Doing Business 2016 Japan 100768 Economy Profile 2016 Japan Doing Business 2016 Japan 2 © 2016 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved 1 2 3 4 18 17 16 15 This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. This work is available under the Creative Commons Attribution 33.0 IGO license (CC BY 3.0 IGO). http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank. 2016. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Washington, DC: World Bank Group. DOI: 10.1596/978-1-4648-0667-4. License: Creative Commons Attribution CC BY 3.0 IGO Translations—If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party- owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures or images. All queries on rights and licenses should be addressed to the Publishing and Knowledge Division, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. ISBN (paper): 978-1-4648-0667-4 ISBN (electronic): 978-1-4648-0668-1 DOI: 10.1596/978-1-4648-0667-4 ISSN: 1729-2638 Cover design: Corporate Visions, Inc. Doing Business 2016 Japan 3 CONTENTS Introduction .................................................................................................................................. 4 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 27 Getting electricity ....................................................................................................................... 43 Registering property .................................................................................................................. 54 Getting credit .............................................................................................................................. 66 Protecting minority investors ................................................................................................... 72 Paying taxes ................................................................................................................................ 78 Trading across borders .............................................................................................................. 85 Enforcing contracts .................................................................................................................... 91 Resolving insolvency .................................................................................................................. 99 Labor market regulation ......................................................................................................... 108 Distance to frontier and ease of doing business ranking .................................................... 114 Resources on the Doing Business website ............................................................................ 117 Doing Business 2016 Japan 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is economies) for each indicator. The data in this report are for a local entrepreneur to open and run a small to current as of June 1, 2015 (except for the paying taxes medium-size business when complying with relevant indicators, which cover the period January–December regulations. It measures and tracks changes in 2014). regulations affecting 11 areas in the life cycle of a The Doing Business methodology has limitations. Other business: starting a business, dealing with construction areas important to business—such as an economy’s permits, getting electricity, registering property, getting proximity to large markets, the quality of its credit, protecting minority investors, paying taxes, infrastructure services (other than those related to trading across borders, enforcing contracts, resolving trading across borders and getting electricity), the insolvency and labor market regulation. Doing Business security of property from theft and looting, the 2016 does not present rankings of economies on labor transparency of government procurement, market regulation indicators or include the topic in the macroeconomic conditions or the underlying strength of aggregate distance to frontier score or ranking on the institutions—are not directly studied by Doing Business. ease of doing business. The indicators refer to a specific type of business, In a series of annual reports Doing Business presents generally a local limited liability company operating in quantitative indicators on business regulations and the the largest business city. Because standard assumptions protection of property rights that can be compared are used in the data collection, comparisons and across 189 economies, from Afghanistan to Zimbabwe, benchmarks are valid across economies. The data not over time. The data set covers 47 economies in Sub- only highlight the extent of obstacles to doing business; Saharan Africa, 32 in Latin America and the Caribbean, 25 they also help identify the source of those obstacles, in East Asia and the Pacific, 25 in Eastern Europe and supporting policy makers in designing regulatory reform. Central Asia, 20 in the Middle East and North Africa and More information is available in the full report. Doing 8 in South Asia, as well as 32 OECD high-income Business 2016 presents the indicators, analyzes their economies. The indicators are used to analyze economic relationship with economic outcomes and presents outcomes and identify what reforms have worked, where business regulatory reforms. The data, along with and why. information on ordering Doing Business 2016, are This economy profile presents the Doing Business available on the Doing Business website at indicators for Japan. To allow useful comparison, it also http://www.doingbusiness.org. provides data for other selected economies (comparator Doing Business 2016 Japan 5 CHANGES IN DOING BUSINESS 2016 As part of a two-year update in methodology, Doing The case study underlying the trading across borders Business 2016 expands the focus of five indicator sets indicators has been changed to increase its relevance. (dealing with construction permits, getting electricity, For each economy the export product and partner are registering property, enforcing contracts and labor now determined on the basis of the economy’s market regulation), substantially revises the comparative advantage, the import product is auto parts, methodology for one indicator set (trading across and the import partner is selected on the basis of which borders) and implements small updates to the economy has the highest trade value in that product. The methodology for another (protecting minority investors). indicators continue to