Doing Business in Japan
DOING BUSINESS IN JAPAN
January 2012
Prepared by
Seiyu Audit Corporation
PREFACE This booklet has been prepared by the Japanese member firm of MGI, for the information of clients and fellow members of MGI. Whilst every care has been taken in the preparation of this booklet, no responsibility can be accepted for inaccuracies. Clients are also advised that the law and practice may change from time to time.
Japan Member of MGI Seiyu Audit Corporation www.seiyu.or.jp Kyoto Main Office 6F WEST18 Bld. Rokkaku-Karasuma Nakagyo-ku Kyoto 604-8134 Japan
Telephone: +81 75 213 7090 Fax: +81 75 212 2809 Email: m-box@seiyu.or.jp Osaka Office 3F Shionogi Doshomachi Bld. 4-7-6 Doshomachi Chuo-ku Osaka 541-0045 Japan Telephone: +81 6 6261 3553 Fax: +81 6 6261 3556 Email: yamoto@seiyu.or.jp Tokyo Office 4F Kasumigaseki Tokyu Building 3-7-1 Kasumigaseki chiyoda-ku Tokyo 100-0013 Japan Telephone: +81 3 3580 3621 Fax: +81 3 3580 3622 Email: goto@seiyu.or.jp
DISCLAIMER MGI is a worldwide alliance of independent accounting firms. Each member firm undertakes no responsibility for the activities, work, opinions or services of other member firms.
Doing Business in Japan Contents I. THE COUNTRY 1 2 3 4 5
ERROR! BOOKMARK NOT DEFINED.
Geography/statistics Economy Banking and financing Government/politics Legal system
4 4 5 5 6
II. ESTABLISHING A BASE IN JAPAN
7
1 2 3 4
7 7 7 8
Representative Office Branch office Corporation (Subsidiary) Company registration
III. STARTING A BUSINESS 1 2 3
Opening a Bank Account Finding an office location Recruiting
9 9 9 10
IV. ACCOUNTING & TAX
11
1 2 3 4 5
11 11 13 13 13
Audit requirement Corporate income taxes Net Operating Losses Blue return system Consumption tax
V. SOCIAL INSURANCE
15
1 2 3 4
15 15 16 16
Outline of Social Security System in Japan Timing of registration Determination and payment of insurance premiums Coverage of foreign nationals
I. THE COUNTRY 1. Geography/statistics Japan is an island nation in East Asia comprising a stratovolcanic archipelago extending along the Pacific coast of Asia. Measured from the geographic coordinate system, Japan stretches from 24° to 46° north latitude and from 123° to 146° east longitude. The country is southeast of the Russian Far East, separated by the Sea of Okhotsk; slightly east of Korea, separated by the Sea of Japan; and east-northeast of China and Taiwan, separated by the East China Sea. Japan has a total of 6,852 islands extending along the Pacific coast of Asia. The country, including all of the islands it controls, lies between latitudes 24° and 46°N, and longitudes 122° and 146°E. The main islands, from north to south, are Hokkaidō, Honshū, Shikoku and Kyūshū. The Ryūkyū Islands, including Okinawa, are a chain to the south of Kyūshū. Together they are often known as the Japanese Archipelago. About 73 percent of Japan is forested, mountainous, and unsuitable for agricultural, industrial, or residential use. As a result, the habitable zones, mainly located in coastal areas, have extremely high population densities. Japan is one of the most densely populated countries in the world. The islands of Japan are located in a volcanic zone on the Pacific Ring of Fire. They are primarily the result of large oceanic movements occurring over hundreds of millions of years from the mid-Silurian to the Pleistocene as a result of the subduction of the Philippine Sea Plate beneath the continental Amurian Plate and Okinawa Plate to the south, and subduction of the Pacific Plate under the Okhotsk Plate to the north. Japan was originally attached to the eastern coast of the Eurasian continent. Japan has 108 active volcanoes, so earthquakes, often resulting in tsunami, occur several times each century. A recent major quake is the 2011 Tōhoku earthquake, a 9.0-magnitude quake which hit Japan on March 11, 2011, and triggered a large tsunami. 2. Economy Some of the structural features for Japan's economic growth developed in the Edo period, such as the network of transport routes, by road and water, and the futures contracts, banking and insurance of the Osaka rice brokers. During the Meiji period from 1868, Japan expanded economically with the embrace of the market economy. Many of today's enterprises were founded at the time, and Japan emerged as the most developed nation in Asia. The period of overall real economic growth from the 1960s to the 1980s has been called the Japanese post-war economic miracle: it averaged 7.5 percent in the 1960s and 1970s, and 3.2 percent in the 1980s and early 1990s. Growth slowed markedly in the 1990s during what the Japanese call the Lost Decade, largely because of the after-effects of the Japanese asset price bubble and domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth met with little success and were further hampered by the global slowdown in 2000. The economy showed strong signs of recovery after 2005; GDP growth for that year was 2.8 percent, surpassing the growth rates of the US and European Union during the same