JAPAN

COUNTRY

JAPAN

REGION

Asia

POPULATION

124,687,293 (July 2021 est.)

GENERAL INTRODUCTION

Japan is an island nation in East Asia. Located in the Pacific Ocean, it borders China, North Korea, South Korea, Russia, Taiwan, the Sea of Japan, the Sea of Okhotsk, and the East China Sea. It is an archipelago of 6,852 islands, most of which are mountainous, and many are volcanic. The government system is a parliamentary government with a constitutional monarchy; the chief of state is the emperor, and the head of government is the prime minister. Japan has a market economy in which the prices of goods and services are determined in a free price system. Japan is a member of the Asia-Pacific Economic Cooperation (APEC) and the Trans-Pacific Partnership (TPP).

Economy

Japan is the third largest economy in the world and is known for market leaders and important players in the automotive, electronics and other manufacturing industries.

Dominant Industries

According to statistics published by the Japanese Cabinet Office, the manufacturing and service sectors represent 20.5% and 32.1% of GDP respectively. Japan has long been known for its manufacturing capacity, and the manufacturing sector remains one of the most powerful business sectors in Japan. With the rapid development of digitalisation, many Japanese companies are investing in cutting edge technologies such as the “internet of things”, robotics, AI and big data.

Population and Language

The current population of Japan is approximately 125 million as of 1 July 2021, based on statistics published by the Ministry of Internal Affairs and Communications. The Japanese population has been continuously decreasing over the last eight years, and approximately 28.8% of the population is over the age of 65.

There is no official language stipulated by law, but the most widely spoken language and the language most widely used in business in Japan is Japanese. However, doing business in English is generally not an issue as many Japanese people now speak English. Fundamental information necessary to do business in Japan is generally available in English.

Business Culture

Japan is a relationship-oriented culture, particularly when it comes to doing business. While documenting contractual relationships is becoming more common, Japanese corporations and businessmen still tend to value trust before doing business with others. Although it is changing and there are many exceptions, the decision-making of Japanese corporations can take time as multiple layers of approvals would normally be required. While Japanese businessmen normally speak English, they may prefer to use more polite but indirect ways of expression.

WIFI SPEED

Average connection speed (Mbit/s) – 49.3
Median 5G connection speed (Mbit/s)- 86.71
Broadband average connection speed (Mbit/s)- 167.18

ELECTRICAL OUTLET

For Japan there are two associated plug types, A and B. Plug type A is the plug which has two flat parallel pins and plug type B is the plug which has two flat parallel pins and a grounding pin. Japan operates on a 100V supply voltage and 50/60Hz.

PER CAPITA GDP

$41,429 (2019 est.)
$41,074 (2018 est.)
$40,859 (2017 est.)

note: data are in 2010 dollars

CLIMATE

varies from tropical in south to cool temperate in north

RESIDENCE-BY-INVESTMENT

The Japan Investor Visa

Foreign investors can get permanent residency in Japan in a period of only one year through the Investor Business Manager Visa. While Japan does not have a CBI program, permanent residency can be obtained in one year.

Investment

• Minimum investment of at least 5,000,000 yen (US$ 46,800)

Requirements to apply for an Investor Visa

• An investment (a paid-in capital) of at least 5,000,000 yen (US$ 46,800). The bigger the investment, the higher your chances of getting the investor visa, presuming you have met other requirements. The money you have invested will be consumable in your business when the incorporation process is complete.
• A business plans. The nature of your business should be transparent, consistent and comply with the current Japanese legislation. Your proposal should demonstrate that your company is operable and will yield results and profits.
• Appropriate business license. Some types of businesses, such as hotels, guesthouses and restaurants, require proper certifications to operate.
• Professional background and working history. You need to possess at least three years of relevant experience in the business field where you would like to establish your company in Japan.
• An office. It should be an actual premise meant for business use. A guarantor in Japan can help you to rent a suitable workplace.
• A co-founder / co-director. At least one of the company’s directors should be a resident of Japan. He/She could be a Japanese national, a permanent resident, or a foreign national with a long-term visa.
• If you are residing outside of Japan at the moment of application for the establishment of a company, you will need to find a co-founder / co-director who fulfils this requirement.
• Your company should also have at least two full-time employees (besides you), who are residents of Japan.

If you are managing an existing business, you will need:

• Lesser investments. Your financial participation can reduce to 2,500,000 yen (US$ 23,400).
• One full-time employee (besides you) who is a resident of Japan
• A salary equivalent to or higher than that of a Japanese person in a comparable position

Key Benefits

• Citizens have visa free access to 175 countries.

Processing time

• The full process will take around 4-6 months

NATURAL RESOURCES

negligible mineral resources, fish, note, with virtually no natural energy resources, Japan is the world’s largest importer of coal and liquefied natural gas, as well as the second largest importer of oil

ETHNIC GROUPS

Japanese 97.9%, Chinese 0.6%, Korean 0.4%, other 1.1% (includes Vietnamese, Filipino, and Brazilian) (2017 est.)

Note: data represent population by nationality; up to 230,000 Brazilians of Japanese origin migrated to Japan in the 1990s to work in industries; some have returned to Brazil

LANGUAGES

Japanese

RELIGIONS

Shintoism 69%, Buddhism 66.7%, Christianity 1.5%, other 6.2% (2018 est.)