measure the time and cost to export and import. The indicators on dealing with construction permits now include an index of the quality of building regulation and Beyond these changes there is one other update in its implementation. The getting electricity indicators now methodology, for the protecting minority investors include a measure of the price of electricity consumption indicators. A few points for the extent of shareholder and an index of the reliability of electricity supply and governance index have been fine-tuned, and the index transparency of tariffs. Starting this year, the registering now also measures aspects of the regulations applicable property indicators include an index of the quality of the to limited companies rather than privately held joint land administration system in each economy in addition stock companies. to the indicators on the number of procedures and the For more details on the changes, see the “What is time and cost to transfer property. And for enforcing changing in Doing Business?” chapter starting on page contracts an index of the quality and efficiency of judicial 27 of the Doing Business 2016 report. For more details processes has been added while the indicator on the on the data and methodology, please see the “Data number of procedures to enforce a contract has been Notes” chapter starting on page 119 of the Doing dropped. Business 2016 report. For more details on the distance to The scope of the labor market regulation indicator set frontier metric, please see the “Distance to frontier and has also been expanded, to include more areas capturing ease of doing business ranking” chapter in this profile. aspects of job quality. The labor market regulation indicators continue to be excluded from the aggregate distance to frontier score and ranking on the ease of doing business. Doing Business 2016 Japan 6 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to start ECONOMY OVERVIEW is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing business Region: OECD high income based on indicator sets that measure and benchmark regulations applying to domestic small to medium-size Income category: High income businesses through their life cycle. Economies are ranked from 1 to 189 by the ease of doing business ranking. Population: 127,131,800 Doing Business presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 42,000 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier scores, DB2016 rank: 34 rounded to two decimals. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where DB2015 rank: 30* 0 represents the worst performance and 100 the frontier. Change in rank: -4 (See the chapter on the distance to frontier and ease of doing business). DB 2016 DTF: 74.72 The ease of doing business ranking compares economies with one another; the distance to frontier score DB 2015 DTF: 74.72 benchmarks economies with respect to regulatory best practice, showing the absolute distance to the best Change in DTF: 0 performance on each Doing Business indicator. When compared across years, the distance to frontier score * DB2015 ranking shown is not last year’s published shows how much the regulatory environment for local ranking but a comparable ranking for DB2015 that entrepreneurs in an economy has changed over time in captures the effects of such factors as data revisions absolute terms, while the ease of doing business ranking and the changes in methodology. See the data notes can show only how much the regulatory environment has starting on page 119 of the Doing Business 2016 changed relative to that in other economies. report for sources and definitions. The 10 topics included in the ranking in Doing Business 2016: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The labor market regulation indicators are not included in this year’s aggregate ease of doing business ranking, but the data are presented in this year’s economy profile. Doing Business 2016 Japan THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2016 Japan THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy regional average (figure 1.2). The economy’s rankings stands in the aggregate ranking on the ease of doing (figure 1.3) and distance to frontier scores (figure 1.4) business is useful. Also useful is to know how it ranks on the topics included in the ease of doing business relative to comparator economies and relative to the ranking provide another perspective. Figure 1.2 How Japan and comparator economies rank on the ease of doing business Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Source: Doing Business database. Doing Business 2016 Japan 9 THE BUSINESS ENVIRONMENT Figure 1.3 Rankings on Doing Business topics - Japan (Scale: Rank 189 center, Rank 1 outer edge) Figure 1.4 Distance to frontier scores on Doing Business topics - Japan (Scale: Score 0 center, Score 100 outer edge) Source: Doing Business database. Note: The rankings are benchmarked to June 2015 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranking. The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute distance to the best performance in each Doing Business indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and 100 the frontier. For the economies for which the data cover 2 cities, scores are a population-weighted average for the 2 cities. Doing Business 2016 Japan 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business Doing Business introduced the distance to frontier score. tells only part of the story, so do changes in that ranking. This measure shows how far on average an economy is Yearly movements in rankings can provide some indication from the best performance achieved by any economy on of changes in an economy’s regulatory environment for each Doing Business indicator. firms, but they are always relative. Comparing the measure for an economy at 2 points in time Moreover, year-to-year changes in the overall rankings do allows users to assess how much the economy’s regulatory not reflect how the business regulatory environment in an environment as measured by Doing Business has changed economy has changed over time—or how it has changed over time—how far it has moved toward (or away from) in different areas. To aid in assessing such changes, the most efficient practices and strongest regulations in areas covered by Doing Business (figure 1.5). Figure 1.5 How far has Japan come in the areas measured by Doing Business? Note: The distance to frontier score shows how far on average an economy is from the