period. As of 2011, Japan is the third largest national economy in the world, after the United States and China, in terms of nominal GDP, and the fourth largest national economy in the world, after the United States, China and India in terms of purchasing power parity. As of January 2011, Japan's public debt was more than 200 percent of its annual GDP, the largest of any nation in the world. The service sector accounts for three quarters of the GDP. Japan has a large industrial capacity, and is home to some of the largest and most technologically advanced producers of motor vehicles, electronics, machine tools, steel and nonferrous metals, ships, chemical substances, textiles, and processed foods. Agricultural businesses in Japan cultivate 13 percent of Japan's land, and Japan accounts for nearly 15 percent of the global fish catch, second only to China. As of 2010, Japan's labor force consisted of some 65.9 million workers. Japan has a low unemployment rate of around four percent. Almost one in six Japanese, or 20 million people, lived in poverty in 2007. Housing in 4
Japan is characterized by limited land supply in urban areas. Trade with other countries (international trade) is very important to Japan. Japan's exports amounted to US$4,210 per capita in 2005. Japan's main export markets are China (18.88 percent), the United States (16.42 percent), South Korea (8.13 percent), Taiwan (6.27 percent) and Hong Kong (5.49 percent) as at 2009. Its main exports are transportation equipment, motor vehicles, electronics, electrical machinery and chemicals. Japan's main import markets as at 2009 are China (22.2 percent), the US (10.96 percent), Australia (6.29 percent), Saudi Arabia (5.29 percent), United Arab Emirates (4.12 percent), South Korea (3.98 percent) and Indonesia (3.95 percent). Its main imports are machinery and equipment, fossil fuels, foodstuffs (in particular beef), chemicals, textiles and raw materials for its industries. By market share measures, domestic markets are the least open of any OECD country. Prime Minister Koizumi's administration began some pro-competition reforms, and foreign investment in Japan has soared. Japan ranks 12th of 178 countries in the 2008 Ease of Doing Business Index and has one of the smallest tax revenues of the developed world. The Japanese variant of capitalism has many distinct features: keiretsu enterprises are influential, and lifetime employment and seniority-based career advancement are relatively common in the Japanese work environment. Japanese companies are known for management methods like "The Toyota Way", and shareholder activism is rare. Some of the largest enterprises in Japan include Toyota, Nintendo, NTT DoCoMo, Canon, Honda, Takeda Pharmaceutical, Sony, Panasonic, Toshiba, Sharp, Nippon Steel, Nippon Oil, and Seven & I Holdings Co. It has some of the world's largest banks, and the Tokyo Stock Exchange (known for its Nikkei 225 and Topix indices) stands as the second largest in the world by market capitalization. Japan is home to 326 companies from the Forbes Global 2000 or 16.3 percent (as at 2006). 3. Banking and financing The Ministry of Finance (MOF) regulates all Japanese financial institutions. Government regulations still impose barriers on certain bank activities. The Financial Instruments and Exchange Act, for example, protects securities companies by prohibiting banks from selling stocks and bonds. Banks, for their part, are opposed to allowing other financial institutions to perform account settlement services. However, these barriers are slowly giving way to more competitive cross-sector offerings of financial services. 4. Government/politics Japan is a constitutional monarchy where the power of the Emperor is very limited. As a ceremonial figurehead, he is defined by the constitution as "the symbol of the state and of the unity of the people". Power is held chiefly by the Prime Minister of Japan and other elected members of the Diet, while sovereignty is vested in the Japanese people. Akihito is the current Emperor of Japan; Naruhito, Crown Prince of Japan, stands as next in line to the throne. Japan's legislative organ is the National Diet, a bicameral parliament. The Diet consists of a House of Representatives with 480 seats, elected by popular vote every four years or when dissolved, and a House of Councillors of 242 seats, whose popularly-elected members serve six-year terms. There is universal suffrage for adults over 20 years of age, with a secret ballot for all elected offices. In 2009, the social liberal Democratic Party of Japan took power after 54 years of the liberal conservative Liberal Democratic Party's rule. The Prime Minister of Japan is the head of government and is appointed by the Emperor after being designated by the Diet from among its members. The Prime Minister is the head of the Cabinet and appoints and dismisses the Ministers of State. Historically influenced by Chinese law, the Japanese legal system developed independently during the Edo period. However, since the late 19th century the judicial system has been largely based on the civil law of Europe, notably Germany. For example, in 1896, the Japanese government established a civil code based on a draft of the German Bßrgerliches Gesetzbuch; with post–World 5
