsubishi, Sumitomo Mitsui Banking Corporation, Resona Bank and Mizuho Bank control approximately 51% of the banking sector s total assets. All four maintain national branch networks. In November 2015, the government sold 20% of Japan Post, worth USD 12 billion. Japan Post Bank, the world s largest savings bank, began a denationalisation process in No timetable has been released for further share sales. The country s sluggish economic growth over the past decade, combined with the BoJ s negative interest rate policy and Japan s aging population, has prompted financial regulators to recommend increased consolidation between Japan s regional banks. In March 2017, for example, Resona Holdings and Sunitomo Mitsui Financial Group announced plans to consolidate regional banks, Kansai Urban Banking, Minato Bank and Kinki Osaka Bank. Japan s larger banks are looking to bolster earnings by reducing their branch networks and offering an increased digitalised service. Foreign banks play an active role in the country s financial sector, although not in the retail sector. Foreign or multinational firms operating in Japan typically prefer to work with foreign banks for their financing needs, due to language and cultural differences. Major banks Bank Total assets (USD billions) 30 June 2017 Bank of Tokyo-Mitsubishi 2,714 Japan Post Bank 1,875 Sumitomo Mitsui Banking 1,800 Corporation Mizuho Financial Group 1,789 Norinchukin Bank 1,002 Source: November 2017.

8 14 15 Payment Instruments Payment statistics Millions of transactions % change Traffic (JPY trillions) / % change 2015/2014 % of total card transaction value 2016 Card type (million) Cheques Debit card payments Credit card payments NA NA NA Credit transfers 1, NA NA 2, NA NA Card-based e-money NA 4.68 NA NA 4.64 NA Source: Bank for International Settlements, CPSSRed Book statistical update, September Debit Cards 2.0% Credit Cards 89% E-Money Cards 9.0% Source: Bank of Japan, Payment and Statistics Report. Debit Cards 421 Credit Cards Cash Cards E-Money Cards* 328 * Figure includes 30.9 million mobile wallets. Cash Cash remains an important payment medium in Japan, particularly for low value (up to JPY 50,000) transactions. Credit transfers All credit transfers in Japan are automated. They can be initiated online, via telephone banking and at ATMs. High-value and urgent electronic credit transfers are cleared and settled via BOJ-NET, the national RTGS system, in real time. High-value and urgent cross-border electronic credit transfers, or transfers involving a non-resident, are processed via the FXYCS on a same-day basis (if submitted by 21:00 local time). Final settlement is via BOJ-NET. Low-value (below JPY 100 million), non-urgent and highvolume credit transfers are processed through the Zengin System on a same-day basis. High-value transfers of JPY 100 million or above (with the exception of remittances of salary and bonuses) are settled via BOJ-NET on a real-time basis. Low-value credit transfers include payroll, supplier and thirdparty payments. Low-value credit transfers involving non-residents are processed via the FXYCS on a same-day basis. Final settlement is via BOJ-NET. Direct debits Direct debits are available in Japan for low value recurring payments such as utility bills. There is no standardised direct debit scheme. Payment instructions are divided among banks to handle on a semi-manual basis. The collection time for funds can sometimes take weeks. Cheques The cheque remains an important cashless payment instrument for both retail and commercial payments. However, its use is in decline due to an increasing preference for electronic payments for both high-value and low-value transactions. Japanese law requires financial institutions to freeze current accounts and lending transactions for two years, if the payer fails to honour a cheque or promissory note more than once in six months. Cheques are processed via the BCCS, a network of regional clearing houses. Final settlement is via the BOJ-NET. Funds are available to beneficiaries on a next day basis. Card payments Payment cards are an increasingly popular method of payment in Japan, although consumers remain cautious about using cards for online purchases. In 2016, there were million debit card transactions, with a value of USD 7.96 billion. However, debit card payments accounted for just 2% of the total value of card payments in Credit cards, typically used for payments of JPY 50,000 or more, accounted for 89% of the total value of card payments and e-money 9% 1. There are an estimated 421 million debit cards, million cash cards and million credit cards in circulation 1. JJCB, MasterCard, Visa, American Express, Diners Club, UFJ Card, UC and Nicos are the principal payment card brands issued. All cards issued are EMV compliant. Debit card transactions are processed via CAFIS and cleared via the Zengin System. Credit card payments are processed via CAFIS and cleared by individual financial institutions or card issuing schemes. There are over 136,750 ATMs and 1.9 million POS terminals in Japan. Over 95% of these accept EMV smartcard technology. There are nine main ATM networks in Japan, including: BANCS, which connects the city banks; ACS, which connects regional banks; and SOCS, which connects trust banks. All nine networks are connected via MICS (Multi Integrated Cash Service). MICS transmits and clears ATM transaction data. Japan Post operates a proprietary network. The Asian Payment Network (APN) initiative currently allows ATM card holders in Japan to perform cash withdrawals at the ATMs of participating banks in each member country (Australia, China, Japan, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam), through a linked ATM network. The APN s aim is to become a settlement network for a range of retail payments across Asia. In Japan, the initiative is operated by NTT Data. Electronic wallets Electronic money schemes are available in the form of reloadable pre-paid cards. There are approximately 328 million e-money cards in circulation (of these 30.9 million were mobile phone e-wallets) and an estimated 1.8 million e-money terminals in operation. E-money cards are typically used for payments between JPY 5,000 and JPY 10,000.