best performance achieved by any economy on each Doing Business indicator. Starting a business is comparable to 2010. Getting credit, protecting minority investors, paying taxes and resolving insolvency had methodology changes in 2014 and thus are only comparable to 2013. Dealing with construction permits, registering property, trading across borders, enforcing contracts and getting electricity had methodology changes in 2015 and thus are only comparable to 2014. The measure is normalized to range between 0 and 100, with 100 representing the best performance (the frontier). See the data notes starting on page 119 of the Doing Business 2016 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2016 Japan 11 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part of regulation—such as a regulatory process that can be the story (table 1.1). The indicators, on their own or in completed with a small number of procedures in a few comparison with the indicators of a good practice days and at a low cost. Comparison of the economy’s economy or those of comparator economies in the indicators today with those in the previous year may region, may reveal bottlenecks reflected in large numbers show where substantial bottlenecks persist—and where of procedures, long delays or high costs. Or they may they are diminishing. reveal unexpected strengths in an area of business Table 1.1 Summary of Doing Business indicators for Japan Best performer globally Hong Kong SAR, China United States DB2016 Korea, Rep. DB2016 Australia DB2016 Indicator Tokyo DB2016 Osaka DB2016 Japan DB2016 Japan DB2015 DB2016 DB2016 Starting a Business 81 77 -- -- 11 4 23 49 New Zealand (1) (rank) Starting a Business (DTF 86.34 86.34 86.25 86.51 96.47 98.12 94.36 91.22 New Zealand (99.96) Score) Procedures (number) 8.0 8.0 8.0 8.0 3.0 2.0 3.0 6.0 New Zealand (1.00)* Time (days) 10.2 10.2 10.5 9.5 2.5 1.5 4.0 5.6 New Zealand (0.50) Cost (% of income per 7.5 7.5 7.5 7.5 0.7 1.2 14.5 1.1 Slovenia (0.00) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 105 Economies (0.00)* of income per capita) Dealing with Construction Permits 68 66 -- -- 4 7 28 33 Singapore (1) (rank) Dealing with Construction Permits 71.65 71.64 71.65 71.65 86.56 84.78 77.83 76.73 Singapore (92.97) (DTF Score) Procedures (number) 12.0 12.0 12.0 12.0 10.0 11.0 10.0 15.8 5 Economies (7.00)* Doing Business 2016 Japan 12 Best performer globally Hong Kong SAR, China United States DB2016 Korea, Rep. DB2016 Australia DB2016 Indicator Tokyo DB2016 Osaka DB2016 Japan DB2016 Japan DB2015 DB2016 DB2016 Time (days) 197.0 197.0 197.0 197.0 112.0 72.0 28.0 80.6 Singapore (26.00) Cost (% of warehouse 0.6 0.6 0.6 0.6 0.5 0.7 4.3 1.0 Qatar (0.00) value) Building quality control 10.0 10.0 10.0 10.0 14.0 12.0 8.0 10.6 New Zealand (15.00) index (0-15) Getting Electricity 14 14 -- -- 39 9 1 44 Korea, Rep. (1) (rank) Getting Electricity (DTF 89.88 89.88 90.54 88.66 82.32 91.62 99.88 81.52 Korea, Rep. (99.88) Score) Procedures (number) 3.4 3.4 3.0 4.0 5.0 4.0 3.0 4.8 14 Economies (3.00)* Time (days) 97.7 97.7 105.0 84.0 75.0 28.0 18.0 89.6 Korea, Rep. (18.00)* Cost (% of income per 0.0 0.0 0.0 0.0 8.4 1.3 39.8 24.6 Japan (0.00) capita) Reliability of supply and transparency of tariff 8.0 8.0 8.0 8.0 7.0 7.0 8.0 7.0 18 Economies (8.00)* index (0-8) Registering Property 48 47 -- -- 47 59 40 34 New Zealand (1) (rank) Registering Property 73.91 73.91 73.91 73.91 74.24 69.78 76.22 76.85 New Zealand (94.46) (DTF Score) Procedures (number) 6.0 6.0 6.0 6.0 5.0 5.0 7.0 4.4 4 Economies (1.00)* Time (days) 13.0 13.0 13.0 13.0 4.5 27.5 6.5 15.2 3 Economies (1.00)* Cost (% of property 5.8 5.8 5.8 5.8 5.2 7.7 5.1 2.4 Saudi Arabia (0.00) value) Quality of the land administration index (0- 24.5 24.5 24.5 24.5 20.0 23.0 27.5 17.6 3 Economies (28.50)* 30) Doing Business 2016 Japan 13 Best performer globally Hong Kong SAR, China United States DB2016 Korea, Rep. DB2016 Australia DB2016 Indicator Tokyo DB2016 Osaka DB2016 Japan DB2016 Japan DB2015 DB2016 DB2016 Getting Credit (rank) 79 71 -- -- 5 19 42 2 New Zealand (1) Getting Credit (DTF 50 50 50 50 90 75 65 95 New Zealand (100) Score) Strength of legal rights 4.0 4.0 4.0 4.0 11.0 8.0 5.0 11.0 3 Economies (12.00)* index (0-12) Depth of credit 6.0 6.0 6.0 6.0 7.0 7.0 8.0 8.0 26 Economies (8.00)* information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Portugal (100.00) (% of adults) Credit bureau coverage 22 Economies 100.0 100.0 100.0 100.0 100.0 96.0 100.0 100.0 (% of adults) (100.00)* Protecting Minority 36 33 -- -- 66 1 8 35 Singapore (1)* Investors (rank) Protecting Minority 63.33 63.33 63.33 63.33 56.67 83.33 73.33 64.67 Singapore (83.33)* Investors (DTF Score) Strength of minority investor protection 6.3 6.3 6.3 6.3 5.7 8.3 7.3 6.5 3 Economies (8.30)* index (0-10) Extent of conflict of interest regulation 7.0 7.0 7.0 7.0 6.0 9.0 7.0 8.3 Singapore (9.30)* index (0-10) Extent of shareholder governance index (0- 5.7 5.7 5.7 5.7 5.3 7.7 7.7 4.6 4 Economies (8.00)* 10) United Arab Emirates Paying Taxes (rank) 121 120 -- -- 42 4 29 53 (1)* Paying Taxes (DTF United Arab Emirates 67.16 67.2 67.18 67.14 82.35 98.71 84.53 80.81 Score) (99.44)* Payments (number per 14.0 14.0 14.0 14.0 11.0 3.0 12.0 10.6 Hong Kong SAR, Doing Business 2016 Japan 14 Best performer globally Hong Kong SAR, China United States DB2016 Korea, Rep. DB2016 Australia DB2016 Indicator Tokyo DB2016 Osaka DB2016 Japan DB2016 Japan DB2015 DB2016 DB2016 year) China (3.00)* Time (hours per year) 330.0 330.0 330.0 330.0 105.0 74.0 188.0 175.0 Luxembourg (55.00) Total tax rate (% of 51.3 51.3 51.3 51.4 47.6 22.8 33.2 43.9 Ireland (25.90) profit) Trading Across Borders 52 51 -- -- 89 47 31 34 Denmark (1)* (rank) Trading Across Borders 85.9 85.9 85.93 85.85 70.82 87.76 92.48 92.01 Denmark (100)* (DTF Score) Time to export: Border 48 48 48 48 36 19 14 2 15 Economies (0.00)* compliance (hours) Cost to export: Border 306 306 305 309 749 282 185 175 18 Economies (0.00)* compliance (USD) Time to export: Documentary 3 3 3 4 7 1 1 2 Jordan (0.00) compliance (hours) Cost to export: Documentary 15 15 15 15 264 52 11 60 20 Economies (0.00)* compliance (USD) Time to import: Border 48 48 48 48 37 19 6 2 19 Economies (0.00)* compliance (hours) Cost to import: Border 337 337 334 344 525 266 315 175 28 Economies (0.00)* compliance (USD) Time to import: Documentary 3 3 3 4 3 1 1 8 21 Economies (1.00)* compliance (hours) Cost to import: Documentary 23 23 27 15 100 130 27 100 30 Economies (0.00)* compliance (USD) Enforcing Contracts 