War II modifications, the code remains in effect. Statutory law originates in Japan's legislature and has the rubber stamp of the Emperor. The Constitution requires that the Emperor promulgate legislation passed by the Diet, without specifically giving him the power to oppose legislation. Japan's court system is divided into four basic tiers: the Supreme Court and three levels of lower courts. The main body of Japanese statutory law is called the Six Codes. 5. Legal system Japan has an independent judiciary, consisting of a Supreme Court, 10 high courts, a district court in every prefecture and every major city (for a total of 50) and a number of family courts to settle domestic complaints. Supreme court judges are chosen by the cabinet. They can vote to be thrown out in a popular vote if the majority of voters vote to oust them, something that has never happened. In Japan, there is no discovery process, and no recovery of punitive damages. Most court cases are overseen by a panel of three judges. The prosecution team sits on right side of the judges and defense sits on the left side. Defendants plead guilty or not guilty. Both the prosecution and defense make opening and closing statements. Until recently there were no jury trials. The Japanese legal system and appeal system have a reputation for being ridiculously slow. Many legal matters are solved with counselors in offices rather than judges in court rooms. The entire judicial system is relatively small and is not capable of taking on very many cases. The costs of litigation are very high. Sociologists have long argued that the Japanese sense of duty, harmony and community spirit discourages public confrontation and negates the need for judicial solutions. Seeking legal action has traditionally been viewed as a weakness and an embarrassment, and a sign that the normal process of solving problem was somehow insufficient. Martial problems were traditionally worked out with the help of elder family members. Business conflicts were worked out through meetings and negotiations. In many cases bureaucrats settle matters in Japan that are solved in courts in the United States. Critics of the Japanese legal system argue that it offers fewer protections for individual rights than other systems and it discourages people with legitimate complaints from taking their concerns to court, especially when their complaints are against the government and big business.
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II. ESTABLISHING A BASE IN JAPAN Foreign Enterprises ordinarily enter the Japanese market using one of the following 3 corporate structures: 1. 2. 3.
Representative Office Branch office Corporation (Kabushiki Kaisha or K.K.)
1. Representative Office The representative office is permitted to engage in limited activities. Activities which are permitted under Japanese domestic law are purchase of assets, storage of assets and auxiliary services. Auxiliary services include, for example, advertising, information gathering and market research. The representative office cannot participate in sales activities. In general, foreign enterprises are free to establish representative offices in Japan. As such, no permission, notification or registration is required for the establishment of such an office under the Foreign Exchange and Foreign Trade Control Law, nor should the office be subject to Japanese corporate income tax. A representative office can’t generally open bank accounts or make a real estate agreement in its own name. Instead, the agreement has to be signed by the head office o representative at the representative office in an individual capacity. 2. Branch office The establishment by a foreign enterprise of a branch office in Japan as its base for business is considered to be a “Direct Domestic Investment” under Foreign Exchange and Foreign Trade Control Law. In order to conduct business in Japan, a foreign company must appoint a representative in Japan (called a branch manager), set up a place of business and register the necessary information. The registered branch manager then becomes authorized under Japanese law to represent the branch office in all capacities and to formalize contracts with third parties without additional internal corporate authorization. Each change of branch manager, however, must be registered. Under corporate law, a branch office may engage in any approved corporate activity. Branch offices are used primarily for liaison, technical servicing, purchasing and, less frequently, importation and sales. A branch office in Japan may open bank accounts and make a real estate agreement in its own name 3. Corporation (Subsidiary) The incorporation of a Japanese corporation by a foreign enterprise is treated as a “Direct Domestic Investment” under Foreign Exchange and Foreign Trade Control Law, as is the “establishment of a branch,” and notification shortly after incorporation is required. Other incorporating procedures are the same as those followed by Japanese enterprises when incorporating a company. Structures which a company can take in Japan are: A joint-stock company (Kabushiki Kaisha) An unlimited partnership (Gomei Kaisha) 7
