Section 2 Initiatives to expand foreign direct investment in Japan 1.Government goals (1) Position under the Japan Revitalization Strategy Under the Japan Revitalization Strategy JAPAN is BACK (approved by the Cabinet on June 14, 2013), the government set the goals of promoting thorough globalization throughout Japan in order to create employment and innovation by attracting outstanding overseas personnel and technologies to Japan and doubling the inward direct investment balance to 35 trillion by 2020 (from 17.8 trillion at the end of 2012). Under the revised version of the Japan Revitalization Strategy (approved by the Cabinet on June 24, 2014), it was decided that the system to attract investment will be strengthened so as to facilitate the achievement of the goal of doubling the inward direct investment balance. Specifically, the following initiatives were included in the strategy: (i) With the Council for Promotion of Foreign Direct Investment in Japan as the headquarters, cross-ministerial efforts will be made to conduct activities focused on identifying and attracting investment projects, and carrying out the necessary institutional reforms; (ii) Japan s diplomatic missions abroad and JETRO overseas offices will cooperate in strengthening overseas activities focused on attracting investment projects; (iii) JETRO will work with relevant ministries and agencies to strengthen its one-stop support functions; and (iv) Strategic sales pitches will be conducted by the Prime Minister and Cabinet Ministers, in coordination with advanced initiatives by local governments. (2) Agenda for the Evolution of the Growth Strategy At a meeting of the Industrial Competitiveness Council on January 29, 2015, the Agenda for the Evolution of the Growth Strategy was approved as a matter to be debated from now on in order to further evolve the growth strategy. This included the prompt implementation of regulatory reforms contributing to improving the environment for inward FDI, the reinforcement of the function to invite inward FDI through cooperation between relevant ministries, organizations and local governments and a study on the promotion of the intensive invitation of investment in areas where further growth and revitalization of domestic markets are expected. 2. Promotion of regulatory and institutional reforms In order to strengthen Japan s international locational attractiveness and invite investments in Japan by foreign companies, it is necessary to implement a comprehensive package of initiatives, including removing obstacles to the cross-border movement of goods, services and investment through economic partnerships and reducing business activity costs through cuts in the effective rate of corporate tax and regulatory and institutional reforms. 88
(1) Corporate tax reform The effective rates of corporate tax in OECD member countries and Asian countries are lower than the rate in Japan (Table III-3-2-2-1). The average rate for the OECD member countries is around 25%. The Basic Policies for the Economic and Fiscal Management and Reform 2014, approved by the Cabinet on June 24, 2014, states as follows: We will strengthen Japan s locational attractiveness and enhance competitiveness of Japanese companies. In this context, we aim to reduce the effective corporate tax rate to the internationally-comparable level and embark on corporate tax reform to be more growth-oriented. To that end, we aim to reduce the percentage level of the effective corporate tax rate down to the twenties in several years. We will start the first phase reduction from the next fiscal year. As regards the revenue sources to fund such rate reduction, including the fact that the Japanese economy is pulling out of the deflation and showing structural improvements, permanent revenues will be secured through such measures as broadening the tax base and so forth. We will continue to discuss this issue towards the end of this year when we will reach conclusions on the specifics. In light of the need to achieve primary surplus in FY 2020 at the national and local level, we will proceed with the implementation of the tax reform while checking the progress towards the fiscal consolidation target. In light of the above, the government decided to lower the effective rate of corporate taxes, including both national and local government taxes, from the current 34.62% to 32.11% (2.51% reduction) in FY2015 and to 31.33% (3.29% reduction) in FY2016 under the outline of the FY2015 tax reform. Table III-3-2-2-1 International standards for effective corporate tax rate Effective corporate tax rate 2000 2014 OECD About 34% 24.98% Asia About 28% 22.17% Japan 34.62% 32.11% About 41% On the basis of the standard tax rate (From April 2015) Note 1: Effective corporate tax rates (2014) in major OECD countries are as follows. USA (State of California): 40.75%; France: 33.33%; Germany (average of the entire federation): 29.66%; China: 25.00%; ROK (Seoul): 24.20%; UK: 20.00%; Singapore 17.00%. (Source: Ministry of Finance) Note 2: Asia refers to the ten countries and regions, namely, China, Hong Kong, Indonesia, ROK, Malaysia, Philippines, Singapore, Taiwan, Thailand and Viet Nam. Note 3: As for Tokyo, the effective corporate tax rate was about 42% in 2000, and was reduced from 35.64% to 33.06% in April 2015. Source: Created by the Ministry of Economy, Trade and Industry based on Corporate Tax Rates Table (KMPG), etc. 89
(2) Council for Regulatory Reform Under the Council for Regulatory Reform, the Working Group on Trade, Investment, etc. (reorganized as the Working Group on Investment Promotion, etc. in September 2014) was established in July 2013. Characterizing the promotion of foreign direct investment in Japan as a priority matter, the council has been pursuing regulatory reforms intended to facilitate the movement of people, goods, money and information within Japan and across the borders. For example, previously, when a foreign company established a subsidiary in Japan and registered its establishment, at least one representative of the subsidiary was required to be a resident in Japan. The problem was pointed out that if no representative was a resident in Japan, it was impossible to make the registration and that without the registration, a representative was unable to become qualified to stay in Japan as a resident in the country. In response, the revision of a relevant regulation was included in the Second Recommendation Concerning Regulatory Reform (adopted at a meeting of the Council for Regulatory Reform on June 13, 2014) and the Regulatory Reform Implementation Plan (approved by the Cabinet on June 24, 2014). Accordingly, the requirement for at least one representative of a foreign affiliate in Japan to be a resident in the country was abolished. Moreover, as a result of the revision of a relevant Ministry of Justice ordinance, even in cases where the corporate registration has not been