51 51 -- -- 4 22 2 21 Singapore (1) Doing Business 2016 Japan 15 Best performer globally Hong Kong SAR, China United States DB2016 Korea, Rep. DB2016 Australia DB2016 Indicator Tokyo DB2016 Osaka DB2016 Japan DB2016 Japan DB2015 DB2016 DB2016 (rank) Enforcing Contracts 65.26 65.26 65.26 65.26 79.72 72.57 84.84 72.61 Singapore (84.91) (DTF Score) Time (days) 360.0 360.0 360.0 360.0 395.0 360.0 230.0 420.0 Singapore (150.00) Cost (% of claim) 23.4 23.4 23.4 23.4 21.8 21.2 10.3 30.5 Iceland (9.00) Quality of judicial 7.5 7.5 7.5 7.5 15.5 11.0 13.5 13.8 3 Economies (15.50)* processes index (0-18) Resolving Insolvency 2 2 -- -- 14 26 4 5 Finland (1) (rank) Resolving Insolvency 93.75 93.74 93.75 93.75 81.69 75.06 90.31 90.12 Finland (93.81) (DTF Score) Recovery rate (cents on 92.9 92.9 92.9 92.9 82.1 87.2 83.6 80.4 Japan (92.90) the dollar) Time (years) 0.6 0.6 0.6 0.6 1.0 0.8 1.5 1.5 Ireland (0.40) Cost (% of estate) 3.5 3.5 3.5 3.5 8.0 5.0 3.5 8.2 Norway (1.00) Outcome (0 as piecemeal sale and 1 as 1 1 1 1 1 1 1 1 going concern) Strength of insolvency 14.0 14.0 14.0 14.0 12.0 9.0 14.5 15.0 4 Economies (15.00)* framework index (0-16) Source: Doing Business database. Note: DB2015 rankings shown are not last year’s published rankings but comparable rankings for DB2015 that capture the effects of such factors as data revisions and changes to the methodology. The global best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2016 sample that levy the 3 major taxes: profit tax, labor taxes and mandatory contributions, and VAT or sales tax. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a “no practice” mark. Similarly, an economy receives a “no practice” mark if regulation exists but is never used in practice or if a competing regulation prohibits such practice. Either way, a “no practice” mark puts the economy at the bottom of the ranking on the relevant indicator. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Doing Business 2016 Japan 16 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as well Preregistration (for example, name as to new markets. And their employees can benefit verification or reservation, notarization) from protections provided by the law. An additional benefit comes with limited liability companies. These Registration in the economy’s largest limit the financial liability of company owners to their business city 1 investments, so personal assets of the owners are not Postregistration (for example, social security put at risk. Where governments make registration registration, company seal) easy, more entrepreneurs start businesses in the formal sector, creating more good jobs and Time required to complete each procedure generating more revenue for the government. (calendar days) What do the indicators cover? Does not include time spent gathering information Doing Business records all procedures officially required, or commonly done in practice, for an Each procedure starts on a separate day (2 entrepreneur to start up and formally operate an procedures cannot start on the same day). industrial or commercial business, as well as the time Procedures that can be fully completed and cost to complete these procedures and the paid- online are recorded as ½ day. in minimum capital requirement. These procedures Procedure completed once final document is include obtaining all necessary licenses and permits received and completing any required notifications, verifications or inscriptions for the company and No prior contact with officials employees with relevant authorities. The ranking of Cost required to complete each procedure economies on the ease of starting a business is (% of income per capita) determined by sorting their distance to frontier scores for starting a business. These scores are the Official costs only, no bribes simple average of the distance to frontier scores for No professional fees unless services required each of the component indicators. by law or commonly used in practice To make the data comparable across economies, Paid-in minimum capital (% of income several assumptions about the business and the per capita) procedures are used. It is assumed that any required information is readily available and that the Deposited in a bank or with a notary before entrepreneur will pay no bribes. Assumptions about registration (or within 3 months) the business:  Is a limited liability company (or its legal  Has a start-up capital of 10 times income per equivalent), located in the largest business city capita and a turnover of at least 100 times 1 and is 100% domestically owned with five income per capita. owners, none of whom is a legal entity.  Has a company deed 10 pages long.  Has at least 10 and up to 50 employees, all of  Does not qualify for any special benefits. them domestic nationals.  Leases the commercial plant or offices and is not  Performs general commercial or industrial a proprietor of real estate. activities. 1 For 11 economies the data are also collected for the second largest business city. Doing Business 2016 Japan 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Japan? According largest business city of an economy, except for 11 to data collected by Doing Business, starting a business economies for which the data are a population-weighted there requires 8.00 procedures, takes 10.20 days, costs average of the 2 largest business cities. See the chapter 7.50% of income per capita and requires paid-in on distance to frontier and ease of doing business minimum capital of 0.00% of income per capita (figure ranking at the end of this profile for more details. 