JAPAN
JAPAN
BILATERAL TRADE
legal regulations
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45
Country focus BILATERAL TRADE
Japan - GCC relations With its rapidly growing economy, Asia is becoming increasingly powerful in the world economy. Japan, plays an important role as a “bridge nation” connecting Asia and the world, contribute to Asia’s growth. We, along with Japan External Trade Organisation (JETRO) take a look at the bilateral trade relations between the GCC and Japan.
J
apan, as we all know, is a huge market with one of the world’s largest economies. In addition, sectors with large growth potential exist in Japan, including health and tourism markets. Therefore it’s not surprising that trade between Japan and the GCC countries has only grown from strength to strength.
Bilateral trade The value of two-way trade between Japan and the GCC countries grew 12.3% in 2012 to USD 182.13 billion, compared to USD 162.23billion in 2011. Japan’s exports to the GCC countries grew 27.1% to USD 24.94 billion in 2012 from USD 19.63 billion in the previous year, and imports 10.2% to USD 157.18 billion from USD 142.60 billion. The high growth in Japan’s exports to the GCC countries was mainly attributed to the reconstruction and rehabilitation of vehicle and vehicle parts production facilities in the earthquake and tsunami hit areas of North-East Japan, and partly to the gradual strengthening of GCC economies that were earlier weakened by the bad effects of the global financial crisis of 2008. KSA remained as Japan’s top supplier of crude oils in 2012, with a value of USD 50.3 billion, and a share of 32.9% of the total crude oil imports of Japan from over the world. The UAE followed at the 2nd position with a value of USD 33.4 billion, and a share of 21.9%. The GCC countries jointly supplied 75.7% of Japan’s total crude oil requirements in 2012, cementing the GCC block’s position as Japan’s crucial partner in her energy security. Other major 46
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suppliers of crude oils to Japan were Qatar, Kuwait, Iran, Russia, Indonesia and Oman. KSA was Japan’s largest trading partner among the GCC countries and the top supplier of crude oils to Japan. Japan – KSA trade increased 10.4% to USD 62.99 billion in
USD 44 billion compared to the previous year. Motor vehicles have been Japan’s dominant export commodity to the UAE, covering more than 50% of the total exports. Other major exports are general and electrical machinery, IT and communication equipment, iron and
Japan- GCC total trade – by country (value in million USD)
Country
2008
2009
2010
2011
2012
G. Rate %
Share %
KSA
58,740.1
34,582.8
42,374.0
57,078.9
62,990.3
10.36
34.59
UAE
57,645.9
29,205.1
36,617.9
50,334.6
52,941.0
5.2
29.07
Qatar
28,453.5
17,552.6
22,842.7
31,177.9
37,358.0
19.82
20.51
Kuwait
17,335.6
10,233.2
11,707.7
14,496.6
17,100.3
17.96
9.39
Oman
9,513.2
5,671.4
7,623.4
7,951.6
10,456.3
31.50
5.74
Bahrain Total
1,360.3
961.5
1,257.5
1,195.9
1,282.7
7.26
0.70
173,048.6
98,206.6
122,423.2
162,235.5
182,128.6
12.26
100.00
Source: Japan Customs, compiled by World Trade Atlas. (Discrepancies, if any, in the growth rate are due to rounding).