Note: total adherents exceed 100% because many people practice both Shintoism and Buddhism

MEDIAN AGE

total: 48.6 years
male: 47.2 years
female: 50 years (2020 est.)

URBANIZATION

urban population: 91.9% of total population (2021)
rate of urbanization: 0.25% annual rate of change (2020-25 est.)
Total population growth rate v. urban population growth rate, 2000-2030

PHYSICIAN DENSITY

2.41 physicians/1,000 population (2018)

GOVERNMENT TYPE

Parliamentary constitutional monarchy

UNEMPLOYMENT RATE

2.36% (2019 est.)
2.44% (2018 est.)

TAXES
Personal Income Tax Rate (highest marginal tax rate)

In Japan, permanent resident taxpayers are taxed on their worldwide income. Non-resident taxpayers are taxed only on their Japan-sourced income. Highest rate is 45%

Income Tax

Japan has a progressive tax system for individual income tax in which higher rates apply to higher income brackets. Currently, income tax rates range from 5% to 45%. In January 2013, a 2.1% surtax on income tax was imposed until 2037 as a special income tax to fund reconstruction efforts in response to the Great East Japan Earthquake of March 2011. In general, employees are entitled to certain statutory deductions from gross salary to calculate taxable income.

Local Individual Inhabitant Tax. This is a local tax that consists of a per capita portion and an income-based portion. The per capita portion is a flat rate levied on each resident regardless of income, and the income-based portion is calculated based on the resident’s income. The rate of the income-based portion is generally 10% of the previous year’s taxable income.

Social Security Contributions

Employees must make four different social security contributions:

• Health insurance.
• Nursing care insurance (for employees 40 years of age or older).
• Employee pension insurance.
• Unemployment insurance.

In general, employees are not required to file tax returns with respect to salary income because these taxes and social security contributions are withheld from the monthly salary by the employer. However, if the annual salary exceeds JPY20 million, the employee must file a tax return for the relevant year.

Non-Tax Resident Employees

Any individual who is not a resident is classified as a “non-resident”. Non-residents are subject to income tax only on domestic-source income, such as salaries, compensation or allowances that arise from work carried out in Japan.

Corporate Income Tax Rate (excluding dividend taxes)

Corporate Tax Rate in Japan averaged 40.83 percent from 1993 until 2021, reaching an all-time high of 52.40 percent in 1994 and a record low of 30.62 percent in 2019. Domestic and foreign corporations are subject to different rules under the Corporation Tax Act.

Tax Resident Business

A “domestic corporation” is a corporation headquartered in Japan or a corporation whose main office is located in Japan. This generally means that a company incorporated under the laws of Japan is a domestic corporation and a company incorporated in any other jurisdiction is not.

Domestic corporations are subject to corporate tax for all domestic- and foreign-source income with an exception for dividends received from non-Japanese affiliates.

Non-Tax Resident Business

Any corporation that is not a domestic corporation (that is, a non-Japanese corporation) is referred to as a “foreign corporation”.

In general, a foreign corporation is only subject to withholding tax on certain domestic-source income (such as dividends, interest and royalties) unless it has a permanent establishment (PE) in Japan. Even internet sales are not subject to corporate taxation if a foreign corporation does not have a PE in Japan. However, if a foreign corporation has a PE in Japan, it is also subject to corporate tax on income attributable to the PE and must file a tax return.

Business vehicles in Japan are taxed on their worldwide income and must file their corporate tax return and pay corporate taxes within two or three months after the end of their business year.

From 1 April 2021, the main local taxes imposed on a domestic corporation headquartered in Tokyo with more than JPY100 million in stated capital are as follows:

• Corporation tax (tax base: taxable income).
• Local corporation tax (tax base: corporation tax).
• Local corporation inhabitant tax (tax base: corporation tax).
• Enterprise tax (tax base: taxable income).
• The effective tax rate of a domestic corporation is currently approximately 34% in Tokyo and varies in other parts of Japan depending on the applicable local tax rates.

Special Tax Regimes

Resident taxpayers can credit foreign income taxes against their Japanese national tax and local inhabitant’s tax liabilities (with certain limitations), where foreign-source income is taxed in Japan. Non-resident taxpayers are not entitled to take foreign tax credits on their Japan income tax returns unless one has a PE in Japan.

As of 1 July 2021, Japan has 66 tax treaties with 75 countries and territories, including Canada, China, France, Germany, Italy, Russia, the UK and US, to avoid double taxation.

Japan has concluded income tax treaties with more than 70 countries, including the US, Sweden, Pakistan, Norway, Denmark, India, Singapore, Australia, the UK, New Zealand, Thailand, Malaysia, Canada, France, Germany, Belgium, Italy, Australia, the Netherlands, Korea, Spain, the Philippines, Hungary, Indonesia, China, Vietnam, Mexico, South Africa, Kuwait, Saudi Arabia, the UAE, and Russia.

Japan has a gift, inheritance and estate tax treaty only with the US.

Treaties typically adopt Limitation on Benefits Clauses to avoid treaty-shopping as an anti-tax avoidance measure.