2.1). Most indicator sets refer to a case scenario in the Figure 2.1 What it takes to start a business in Japan - Tokyo Paid-in minimum capital (% of income per capita): 0.00 Doing Business 2016 Japan 18 What it takes to start a business in Japan - Osaka Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the starting a business indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Japan 19 STARTING A BUSINESS Globally, Japan stands at 81 in the ranking of 189 average ranking provide other useful information for economies on the ease of starting a business (figure 2.2). assessing how easy it is for an entrepreneur in Japan to The rankings for comparator economies and the regional start a business. Figure 2.2 How Japan and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2016 Japan 20 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Japan is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new Legal form: Godo Kaisha firm. These are identified by Doing Business through collaboration with relevant local professionals and Paid-in minimum capital requirement: JPY 1 the study of laws, regulations and publicly available City: Tokyo, Osaka information on business entry in that economy. Following is a detailed summary of those procedures, Start-up Capital: 10 times GNI per capita along with the associated time and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company”) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Table 2.2 Summary of time, cost and procedures for starting a business in Japan - Tokyo Time to No. Procedure Cost to complete complete Search the company name Under the Japanese Company Laws, entrepreneurs may not file an application for incorporating a company if the same company name and head office address are already registered. There is no need for entrepreneurs to check the uniqueness of the company name and make the name reservation at the Legal Affairs Bureau of the Ministry of Justice. However, they need to check if the proposed company name Less than one day 1 and head office address has been registered. This can be easily be no charge (online procedure) checked through books or personal computers installed and offered for searching at the Legal Affairs Bureaus or online http://www1.touki.or.jp/gateway.html Agency: Legal Affairs Bureau Make a company seal The company seal is required by law: Article 20 of the Commercial Registration Act. The associated fee is JPY 10,000 for machine-carved JPY 10,000 - JPY 2 seal or JPY 20,000 for hand-carved seal. 3 days 20,000 Agency: Seal maker Doing Business 2016 Japan 21 Time to No. Procedure Cost to complete complete Register at the Legal Affairs Bureau of the Ministry of Justice To apply for registration, the entrepreneur must submit several supporting documents with the application to the Legal Affairs Bureau headquarter or any of its branch offices designated in major cities, including: - Articles of incorporation - Application of seal registration - Letter of proxy (if company is registered by a lawyer or a judicial scrivener) - Personal seal of the director or a lawyer registering the company - Proof of paid in capital - Proof of address 0.7% of the capital - Confirmation of appointment of the company representative - Confirmation from company representative that he agrees to the amount or JPY appointment. 60,000, whichever is higher plus Yen 450 3 3 days Additionally, the company’s seal must be registered at the Legal Affairs for the Certificate Bureau of the Ministry of Justice upon registration of the company. of corporation seal Certificate of corporation seal registration costs Yen 450. registration Once the filed documents are reviewed and approved, the company applies for the issuance of a company registration certificate. Normally, a judicial scrivener completes this registration procedure on behalf of the company. By virtue of the amended Commercial Registration Regulations in force since June 2004, company registration applications can be submitted online. To do so, the user must first obtain an electronic signature or a digital certification. There are two types of digital certifications: data file and IC card. The user must purchase an IC card reader to use the IC card system. Agency: Legal Affairs Bureau of the Ministry of Justice File the notification of company incorporation and the opening of a payroll office; and Apply for the approval of blue tax returns at the District Tax Office The notification of the company incorporation must be filed within 2 months of the incorporation date. The notification of opening a payroll office must be filed within one 4 month of the opening of a payroll office. 1 day no charge The application for the approval of blue tax returns must be filed either within 3 months of the incorporation date, or a day prior to the end of the first fiscal year, whichever comes first. Agency: Tax Office Doing Business 2016 Japan 22 Time to No. Procedure Cost to complete complete File the notification of commencement of business at the tax office of the municipal or prefectural government If the head office of the company is located within Tokyo’s 23 wards, the company must file a Notification for the Commencement of Business at the tax office of the Tokyo Metropolitan Government within 15 days of company incorporation. 5 If the head office of the company is located outside Tokyo’s 23 wards, 1 day no charge the company must file a Notification of Incorporation at the tax office of the municipal government and the tax office of the prefectural government within 1 month of company incorporation. Agency: Tax Office File the necessary labor insurance notifications and employment rules at the Labor Standards Inspection Office Employees are automatically provided with labor insurance as soon as they are hired. Labor insurance usually includes employment and worker's compensation insurance. Upon recruitment, the company must file without delay the following documents at the competent Labor Standards Inspection Office: • Notification of the application for labor insurance • Notification of the commencement of labor insurance within 10 days 6 of the insurance coverage commencement date 1 day no charge • Notification of the approximate insurance contributions within 50 days of the insurance coverage commencement date • The rules of employment (once the company hires 10 or more employees) • Agreement on overtime and holiday work (the "36 agreement") if the company anticipates that its employees will work overtime or on public holidays, irrespective of the number of employees. Agency: Labor Standards Inspection Office File the applications for health insurance and public welfare pension at the Japan Pension Service As soon as the company and its employees are covered for health insurance and public welfare pension, the company must file the following documents at the Social Insurance Office within 5 days of the business insurance coverage commencement date: Less than one day 7 - Notification of the acquisition of insured status no charge (online procedure) - The insurance details covering Health and Employee Pension insurance - Corporate Registry Certificate Agency: Japan Pension Service Doing Business 2016 Japan 23 Time to No. Procedure Cost to complete complete File the company application for employment insurance at the Public Employment Security Office The notification of the company's application for