2012, mainly due to a major increase in Japan’s motor vehicle exports to KSA, and partly due to an increase in the price and volume of Japan’s crude oil imports from KSA. Apart from oil supplies, closer relations in terms of Japanese expertise, investment and joint projects, by KSA, should be pursued in the following areas — clean energy technology, water resource development, civilian nuclear technology and solar technology
UAE Japan’s trade with the UAE has been healthy in recent years barring short period of global financial crisis and the Great East Japan Earthquake and the Tsunami. Trade is now catching up and reaching the record set in 2008. Japan’s exports in 2012 grew by 18.7% to USD 8.9 billion and imports by 2.6% to
steel products and materials, rubber, plastic and textile products. Crude oils dominate Japan’s imports from the UAE, while import of petroleum gases gains strength. Japan imports around 25% of her total fuel oil needs from the UAE. Aluminium, along with precious metals and diamonds have been some of the other prominent commodities of Japan’s imports from the UAE, while small quantities of metal scraps, seafood and textile products are also been imported. DTAA Japan and the UAE signed the Convention between Japan and the United Arab Emirates for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income in Dubai. This Convention is the first tax convention concluded between
Japan and the UAE, based on the recognition of an increasingly close economic relationship between the two countries. This Convention is to clarify the taxation in respect of investment and economic activities carried on in the partner country with a view to enhance further mutual investment and economic exchanges between the two countries. QATAR Qatar is the largest supplier of petroleum gases to Japan and its trade with the country surged 19.82% to USD 37.4 billion in 2012
ABOUT JETRO operates one-stop business support centers called ‘Invest Japan Business Support Centers (IBSCs) in major business areas in Japan, and these centers offer foreign businesses everything they need to begin investing or doing business in Japan.
& Gas Exploration Corporation, it seems that the focus has now shifted to areas other than oil & gas, especially after the achievement of historic 77 million tonnes’ production capacity of LNG in December 2010.
Major products of trade between Japan and the GCC countries (value in USD million)
Japan’s Exports
2012
2013
Share(2013)
Motor Vehicles
14,660.70
13,600.50
60.7
General Machinery
3,388.40
2,778.60
12.4
Iron/Steel Products
1,435.30
1,199.00
5.4
Rubber (Mostly Tires)
1,175.10
1,067.50
4.8
Electrical Machinery
1,177.00
971.50
4.3
Iron and Steel
919.80
705.20
3.2
Mineral Fuels
155,578.70
147,201.00
98.9
Crude oils (included in the mineral fuels)
115,804.60
111,494.20
75.7
Petroleum gases (included in mineral fuels)
31,976.00
29,659.90
20.2
Light oils (included in mineral fuels)
7,816.20
6,046.80
4.1
Japan’s Imports
Oman Japan’s trade with the Sultanate of Oman grew 31.5%, to USD 10.5 billion in 2012, the highest growth in Japan’s trade with any other GCC country. This steep rise in the two-way trade was attributed mainly to an increase in the volume of crude oil imports from Oman, and partly to increases in Japan’s exports of motor vehicles and iron and steel materials to that country.
Bahrain The value of Japan’s trade with Bahrain increased 7.26% to USD 1.3 billion in 2012, in spite of a decline in Japan’s import of mineral fuels from that country. The increase in trade was fuelled by increased export of motor vehicles, which more than doubled in 2012, compared to the previous year. The main exports of the Kingdom of Bahrain to Japan are: building columns and bars, powder, sheets, strips and rolls of aluminium, products of fiberglass for transportation equipment, lobster, scrap, iron and steel, copper scrap, clothing. While the main Bahraini imports from Japan are: cars, trucks, cranes, spare parts, parts of electrical circuits, electronic devices, external drives, vinyl chloride and cement. In February 2014, The Bahrain Economic Development Board (EDB) signed a Memorandum of Cooperation (MOC) with Japan Cooperation Centre for the Middle East (JCCME) to promote bilateral trade and investment between the two countries. It is evident from the data that trade has increased drastically over the last 2 years. The data also shows the sectors that offer trade and investment opportunities for Middle East businesses. Politically also, there have been some high-level delegations to the GCC, including Prime Minister Shinzo Abe’s visit to the region last year. This only goes to show how important the GCC countries are for Japan. Infact in 2015, Japan and the Kingdom of KSA will celebrate 60 years of diplomatic relations.