A limited partnership (Goshi Kaisha) A limited liability company (Godo Kaisha). The followings are general characteristics of each structure: A joint-stock company (Kabushiki Kaisha) consists of shareholders whose liabilities to creditors of the Company are limited to the amount of stock purchased in the Company. An Unlimited partnership (Gomei Kaisha) consists of partners whose liabilities to creditors of the company are unlimited. A limited partnership (Goshi Kaisha) consists of limited and unlimited partners. Limited partners’ liabilities to the creditors of the company are limited to the amount of their contribution to the company. A limited liability company (Godo Kaisha) consists of shareholders whose liabilities to creditors of the Company are limited to the amount of equity participation purchased in the company. Participation shares cannot be transferred to non-participants without the unanimous approval of the equity participants required. Distribution of profits and losses may be allocated at a different rate from the equity participation rate if it is specified in the articles of association. Factors such as limited liability, management participation and other relevant matters mean that a Kabushiki Kaisha is usually the most suitable structure for foreign enterprises to adopt when establishing an operation in Japan. Indeed, nearly all the subsidiaries and joint ventures set up in Japan by foreign businesses have taken the form of a Kabushiki Kaisha. 4. Company registration The establishment of a company must be registered with the appropriate registration office. At least one representative director must be a Japanese resident for registration purposes. The name under which the company intends to register should be in Japanese and must represent its legal structure, e.g. Kabushiki Kaisha. The legal fees associated with, and time required for, the formation and registration of a company are dependent upon the level of interaction between the company and its attorney. An example might be:
Company type Kabushiki Kaisha
Branch
Capital
¥ 1 or more
N/A
Registration tax and other costs
¥ 220,000
¥ 70,000
Legal fees
¥ 200,000
¥ 20,000
Time expected
1-2 months
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1 month
III.
STARTING A BUSINESS 1. Opening a Bank Account (1)
Foreign bank / Japanese bank
Foreign owned companies generally prefer to open bank accounts with the Japanese branch of foreign banks with whom the company banks in their home country. Japanese branches of foreign banks are usually helpful, responsive to customer needs and can communicate in English, reducing the time needed to establish a working business relationship. However, it is advisable to have at least one bank account with a Japanese bank for the following reasons: • Foreign banks do not have many local branches in Japan, even in Tokyo, and where they do, it is unusual for the local branches to be conveniently located. • Most Japanese customers prefer to appoint their local business associated bank to carry out payment or remittance transactions. • Payment of various taxes, and social insurance premiums are also handled by such Japanese banks. (2) Checking account / ordinary account
Checking accounts are commonly used for general cash disbursements in the US, because checks are the primary payment device there. However, in Japan, rather than checks, most payments are made using cash remittances through ordinary bank accounts. Therefore, it is advisable to open an ordinary account with a Japanese bank. (3) The company’s seal (called “Hanko”)
It is not common for the signature of the authorized company representative to be registered at the bank for the purpose of verifying identification. Instead, the company’s seal (called “Hanko”) is registered at the bank. A cash withdrawal is then made by using this registered Hanko at bank with a passbook. Therefore, the Hanko should be kept separately from the passbook to avoid unauthorized withdrawals. 2. Finding an office location (1) Bi-lingual estate agencies
Generally, it is not easy to find an office location without experienced assistance. It is quite difficult to understand the terms and conditions of lease agreements and, although office rents have dropped as a result of the slowdown of the Japanese economy, office owners are, in some cases, still reluctant to lease their offices to foreign owned companies. Consequently, bi-lingual estate agencies which deal specifically with foreign tenants to overcome these problems have appeared in Tokyo. Geographical convenience is a very critical factor for determining office location. Most employees usually commute to work by train, underground or other public transportation. (2) Leasehold deposit and key money