employment insurance must be filed at the Public Employment Security Office within 10 days of commencement of employment by the company. When a new employee is recruited, he/she is automatically insured under the company's employment insurance. The company must thus Less than one day 8 no charge file a "Notification of Acquisition of Insured Status under Employment (online procedure) Insurance" at the Public Employment Security Office by the 10th day of the month immediately consecutive to that of the employee's appointment date. Agency: Public Employment Security Office * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for starting a business in Japan - Osaka Time to No. Procedure Cost to complete complete Search the company name Under the Japanese Company Laws, entrepreneurs may not file an application for incorporating a company if the same company name and head office address are already registered. There is no need for entrepreneurs to check the uniqueness of the company name and make the name reservation at the Legal Affairs Bureau of the Ministry of Less than one day Justice. However, they need to check if the proposed company name (online procedure) no charge 1 and head office address has been registered. This can be easily be checked through books or personal computers installed and offered for searching at the Legal Affairs Bureaus or online http://www1.touki.or.jp/gateway.html Agency: Legal Affairs Bureau of the Ministry of Justice Make a company seal The company seal is required by law: Article 20 of the Commercial Registration Act. The associated fee is JPY 10,000 for machine-carved JPY 10,000 - JPY 2 seal or JPY 20,000 for hand-carved seal. 3 days 20,000 Agency: Seal maker Doing Business 2016 Japan 24 Time to No. Procedure Cost to complete complete Register at the Legal Affairs Bureau of the Ministry of Justice To apply for registration, the entrepreneur must submit several supporting documents with the application to the Legal Affairs Bureau headquarter or any of its branch offices designated in major cities, including: - Articles of incorporation - Application of seal registration - Letter of proxy (if company is registered by a lawyer or a judicial scrivener) - Personal seal of the director or a lawyer registering the company - Proof of paid in capital - Proof of address - Confirmation of appointment of the company representative - Confirmation from company representative that he agrees to the 0.7% of the capital appointment. amount or JPY 60,000, whichever is Additionally, the company’s seal must be registered at the Legal Affairs 2 days higher plus Yen 450 3 Bureau of the Ministry of Justice upon registration of the company. for the Certificate Certificate of corporation seal registration costs Yen 450. of corporation seal registration Once the filed documents are reviewed and approved, the company applies for the issuance of a company registration certificate. Normally, a judicial scrivener completes this registration procedure on behalf of the company. By virtue of the amended Commercial Registration Regulations in force since June 2004, company registration applications can be submitted online. To do so, the user must first obtain an electronic signature or a digital certification. There are two types of digital certifications: data file and IC card. The user must purchase an IC card reader to use the IC card system. Agency: Legal Affairs Bureau of the Ministry of Justice File the notification of company incorporation and the opening of a payroll office; and Apply for the approval of blue tax returns at the District Tax Office The notification of the company incorporation must be filed within 2 months of the incorporation date. The notification of opening a payroll office must be filed within one 4 month of the opening of a payroll office. 1 day no charge The application for the approval of blue tax returns must be filed either within 3 months of the incorporation date, or a day prior to the end of the first fiscal year, whichever comes first. Agency: Tax Office Doing Business 2016 Japan 25 Time to No. Procedure Cost to complete complete File the notification of commencement of business at the tax office of the municipal or prefectural government If the head office of the company is located outside Tokyo’s 23 wards, the company must file a Notification of Incorporation at the tax office of the municipal government and the tax office of the prefectural 1 day no charge 5 government within 2 month of company incorporation. Agency: Tax Office File the necessary labor insurance notifications and employment rules at the Labor Standards Inspection Office Employees are automatically provided with labor insurance as soon as they are hired. Labor insurance usually includes employment and worker's compensation insurance. Upon recruitment, the company must file without delay the following documents at the competent Labor Standards Inspection Office: • Notification of the application for labor insurance • Notification of the commencement of labor insurance within 10 days of the insurance coverage commencement date • 1 day no charge 6 Notification of the approximate insurance contributions within 50 days of the insurance coverage commencement date • The rules of employment (once the company hires 10 or more employees) • Agreement on overtime and holiday work (the "36 agreement") if the company anticipates that its employees will work overtime or on public holidays, irrespective of the number of employees Agency: Labor Standards Inspection Office File the applications for health insurance and public welfare pension at the Japan Pension Service As soon as the company and its employees are covered for health insurance and public welfare pension, the company must file the following documents at the Social Insurance Office within 5 days of the business insurance coverage commencement date: - Notification of the acquisition of insured status Less than one day 7 no charge - The insurance details covering Health and Employee Pension (online procedure) insurance - Corporate Registry Certificate Agency: Japan Pension Service Doing Business 2016 Japan 26 Time to No. Procedure Cost to complete complete File the company application for employment insurance at the Public Employment Security Office The notification of the company's application for employment insurance must be filed at the Public Employment Security Office within 10 days of commencement of employment by the company. When a new employee is recruited, he/she