Kuwait The value of Japan’s 450.00 493.10 Organic chemicals trade with Kuwait 150.00 141.60 0.1 Plastics increased 17.96% to USD 17.1 billion in Source: Japan Customs, compiled by World Trade Atlas. (Discrepancies, if any, in the growth rate are due to rounding). 2012, compared to USD 14.5 billion in 2011. from USD 31.2 billion in the previous year. On Japan - Kuwait trade was dominated by the other hand, UAE is Japan’s largest export Japan’s import of hydrocarbons from Kuwait, market among the GCC countries. There are 32 which covered 89% of the total trade. Japanese companies in Qatar and two-thirds of them are related to energy including trading Japan’s trade with the UAE (value in USD billion) companies, shipping companies and plant Category 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 engineering companies. Although there are new projects in the oil & gas sector in which Export 2.5 2.6 2.9 3.6 4.6 4.9 6 8.1 10.8 6.5 7.3 Japanese companies are involved such as the Imports 14.9 12.9 11.6 14.3 18.3 25.3 31.6 32.3 46.4 22.7 29.3 Total Trade 17.4 15.5 14.5 17.9 22.9 30.2 37.6 40.4 57.2 29.2 36.6 Barzan project by JGC and the exploration Source: World Trade Atlas, compiled by Japan customs project for Block A, offshore by JX Nippon Oil Aluminium
667.70
756.90
0.5 0.3
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2011
2012
7.5
8.9
42.9
44.0
50.4
52.9
47
Country focus LEGAL
The four pillars of investment Before you invest in Japan, it is necessary to have an understanding of the Japanese legal system. Akenobu Hayakawa and Manabu Kishimoto Attorney at Law, Nakajima Transactional Law Office introduce four particularly key points – Types of Operation, Visas, Tax, and Human Resource Management, to keep in mind.
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T
ypes of operation There are three main types of operational structures that can be established for an investment in Japan: a. Representative Office b. Branch Office c. Subsidiary Company.
• Establishing a representative office Establishing a representative office consists of locating an employee of your company in Japan as the “representative” of your company. In principle, a representative office can be established freely, without the need for any notifications or registrations; provided that, if your company is a bank, insurance company, or securities company, a prior notification to the Financial Services Agency of Japan is required. The representative office cannot engage in continuous transactions in the name of your company (Companies Act, Article 818). Therefore, the representative has to make a bank account, office lease contract and other arrangements in the name of the representative. The representative office can undertake, in your company’s name, the purchase of goods other than pursuant to continuous transactions, market research, advertisement, and so forth. • Establishing a branch office A foreign company can determine a representative to be registered and “Register as a Foreign Company”. Once registration is complete, your company can undertake continuous transactions in Japan in the name of the branch. Your home country company directly bears the obligations of the branch office incurred in Japan. Additionally, at least one registered representative of the branch needs to have an address and reside in Japan.
• Establishing a corporation (subsidiary) A foreign company can finance and establish a company in Japan. The most common type of company in Japan is a “joint stock company”. Once a subsidiary company is established in Japan, continuous transactions can be undertaken in the name of the subsidiary. The subsidiary will bear all obligations incurred in undertaking transactions, and the obligations will not be attributed to the parent company. In order to set up a subsidiary company, you have to prepare articles of incorporation, pay capital funds into a designated bank account, determine directors (including representative directors), and undertake the registration procedures. At l e a s t o n e o f t h e re g i s t e re d representative directors of the subsidiary needs to have an address and reside in Japan. After setting up a stock company, a shareholder meeting should be held annually, and it is necessary to keep accounting books, and prepare financial statements and business reports. • Which type of operation is suitable? For an investment in Japan, the above Representative Office
three types can be considered. In fact, it is common for an investor to first establish a representative office and research the market, and then set up a branch office or subsidiary. Visa / Resident Status When a foreign company sets up operations in Japan and employees remain in Japan for a long period, the employees need to receive a long-term stay visa. The employee should make an application for a visa at a Japanese diplomatic mission abroad. Receiving a “Certificate of Eligibility” from the Immigration Bureau in Japan in advance will make the process go more smoothly. Steps for receiving a visa • Application for Certificate of Eligibility to Immigration Bureau in Japan • Normally, this is done by an agent in Japan. • Issue of Certificate of Eligibility by Immigration Bureau in Japan • Usually it is received by the agent and sent to the employee in his/her home country. • Application for Visa at Japanese diplomatic mission abroad. Branch Office
Corporation (Subsidiary)
Registration
Not needed (*A bank, insurance company, or securities company, is required to make a prior notification to the Financial Services Agency of Japan.)