completed at the time of application for the qualification to stay in Japan, a copy of the certificate of registered matters is not required to be submitted if it is recognized that the start of business is all but certain. The revision entered into force in April 2015. (3) National Strategic Special Economic Zone The government is developing a business environment that attracts people, goods and money to Japan from abroad by using the National Strategic Special Zones to implement regulatory reforms in a comprehensive and intensive manner. In April 2015, the Tokyo Business Startup One-Stop Center was established under the Council for the Tokyo-Area National Strategic Special Economic Zone, with the national government and the Tokyo Metropolitan Government as its operators, in order to promote business startups by foreign people. Government employees are permanently stationed at this center, which centrally handles applications related to corporate registration, tax affairs, pension and social insurance, and certification of qualification to stay in Japan, etc. (4) Five Promises for Attracting Foreign Businesses to Japan In March 2015, the Council for Promotion of Foreign Direct Investment in Japan held a meeting which was attended by Prime Minister Abe and at which Five Promises for Attracting Foreign Businesses to Japan was approved as priority matters for expanding FDIs in Japan (Figure III-3-2-2-2). The five promises include promoting multilingual services at retailers and introducing a system of assigning state ministers as advisors for foreign companies which have made important investments in Japan. 90
Figure III-3-2-2-2 Five Promises for Attracting Foreign Businesses to Japan Five Promises for Attracting Foreign Businesses to Japan was adopted in Mar. 2015. Through this program, Japan will immediately address the issues foreign companies have suggested as inconvenient. 1. Overcome Language Barrier in Daily Life Retailers: Set the standard for QR codes through which mobile phones can read out product information in English and other multiple languages. Restaurants: Make multiple-language menus generally available at restaurants used by a large number of foreigners. 3.Receive Business Jets in Local Airports Customs, Immigration, Quarantine (CIQ): Consider accepting business jets if you notify CIQ offices one week prior to the flight at local airports currently requiring two-week advance notice. 2. Make Internet Connection Easier Free Wi-Fi: Create an environment in which foreign visitors can use free public wireless LAN (Free Wi-Fi) simply and easily at various locations around cities without a contract with a Japanese telecommunications carrier. 4. Enhance Educational Environment for Foreign Children from Overseas International school: Encourage prefectures to loosen their criteria for accrediting international schools as Miscellaneous Schools(which receives various benefits, such as exemption from consumption tax on tuition fees). 5. Strengthen Consultation Service for Foreign Companies Investment Advisor Assignment System: Set up a system in which State Ministers act as advisors for foreign businesses that have made an important investment in Japan. Source: Abenomics is progressing! (Cabinet Secretariat) 3.Enhancement of systems to attract foreign companies (1) Systems for attracting companies in other countries As international competition to attract global companies has been intensifying in recent years, it is essential to enhance systems to attract foreign companies while developing the domestic business environment if Japan is to draw more foreign direct investment. Singapore and ROK, for example, are devoting efforts to enhancing the systems of the core organizations responsible for attracting foreign companies, so Japan must also develop systems comparable to the systems of these countries. (2) Industry Specialist Program In order to enhance the government s system for attracting foreign companies, the Ministry of Economy, Trade and Industry launched the Industry Specialist Program in FY2014 (FY2014 budget: 1.53 billion). Under this program, the government is conducting proactive initiatives to attract foreign companies in cooperation with JETRO s overseas offices by making use of industry specialists who possess networks of knowledge and knowhow concerning individual business sectors and who are 91
capable of negotiating with foreign business managers on an equal footing in order to strengthen the capability to attract target global companies. In FY2014, the government used industry specialists to approach more than 3,000 foreign companies. At the same time, it sought to attract large-scale investment projects by presenting specific investment plans to foreign companies which can be expected to invest in Japan and by providing information concerning the Japanese market and matters related to life in Japan. (3) Sales pitches by government leaders In order to strengthen public relations activities targeted at foreign companies, the government is cooperating with the heads of local governments eager to attract foreign companies in selling Japan as a superior business location. Seminars on investment in Japan attended by Prime Minister Abe were held in London in May 2014 and in New York in September in order to provide information concerning the attractiveness of the Japanese market, initiatives conducted by the government, advantages of individuals regions in Japan, investment incentives, etc. In May 2015, the Japan-U.S. Economic Forum, attended by Prime Minister Abe, was held in Los Angeles in order to demonstrate Japan s intention to strengthen the Japan-U.S. economic relationship through FDI (Figure III-3-2-3-1). 92
Figure III-3-2-3-1 Examples of public relations activities for attracting foreign companies Joined by the prime minister and cabinet members, the heads of local governments who are active in attracting foreign companies conducted sales pitches. (Source) JETRO website London seminar: Invest in Japan A Regional Roadmap (May 1, 2014) Taking advantage of the opportunity of the Prime Minister s trip to Europe, the governors of the four local governments which are advanced in measures for investment in Japan (namely, Hiroshima Prefecture, Mie Prefecture, Kobe City and Fukuoka City) called for investment in Japan. The seminar provided the latest information on benefits, business environment and investment incentives concerning each region. Invest Japan Seminar in New York (September 23, 2014) Taking advantage of the opportunity of the Prime Minister s trip to the U.S., the governors of the four local governments (Wakayama Prefecture, Tokamachi City (Niigata Prefecture), Kyoto City and Mimasaka City (Okayama Prefecture)) called for investment in Japan, as leaders in the revitalization of Japan s regions, which is the main focus of the second arrow of Abenomics. (Source) JETRO website (Source) JETRO website 93