is automatically insured under the company's employment insurance. The company must thus Less than one day 8 file a "Notification of Acquisition of Insured Status under Employment no charge (online procedure) Insurance" at the Public Employment Security Office by the 10th day of the month immediately consecutive to that of the employee's appointment date. Agency: Public Employment Security Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2016 Japan 27 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid excessive PERMITS INDICATORS MEASURE constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in time and money, Procedures to legally build a warehouse many builders opt out. They may pay bribes to pass (number) inspections or simply build illegally, leading to Submitting all relevant documents and hazardous construction that puts public safety at risk. obtaining all necessary clearances, licenses, Where compliance is simple, straightforward and permits and certificates inexpensive, everyone is better off. Submitting all required notifications and What do the indicators cover? receiving all necessary inspections Doing Business records all procedures required for a Obtaining utility connections for water and business in the construction industry to build a sewerage warehouse along with the time and cost to complete Registering and selling the warehouse after its each procedure. In addition, this year Doing Business completion introduces a new measure, the building quality Time required to complete each procedure control index, evaluating the quality of building (calendar days) regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and Does not include time spent gathering professional certification requirements. information The ranking of economies on the ease of dealing with Each procedure starts on a separate day. Procedures that can be fully completed online construction permits is determined by sorting their are recorded as ½ day distance to frontier scores for dealing with construction permits. These scores are the simple Procedure considered completed once final average of the distance to frontier scores for each of document is received the component indicators. No prior contact with officials To make the data comparable across economies, Cost required to complete each procedure (% several assumptions about the construction of warehouse value) company, the warehouse project and the utility Official costs only, no bribes connections are used. Building quality control index (0-15) Assumptions about the construction company Sum of the scores of six component indices: The construction company (BuildCo): Quality of building regulations (0-2)  Is a limited liability company (or its legal equivalent). Quality control before construction (0-1)  Operates in the economy’s largest business Quality control during construction (0-3) city. For 11 economies the data are also Quality control after construction (0-3) collected for the second largest business Liability and insurance regimes (0-2) city. Professional certifications (0-4)  Is 100% domestically and privately owned.  Has five owners, none of whom is a legal entity.  Is fully licensed and insured to carry out construction projects, such as building warehouses. Doing Business 2016 Japan 28 The construction company (BuildCo) (continued):  Will be a new construction (there was no previous construction on the land), with no  Has 60 builders and other employees, all of trees, natural water sources, natural reserves them nationals with the technical expertise or historical monuments of any kind on the and professional experience necessary to plot. obtain construction permits and approvals.  Will have complete architectural and  Has at least one employee who is a technical plans prepared by a licensed licensed architect or engineer and architect. If preparation of the plans requires registered with the local association of such steps as obtaining further architects or engineers. BuildCo is not documentation or getting prior approvals assumed to have any other employees who from external agencies, these are counted as are technical or licensed experts, such as procedures. geological or topographical experts.  Will include all technical equipment required  Has paid all taxes and taken out all to be fully operational. necessary insurance applicable to its general business activity (for example,  Will take 30 weeks to construct (excluding all accidental insurance for construction delays due to administrative and regulatory workers and third-person liability). requirements).  Owns the land on which the warehouse will be built and will sell the warehouse upon Assumptions about the utility connections its completion. The water and sewerage connections:  Is valued at 50 times income per capita.  Will be 150 meters (492 feet) from the Assumptions about the warehouse existing water source and sewer tap. If there The warehouse: is no water delivery infrastructure in the economy, a borehole will be dug. If there is  Will be used for general storage activities, no sewerage infrastructure, a septic tank in such as storage of books or stationery. The the smallest size available will be installed or warehouse will not be used for any goods built. requiring special conditions, such as food, chemicals or pharmaceuticals.  Will not require water for fire protection reasons; a fire extinguishing system (dry  Will have two stories, both above ground, system) will be used instead. If a wet fire with a total constructed area of protection system is required by law, it is approximately 1,300.6 square meters assumed that the water demand specified (14,000 square feet). Each floor will be 3 below also covers the water needed for fire meters (9 feet, 10 inches) high. protection.  Will have road access and be located in the  Will have an average water use of 662 liters periurban area of the economy’s largest (175 gallons) a day and an average business city (that is, on the fringes of the wastewater flow of 568 liters (150 gallons) a city but still within its official limits). For 11 day. Will have a peak water use of 1,325 liters economies the data are also collected for (350 gallons) a day and a peak wastewater the second largest business city. flow of 1,136 liters (300 gallons) a day.  