Registration is needed
Registration is needed
Continuous transactions
Not possible
Possible
Possible
Obligations
Borne by Company in home country
Borne by Company in home country
Borne by subsidiary in Japan
Representative
Office representative (unregistered)
At least one registered representative needs to have an address and reside in Japan
At least one registered representative director needs to have an address and reside in Japan
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Country focus LEGAL
• The employee does in his/her home country. • Issue of Visa by Japanese diplomatic mission abroad.
Tax • Corporate income taxes Corporate income tax and corporate inhabitant tax, are imposed on the income generated by the activities of the corporation. A foreign company will be taxed on income generated in Japan if it has a certain fixed place of business, like a branch, and more in Japan. If a company is established in Japan, the company is taxed on all of its income, regardless of whether the income is generated in Japan or not. In the case where total income is more than JPY 8 million, the tax rate is 38.37% in total of corporate income tax, corporate inhabitant tax, and so forth. The company should file a tax return within
ABOUT
Akenobu Hayakawa is an attorney at law and joined Nakajima Transactional Law Office in 2005, becoming a partner in May 2010. Manabu Kishimoto is an attorney at law, and joined Nakajima Transactional Law Office in 2012. Nakajima Transactional Law Office was established in 1983, offering comprehensive corporate legal advice on areas such as, Litigation, Entity Affiliations, Consumer matters, General Corporate Legal Affairs, Shareholder Meetings, Compliance, CSR, Anti-trust Law, Securities Transactions, Risk Management, General Company Publication and Public Relations, Intellectual Property (IP), Employee/Labour matters.
but the rate will be raised to 8% from April 2014, and to 10% from October 2015. • Transfer pricing taxation In the case where a company is established in Japan, it is possible that the price at which the parent company in the home country sells goods to the subsidiary in Japan would
A foreign company will be taxed on income generated in Japan if it has a certain fixed place of business, like a branch, and more in Japan. 2 months after the end of its business year. Additionally, a company with a business year longer than 6 months should file an interim tax return after 6 months from the beginning of its business year.
• Consumption tax Consumption tax is imposed on a transfer or rental/lease of assets, the provision of services as a business, in Japan by an enterprise for consideration, and release of cargo from a bonded zone. Consumption tax must be paid by the buyer to the seller when goods or services are purchased. The amount of consumption tax received from the customer must be declared. When the declaration is made, the amount of consumption tax paid as a buyer to sellers can be deducted from the amount paid, so that dual taxation is avoided. The rate of consumption tax is 5% as of January 2014, 50
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be set higher than usual in order to transfer profits to the parent company and reduce the income of the Subsidiary. However, you should be aware that this could result in additional tax being imposed on the Japanese subsidiary by the tax authority. It is necessary to be prepared to justify at any time to the tax authority the appropriateness of the transfer pricing used. Human resource management It is essential to employ local when a business is established in Japan. We introduce below some areas that can become problems.
• Recruitment The Equal Employment Opportunity Act provides that equal opportunities for all persons, regardless of sex, must be provided in the recruitment and employment of workers. Therefore, recruitment
advertisements stating “only male” or “female limited” cannot be utilised.
Labour contract In order to employ workers in Japan, a labour contract should be entered into with the worker. In the labour contract, the following should be incorporated: • the term of the employment (or state an indefinite term) • workplace, content of duties • work hours, days off, vacation • wages • matters relating to resignation and dismissal
• Working hours In principle, work hours cannot exceed 40 hours a week, or 8 hours a day (excluding breaks). However, it is possible to have workers undertake work for up to a maximum of 360 hours more than the statutory working hours by entering into an agreement (a “36 agreement”) with a labor union which consists of a majority of the employees or an employee who represents a majority of the employees.
• Dismissal In order to dismiss an employee, there are restrictions, such as the necessity for there to be objectively reasonable grounds for the dismissal, and that the dismissal is deemed to be appropriate in the light of socially acceptable practices. To conclude, these four points are key to doing business in Japan and should be kept in mind while making an investment.