9 16 17 Edy is a card-based scheme operated by Rakuten Edy and accepted at convenience stores, food chains and online shopping sites. The card can be reloaded in amounts ranging from JPY 1,000 to JPY 25,000 at designated terminals within user stores or by credit card using Pasori a special reader used for purchases over the internet. The card can store up to JPY 50,000. Suica is a single-purpose card issued by JR East (East Japan Railway Company) for use at stations. The maximum value stored on the cards is JPY 20,000. The card is reloaded at ticket vending machines in values ranging from JPY 1,000 to JPY 10,000. Other e-money travel cards include PASMO, Kitaca, SUGOCA and ICOCA. Nanaco and WAON are mobile phone and pre-paid cards. Nanaco can be used in 7 Eleven stores, while WAON is accepted in 25,000 stores. densai.net is an e-money alternative to bills, notes and credit transfer payments made to businesses. Over 500 financial institutions and 260,000 businesses participate in the service. In 2016, there were five billion e-money transactions totaling USD 44.5 billion 1. Financial institutions are required to freeze current accounts and lending transactions for two years, if the payer fails to honour a cheque or promissory note more than once in six months. Mobile wallet payment apps are available. Apple Pay and Android Pay both launched in Other payments Promissory notes Promissory notes are an accepted payment method between Japanese companies. There is an active discount note market that allows recipients of promissory notes access to working capital finance. Promissory notes are processed via the BCCS. 1. Bank of Japan, Payment and Statistics Report.

10 18 19 Payment Systems There are 312 clearing houses in Japan. The Tokyo Clearing House processes 70% by value and 33% by volume of all paperbased instruments. Type BOJ-NET, Japan s national real-time gross settlement (RTGS) system, is owned and operated by the BOJ. Participants can access BOJ-NET either through a dedicated terminal within each bank or through a direct link to the bank s computer network. BOJ-NET was upgraded in February 2016 to facilitate longer operational hours. BOJ-NET processed 16.9 million payments in 2015, with a value of JPY 33,095.8 trillion, an increase of 1.3% and 8.4% respectively on 2014 figures. The Zengin System, a designated time net settlement system, is operated by the Japanese Bankers Association. The Zengin System processed 1,548.3 million low-value (under JPY 100 million) transactions in 2015, with a value of JPY trillion, an increase of 2.2% and 2.9% respectively on 2014 figures. The FXYCS (Foreign Exchange Yen Clearing System), an RTGS system, is owned and operated by the Tokyo Bankers Association. The FXCYS processed 6.8 million payments in 2015, with a value of JPY 3,840.9 trillion, an increase of 4.2% and 25.7% respectively on 2014 figures. The BCCS (the Bill and Cheques Clearing System) is a paperbased clearing system operated by the local bankers associations. There are 312 clearing houses across the country. The Tokyo Clearing House processes 70% by value and 33% by volume of all paper-based instruments. The Tokyo Clearing House processed 20.6 million payments in 2015, with a value of JPY trillion, a decrease of 6.5% and 12% respectively on 2014 figures. Participants BOJ-NET has 509 direct participants. The Zengin System has 1,296 participants. The FXCYS has 201 participants. There are 315 clearing houses nationwide. Transaction types processed BOJ-NET processes high-value (greater than JPY 100 million) and urgent JPY-denominated interbank transfers. In addition, BOJ-NET effects the final settlement of participants net balances originating from Japan s other clearing houses. The Zengin System processes electronic credit and debits. The FXYCS processes JPY-denominated cross-border transactions, including import and export settlement payments. The FXCYS also processes all payments involving non-resident entities and JPY-denominated bond transactions. The BCCS processes all cheques and paper-based items. Operating hours BOJ-NET operates from 09:00 to 21:00 JST (Japan Standard Time) on all Japanese business days for all participants. The Zengin System operates from 08:30 to 15:30 JST on all Japanese business days. The FXYCS operates from 09:00 to 14:00 JST on all Japanese business days. Clearing cycle details BOJ-NET 9:0021:00 JST: BOJ-NET settles transactions in real time and with immediate finality. Final settlement is made between participants accounts held with the BOJ. 10:30, 13:30, 14:30 and 15:30 JST: multilateral offsetting takes place. 12:30 JST: final settlement for BCCS payments. 16:15 JST: final settlement of Zengin payments under JPY 100 million. 17:00 JST: final settlement of FXCYS payments. Zengin System 15:30 JST: cut-off time for payment instructions. Final settlement takes place across participants accounts held at the BOJ via BOJ-NET at 16:15 JST. High-value transactions of JPY 100 million or above are settled via BOJ-NET on a real-time basis. Companies with access to ANSER (Answer Network System for Electrical Requests) can make transfers between JPYdenominated accounts in real time. FXYCS 14:00 JST: cut-off time for payment instructions. Final settlement of net positions occurs on a RTGS basis through BOJ NET at 17:00 JST. CLS Bank participates in the FXYCS by making settlements through its RTGS mode. CLS Bank operates until 17:00 JST. BCCS 12:30 JST: final settlement takes place across participants accounts held at the BOJ via BOJ-NET. Withdrawal of funds generally cannot occur until 13:00 on the next business day after interbank settlement. Currency centre holidays , 8 Jan, 12 Feb, 21 Mar, 30 Apr, 35 May, 16 Jul, 11 Aug, 17, 24 Sep, 8 Oct, 3, 23 Nov, 24, 31 Dec Source:

11 20 21 Cash Management Domestic Notional pooling Notional pooling is permitted in Japan. However, Japan s tax regulations can make notional pooling structures difficult to establish and operate. In 2014, the FSA revised the Order for Enforcement of the Money Lending Business Act. The amendment exempts loans made between certain group entities from the regulatory requirements under the Money Lending Business Act of Japan. The amendment will help to facilitate intra-group loans, and in particular to facilitate the establishment of cash management systems in entity groups. Cash concentration Cash concentration is permitted between resident and nonresident companies with zero balancing the most commonly used cash management technique. Cross-currency cash pools are available. Cross-border cash concentration is permitted between resident and non resident entities. Residents are permitted to establish cross-border physical cash pools within Japan and abroad. Some multinational companies have created treasury centres in Tokyo, London and New York, with individual JPY accounts. These are linked to a pool account established in each centre. Companies need to be aware of Japan s thin capitalisation rules when establishing a cross-border structure. Companies should also note that according to the Temporary Interest Rates Adjustment Act, the current maximum interest rate applicable to all JPY-denominated current accounts in Japan is set at 0% per annum. Accordingly, a sweep within a single entity, an automatic two-way sweep, or a reverse sweep between a JPYdenominated current account in Japan and an interest bearing account (in or outside Japan) should be avoided. However, this does not preclude the transfer of funds between savings and current accounts carried out in accordance with a customer s individual instruction (as opposed to a standing instruction). Cross-border Cross-border payment instructions are routed via SWIFT and settled through accounts held with correspondent banks abroad. Six Japanese settlement bank members of CLS. Lifting fees Percentage-based fees are applied to funds transfers, denominated in both local or foreign currency, between resident and non-resident accounts. Short-term investments Interest can be earned on resident and non-resident demand deposit accounts. Accounts are available in JPY or foreign currencies. Companies are permitted to sweep surplus balances into an interest-bearing overnight account. Time deposits are available in JPY or major foreign currencies. Maturities range from one month to ten years. Custody and securities settlement 1 Depositories Bank of Japan (BoJ). Japan Securities Depository Centre (JASDEC). JASDEC is the sole central securities depository (CSD) in Japan. It is the book entry, central registration and transfer institution for equities and corporate bonds. The BOJ acts as central depository for Japanese Government Bonds. Japan Securities Clearing Corporation acts as clearing house and central counterparty for exchange-traded securities. Tokyo Stock Exchange is the principal securities exchange in Japan followed by Osaka Securities Exchange and Nagoya Stock Exchange. The BOJ-NET system provides a real-time gross settlement system. Settlement cycle T Data as at May 2017.

