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Japan's MoJ moves to make business easier for foreigners

The population of Japan is rapidly shrinking and economists are concerned that, with a smaller productive workforce, the country's economy is likely to backslide, threatening its superpower status.

Fushimi Inari is a famous shrine dedicated to Inari, patron of business and god of rice lkunl

As reported by the Financial Times, last year Japan lost about 270,000 people – enough to populate a small city. This annual depletion is projected to reach its peak in the 2050s or 60s, when it could be as high as one million. Regardless of whether concerns about the effect this may have on the country’s economy are credible, the government of Mr Shinzo Abe is not taking any chances. By stimulating tourism and promoting foreign investment, Mr Abe hopes to avert any backsliding.

Boosting Tourism

Mr Abe hopes that a constant flow of tourists will help to offset the shrinking population. The upcoming Olympic Games will certainly give tourism in the country a solid boost. However, Japan currently ranks only 8th in Asia and 27th in the world in terms of the number of tourists. For example, the number in Japan (with a population of around 130 million) is the same as Austria (with a population of only 8.5 million). To further spur tourism, the government plans to liberalise the casino industry as early as this October by passing the IR (Integrated Resorts) Promotion Law.

Promoting Foreign Investment

According to Mr Abe’s bold vision, foreign investment is projected to reach ¥35 trillion by 2020. For the sake of comparison, the figure stood at ¥17.8 trillion in 2012. Amongst various measures designed to reach that goal, two regulatory changes from the Ministry of Justice aimed at bolstering prospective foreign investment took effect earlier this year:

1. Abolishment of residency requirement for corporate representative directors

This first change eliminates the need for corporate representatives to reside in Japan. Although never codified under statute, the Department of Justice formerly required that at least one representative director of a corporation reside in the country. Unless foreign investors already had someone in Japan to lead their operations, this requirement often put an unwelcome damper on foreign investors’ ambitious plans to implement their business strategy. How could they suddenly entrust the functions of the most powerful corporate officer to a total stranger? Indeed, the function of a representative director is a position of special trust, as his or her statements bind the corporation vis-à-vis any bona fide third parties.

An entire cottage industry of “nominee directors” developed in response to the Ministry’s requirement, with accounting firms dominating the field by offering their employees to serve as token representative corporate directors for a price. Indeed, those accounting firms alone – now voicing their displeasure with the new rules – have a keen vested interest in maintaining the residency requirements. For others it was just a nuisance. Even law firms were frequently asked to act as interim representative directors for their clients.

The new rules have considerably eased the initial incorporation procedures. Foreign investors can now set up any corporation in Japan without having any director residing there. The relaxed rules apply to corporate entities known as kabushiki gaisha, godo gaisha, ippan shadan hojin and tokutei mokutei kaisha. Notably, the residency requirement persists for representatives of branch offices of foreign entities. Perhaps Mr Abe’s government is not willing to extend the new rules to those who only make a lukewarm commitment to having a presence in Japan?

2. New four-month visa for persons starting new business

The second change makes resident visas more accessible to people who want to set up business in Japan. Before last April, business people wishing to set up a new business in the country found it difficult to obtain a visa if they were not connected to an existing business overseas. They could normally only obtain a business visa (investor/business manager visa) after their new business had been established. This normally necessitated collaboration with local partners. The new four-month visa now available under the “business manager” visa category allows people to stay in Japan for four months to carry out activities in order to establish a new business.

To apply for this visa, applicants need to present basic documents regarding a prospective business, such as articles of incorporation – no proof of business registration is necessary. Whereas previously the necessary investment had to come from foreign sources, it can now be obtained from investors in Japan. The permission to stay for four months also allows the visa holders to get a residence card (available to those who stay for more than three months). With this card they can open a bank account, which is necessary for business incorporation.

These changes may appear relatively small when it comes to addressing the major issues of foreign investment and a shrinking population. Nonetheless, they are a welcome manifestation of Mr Abe’s overall strategy to revitalise the country’s economy and restore its competitiveness in the global marketplace, and perhaps a sign of more change to come.

Adam Newhouse is a lawyer at Chuo Sogo Law Office, a Japanese member firm of international legal network Globalaw. 

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09 September 2015

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