A leasehold deposit, and occasionally key money, is required by the landlord for renting an office. Key money, a charge which is very common, especially in Western Japan, is non-refundable. If the lease agreement states that some or all of the leasehold deposit is also non-refundable in the event of a vacancy, the non-refundable portion of the leasehold deposit, as well as the key money, 9
can be treated as a deferred charge and can be amortized in accordance with Japanese tax law. (3) Sub-lease and social insurance registration
Newly established companies often lease offices under sub-lease agreements from other tenants. In such cases, social insurance offices usually request that both the main leasing contract and the sub-lease agreement register for social insurance purposes. 3. Recruiting (1) Regular employees
There are several ways to recruit new staff, including: • An Employment Service for university graduates, training schools etc. • Public employment security office • Private employment agencies • Advertisements in newspapers or magazines • Direct recruiting through personal contact If a candidate is required to have business experience, professional expertise or English language ability, private agencies and English media, e.g. daily English newspapers, are effective methods. (2) Temporary staff
It has become popular in Japan to use private agencies to hire temporary or part-time staff. Some agencies specialize in recruiting staff from specific professions, e.g. secretarial, clerical, accounting and engineering. One particular benefit of using the staffing service provided by such agencies is that an employer who uses temporary staff does not need to concern itself with the social insurance and withholding income tax matters associated with the temporary staff, as these will be taken care of by the agencies. Therefore, hiring temporary staff from an agency can be extremely beneficial in the start-up stage of the company, when its payroll function has not yet been established.
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IV.
ACCOUNTING & TAX 1. Audit requirement In Japan, it is a requirement that the regular shareholders’ meeting of a company must be held no later than 3 months after the company’s fiscal year end. The company’s financial statements (balance sheet, profit and loss statement, business report, statement of shareholder’s Equity and annexed detail statement) must be approved by the regular shareholders at that meeting. The statutory auditor of the company should audit the financial statements and submit the auditor’s report to the company. There is no external independent audit (CPA’s audit) requirement for small companies (capital amount less than ¥500 million and total liability less than ¥20 billion). For a stock company which is not a public company (excluding a company with board of company auditors and company with accounting auditors), the scope of the statutory auditor’s audit may be limited to the financial audit, only by stipulating in the articles of incorporation. 2. Corporate income taxes The taxes levied in Japan on income generated by the activities of a corporation include corporate tax, inhabitant tax and enterprise tax. The scope of income relating to inhabitant tax and enterprise tax, and its taxable income calculation is determined in accordance with the corporate tax provision. Inhabitant taxes are levied not only on income but also on a per capita basis using the capital amount and the numbers of employees as the tax base, Corporations are also subject to enterprise tax on a pro -forma basis in cases where the paid in capital amount is more than ¥100 million. Effective tax rate is from about 25% to about 41%. It depends on taxable income and the paid-in capital amount of the company. Detailed tax rates are as follows. National Corporate Tax
Taxable income range
Company whose paid-in capital is ¥ 100 million or less
¥ 8 million or less
18%
Over ¥ 8 million
30%
Company whose paid-in capital is more than ¥ 100 million 30%
Inhabitant Tax Tax rate depends on local government. The following rates are for Tokyo.
Taxable income ranges
Prefectural
Municipal
Company whose paid-in capital is ¥ 100 million or less and its annual national corporate tax amount is ¥ 10 million or less
5.0%
12.3%
Other than above
6.0%
14.7%
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Per Capita Tax
Per capita levy (¥) Capital amount range (¥) Over 5,000,000,000
-
Over 1 billion
Up to 50 employees
Over 50 employees
1,210,000
3,800,000
Up to 5 billion
950,000
2,290,000
Over 100 million
Up to 1 billion
290,000
530,000
Over 10 million
Up to 100 million
180,000
200,000
-
Up to 10 million
70,000
140,000
Enterprise Tax Tax rate depends on local government. The following rates are for Tokyo.