12 22 Electronic Banking International companies often operate separate electronic banking and ERP systems, due to the difficulty of translating Japanese characters to a format readable by internationally developed systems. Electronic banking, known locally as firm banking, is available in Japan and offered by all the country s banks. There is no bankindependent electronic banking standard; each bank offers its own proprietary system for corporate banking purposes. International companies often operate separate electronic banking and ERP systems for their Japanese operations, due to the difficulty of translating Japanese characters to a format readable by internationally developed ERP systems. Internet and mobile banking is offered by all of Japan s banks for both corporate and retail services. Japan has an internet penetration rate of 92%; smartphone penetration is approximately 52%

13 24 25 Trade Finance Japan has established free trade agreements with those countries with which it conducts the highest volume of trade and on which the highest tariff rates apply. Imports Documents In order to import goods into Japan, a customs declaration, commercial invoice (including a full description of the imported goods), bill of lading, packing list and cargo dispatch document are required. Licences Import licensing applies to those goods that may affect public safety, hygiene or morals or, in some instances, the wider economy. All licences are issued by the Ministry of Economy, Trade and Industry (METI) or other authorities. Taxes/tariffs and other fees Japan is a member of the 21-member Asia-Pacific Economic Cooperation (APEC) forum, which intends to lift all trade and investment barriers in the region. Japan and ten other Pacific Rim countries have agreed to proceed with the Trans Pacific Partnership Agreement (TPP), renamed the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP), despite the withdrawal of the USA from negotiations of the TPP. The new agreement can take force 60 days after at least six signatories complete domestic procedures. Japan has established free trade agreements with those countries with which it conducts the highest volume of trade and on which the highest tariff rates apply. Excise taxes on alcohol, petroleum and tobacco may also be applied. Rates of duty vary, based on commodity type and country of origin. The maximum rate of duty is 60%; however, duties usually range from 3% to 15%. Japan operates two free trade zones within the Okinawa special economic zone. Prohibited imports A negative list (of products that may not be imported) is in operation. Exports Documents In order to export goods from Japan, a customs declaration, commercial invoice and bill of lading are required. Licences METI must give consent to export companies if they are exporting goods that threaten international trade, national security and the environment. Taxes/tariffs and other fees No taxes are charged on exports from Japan. Prohibited exports A negative list (of products that may not be exported) is in operation. Military goods only may be exported to the USA. Key import partners China 24.8% USA 10.5% Australia 5.4% South Korea 4.1% Key export partners USA 20.2% China 17.5% South Korea 7.1% Hong Kong 5.6% Thailand 4.5% Source: The World Factbook. Washington, DC: Central Intelligence Agency, 2017 ( Japan is a member of the Harmonised Systems Convention and shares a common trade classification system. It maintains five rates: general, WTO, least developed country (LDG), preferential and temporary. If an import is subject to more than one rate, the lower rate is applied. Financing imports and exports Imports There are no financing requirements for imports. Exports There are no financing requirements for exports. Ad valorem import tariffs are levied on 90% of imports. Most imports are subject to duty and a consumption tax of 8%.

14 26 27 Useful Websites Bank of Japan Leading banks: Bank of Tokyo-Mitsubishi UFJ Japan Post Bank Mizuho Bank Norinchukin Bank Sumitomo Mitsui Banking Corp Financial Services Agency Japanese Bankers Association Ministry of Finance Ministry of Economy, Trade and Industry Statistics Japan Japan Chamber of Commerce and Industry Japan External Trade Organisation Japan Exchange Group Nagoya Stock Exchange Fukuoka Stock Exchange Sapporo Securities Exchange Japan Association for CFO (JAFCO) contact Hiroshi Jaguchi HSBC website details HSBC Commercial Banking HSBC Global Banking and Markets Disclaimer This document has been produced by HSBC Bank plc and members of the HSBC Group ( HSBC ), together with their third-party contributor, WWCP Limited. We make no representations, warranties or guarantees (express or implied) that the information in this document is complete, accurate or up to date. We will not be liable for any liabilities arising under or in connection with the use of, or any reliance on, this document or the information contained within it. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining your own independent professional advice. The information contained in this document has not been independently verified by HSBC. This document contains information relating to third parties. The information does not constitute any form of endorsement by these third parties of the products and/or services provided by HSBC or any form of cooperation between HSBC and the respective third parties. Under no circumstances will HSBC or the third-party contributor be liable for (i) the accuracy or sufficiency of this document or of any information, statement, assumption or projection contained in this document or any other written or oral information provided in connection with the same, or (ii) any loss or damage (whether direct, indirect, consequential or other) arising out of reliance upon this document and the information contained within it. HSBC and the third-party contributor do not undertake, and are under no obligation, to provide any additional information, to update this document, to correct any inaccuracies or to remedy any errors or omissions. No part of this document 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 written permission of HSBC and the third-party contributor. Any products or services to be provided by HSBC in connection with the information contained in this document shall be subject to the terms of separate legally binding documentation and nothing in this document constitutes an offer to provide any products or services.