1) For a company which Pro-Forma Standard Tax is applied to Tax rate
Standard tax rate (Tax rate used for Local Special Tax computation)
Not over ¥ 4 million
1.69%
1.5%
Over ¥ 4 million Not over ¥ 8 million
2.475%
2.2%
Over ¥ 8 million
3.26%
2.9%
Company whose paid-in capital is ¥ 100 million or less and its annual taxable income is ¥ 25 million or less
Other than the company in the left column
Not over ¥ 4 million
2.7%
2.950%
Over ¥ 4 million Not over ¥ 8 million
4.0%
4.365%
Over ¥ 8 million or a certain company
5.3%
5.780%
Taxable income range
(2) Other companies
Taxable income range
Local Special Tax Local Special Tax is 81% of the amount of enterprise tax calculated in accordance with standard tax rate above. A company whose paid-in capital amount is ¥ 100 million or more at the end of the fiscal year is applied to 148%. Pro-Forma Standard Tax Pro Forma Standard Tax is subject on the company whose paid-in capital amount is more than ¥ 100 million. Tax amount is calculated as the total of added value base and capital base.
Added value base is calculated as 0.504% of the sum of wages, net interest expense and net rental 12
expense. Capital base is calculated as 0.21% of the sum of paid-in capital and capital surplus. 3. Net Operating Losses Most newly established companies are unlikely to make profits in their initial operating periods. For corporation tax purposes, a company which files a blue return (see Section 4 (1) below) may carry forward losses to subsequent years, up to a maximum of seven years. Furthermore, certain corporations, such as prescribed small and medium-size companies that file a blue return, are also allowed to carry back losses to the previous fiscal year. 4. Blue return system (1) Blue return system
Largely due to several privileges associated with blue returns, such as carry forward of net operating losses, special measures for depreciation etc., a large number of companies presently file a blue return. (2) Approval by NTA
A newly established company wishing to file a blue return must apply to the appropriate National Tax Office by the earlier of the following dates; 3 months after its establishment or the end of the company’s first fiscal year. (3) Bookkeeping and maintaining accounting records
Under the blue return system, a company is required to keep proper accounting records, maintain accounting books and report its income, based on those books and records, properly. 5. Consumption tax (1) Outline
Consumption tax is categorized as an indirect tax in which almost every domestic transaction and every transaction for the import of foreign goods, with the exception of financial transactions, capital transactions, medical services, welfare services and education services, is subject to taxation at the rate of 5%. The basic formula to calculate the tax due is as follows
Tax due
=
Total amount of consumption tax on sales (5% of taxable sales)
–
Total amount of consumption tax on purchases (5% of taxable purchases)
(2) Timing of application for election to be a Taxable Enterprise
(i) Choice of Taxable Enterprise status If a company’s taxable sales during a “base period” are more than ¥ 10 million, the company must file a consumption tax return. (In case of ¥ 10 million or less, the company is exempt from consumption tax liabilities for the current year.) A company’s “base period” is a fiscal year for which the company has two fiscal years prior to the current year. A company that has no base period, such as a newly established company cannot be a tax-exempt enterprise in that year, if the company’s capital at the start of the taxable year is ¥ 10 million or more. (The company whose paid-in capital is less than ¥10milliion is, in principal, exempt from filing consumption tax.) 13
However, this sometimes means that tax-exempt companies are disadvantaged in that they cannot claim a consumption tax refund, hen the consumption tax paid on purchases is greater than the consumption tax received on sales. To compensate for this disadvantage, the law allows a company to elect to become a Taxable Enterprise. The decision to elect to be a Taxable Enterprise depends to a great extent on a company’s expected taxable purchase amounts and taxable sale amounts. Generally speaking, if a company invests heavily in its business before starting substantial operations, i.e., electing to be a Taxable Enterprise to enable it to claim consumption tax, refunds can be beneficial. The decision to elect to a Taxable Enterprise also depends on the cost of filing to obtain the refund. If the filing cost exceeds the potential net tax refund, it is clearly better for a company not to elect to be a Taxable Enterprise and to therefore avoid filing. (ii) Timing of application If a company wants to elect to be a Taxable Enterprise, the necessary application should be submitted before the beginning of the fiscal year in which the company wants to become a taxable enterprise. If this deadline is not met, it is not possible for the company to claim consumption tax refunds.
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V. SOCIAL INSURANCE 1. Outline of Social Security System in Japan The social security system in Japan is composed of (A) Social Insurance and (B) Labor Insurance which are administered by the ministry of Health, Labour and Welfare. The system encompasses four major schemes as outlined below.
A
Social insurance
Social security system B
1
Health insurance
2
Welfare pension insurance
3
Employment insurance
Public employment security office
4
Workmen’s accident compensation insurance
Labor standards inspection office
Labor insurance
Social insurance office
1. Health Insurance entitles employees and their family members to receive medical treatment at 30% (including family members) of the actual costs. There are also other cash benefits for events such as childbirth, death, etc. 2. Welfare Pension Insurance provides pension benefits when employees reach 65 years of age or become disabled. Lump sum benefits and pension benefits for survivors are also provided. 3. Employment Insurance provides benefits when employees become unemployed for the purposes of supporting their life and promotion for new employment. 4. Workmen’s Accident Compensation Insurance entitles employees to be compensated for sickness, injury or death while working or commuting to/ from a working place. Almost all companies registered in Japan must by law become “covered offices” and are required to register with district insurance offices at the time of their establishment. All employees employed at “covered offices” are qualified as “insured persons” under the scheme and must register with their respective office status, or length of stay in Japan. 2. Timing of registration (1) Social insurance
As mentioned above, a company is required to register with the local social insurance office upon its establishment. In practice, however, the social insurance office will not accept an application from a newly established company until they have confirmed that the company has begun paying salary to its employees. This means that the registration procedure may take one or two months to complete even though the documentation may be complete and correct. (2) Labor insurance
Unlike the social insurance scheme, a company can register for labour insurance schemes at any time, effective from the date when the company is established and its first employee is hired, even if the registration procedure is unavoidably delayed. After the registration has been accepted, the estimated insurance premium for the period from the 15
date of registration to the following March 31 must be paid within 45 days of the registration date. 3. Determination and payment of insurance premiums (1) Social insurance
Every July, employers are required to determine (or redetermine) the appropriate level of social insurance premiums for each employee and report such amounts to the social insurance office. This procedure is called the Annual Review of Social Insurance Premium or “Santei Kiso Todoke.” The new premium determined by the Annual Review is effective from September to August of the following year, unless there is a significant change in salary during the period. The employee’s portion of the social insurance premiums is withheld from salary and paid, along with the employer’s portion, to the social insurance office in the following month. The employer is required to report to the social insurance office the amount of remuneration paid to each employee during the three month period from April to June. The office determines the Monthly Standard Remuneration (MSR) based upon the MSR table. (2) Labor insurance
The year for labor insurance purposes starts on April 1, and ends on March 31 the following year. An employer is required to pay the estimated annual premium by July 10 every year. The balance to be paid once the actual premium has been determined on March 31 is adjusted with the payment from salary on a monthly basis. Monthly standard remuneration is not used for labor insurance. Instead, the premium is computed based on actual remuneration paid every month. 4. Coverage of foreign nationals (1) Social insurance
The treatment of expatriates differs depending on their payroll conditions. When an expatriate is transferred to Japan on a foreign assignment, if their salary is paid in Japan they must participate in the scheme. If such expatriates receive their salary outside Japan, they cannot participate in the scheme, even if they want to. Since health insurance and welfare pension insurance are combined, it is not possible for an expatriate to participate in health insurance only. Foreign nationals hired locally are treated in the same manner as the Japanese. Lump-sum withdrawal benefits for expatriates An expatriate may be qualified for the totalization benefits under Japanese system as well as foreign system if they have qualifying coverage periods under pension systems of countries with which Japan have totalization agreements, subject to each qualification conditions.
However, if they use their coverage periods as the basis to receive their Lump-sum withdrawal benefits the periods will no longer be valid to apply for such totalization benefits. Benefits are paid to those persons who satisfy all of the following criteria: a. Persons who do not possess Japanese citizenship. b. Persons who have paid social insurance premiums for six months or more. c. Persons who do not have a place of residence in Japan. d. Persons who have never had the right to receive pension payments including allowances for the handicapped. 16
The applicant must request benefit within 2 years of leaving Japan. (2) Employment insurance
In principal, coverage is extended to foreign nationals. However, expatriates who have been transferred to Japan on a foreign assignment for a certain period are not required to participate in the scheme, even if they are paid in Japan. This is due to the fact that such expatriates cannot become unemployed in Japan, as they will leave Japan when their assignment finishes. Employment insurance law does not require participation by those who will not be able to receive unemployment benefit. (3) Workmen’s accident compensation insurance
Expatriates are covered by this type of insurance as long as they work at an insured company in Japan under the direction of a local company. However, coverage is not extended to those who work under the direction of the headquarters outside Japan, even if their work place is within Japan.
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