Will not be located in a special economic  Will have a constant level of water demand or industrial zone. Will be located on a land and wastewater flow throughout the year. plot of approximately 929 square meters (10,000 square feet) that is 100% owned by  Will be 1 inch in diameter for the water BuildCo and is accurately registered in the connection and 4 inches in diameter for the cadastre and land registry. sewerage connection. Doing Business 2016 Japan 29 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build business city of an economy, except for 11 economies for a warehouse in Japan? According to data collected by which the data are a population-weighted average of the Doing Business, dealing with construction permits there 2 largest business cities. See the chapter on distance to requires 12.00 procedures, takes 197.00 days and costs frontier and ease of doing business ranking at the end of 0.60% of the warehouse value (figure 3.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 3.1 What it takes to comply with formalities to build a warehouse in Japan - Tokyo Doing Business 2016 Japan 30 What it takes to comply with formalities to build a warehouse in Japan - Osaka Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the dealing with construction permits indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. . Doing Business 2016 Japan 31 DEALING WITH CONSTRUCTION PERMITS Globally, Japan stands at 68 in the ranking of 189 economies and the regional average ranking provide economies on the ease of dealing with construction other useful information for assessing how easy it is for permits (figure 3.2). The rankings for comparator an entrepreneur in Japan to legally build a warehouse. Figure 3.2 How Japan and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2016 Japan 32 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while an effort to ensure building safety while keeping making compliance easy and accessible to all. Coherent compliance costs reasonable, governments around the and transparent rules, efficient processes and adequate world have worked on consolidating permitting allocation of resources are especially important in sectors requirements. What construction permitting reforms has where safety is at stake. Construction is one of them. In Doing Business recorded in Japan (table 3.1)? Table 3.1 How has Japan made dealing with construction permits easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Japan made dealing with construction permits costlier by DB2012 increasing inspection fees. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Japan 33 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Japan are based on BUILDING A WAREHOUSE a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through Estimated value of information collected from experts in construction JPY 199,621,751 warehouse : licensing, including architects, civil engineers, construction lawyers, construction firms, utility City : Tokyo, Osaka service providers and public officials who deal with building regulations. These procedures are those that apply to a company and structure matching the The procedures, along with the associated time and cost, standard assumptions used by Doing Business in are summarized below. collecting the data (see the section in this chapter on what the indicators cover). Table 3.2 Summary of time, cost and procedures for dealing with construction permits in Japan - Tokyo Time to No. Procedure Cost to complete complete Obtain consent of neighborhood Obtaining neighborhood consent can be carried out simultaneously with the previous procedure. The initial step is to post a sign with specific information about the planned construction on the plot. Thereafter, BuildCo must obtain the 30 days no charge 1 endorsement of all neighbors (companies) stating that they do not object to the construction of the warehouse. Agency: Local Authority * Hold initial consultation with local authority BuildCo must have clearance at the initial consultation phase with at least 14 different departments at the prefecture level. Due to stricter requirements of compliance with construction regulations, the process now takes around 24 days. The purpose of this consultation is to avoid the risk of resubmitting the application for the actual building permit which if submitted 2 wrongly, or some parts require alteration, the process can take 24 days no charge another 2 -- 3 months. Closer scrutiny is paid to the structural component of the drawings and plans. The rules require an engineer to resubmit an entire construction plan, even to change a peg or location of windows. Agency: Local Authority Obtain building permit from Japan Building Center After the initial consultation with the local authority, BuildCo 70 days JPY 225,000 3 must submit a building permit application. The local authority examines the application and issues the building permit. Doing Business 2016 Japan 34 Time to No. Procedure Cost to complete complete Normally, architects submit the application on behalf of their clients. The Fire Office is also involved in the permit examination process. The application must be amended when any changes are made after the building permit is obtained. In addition, a change permit must be obtained prior to final inspection by local authorities. After the falsification of structural calculation of buildings by former Architect Aneha became public knowledge in November 2005, many Japanese local authorities and private inspection companies have had to spend extra time checking structural design documents in new applications. This situation is still very much true in many parts of Japan. There is also a spill-over effect on site inspections by privatized control institutions, and it is likely that the Japanese government will introduce more frequent and thorough inspection procedures in building construction in the near future. Building permit review and approval procedures became very stringent since the new Building regulation as of June 20, 2007. As of June 2007 any project exceeding 1,000 sq. m. will require a peer review process by an independent authorized structural engineer/agency. The engineers are generally hired by the Building Department to undertake this review. However, the amount of work and backlog on one hand and the number of available professionals on the other hand willing to work extra hours on the weekends has caused delays. The peer review may take about 30 days in addition to the 50 days of building permit review period. In simpler cases the process may take on average 70 days. Agency: Japan Building Center * Request and obtain workmen’s compensation insurance proof from Labor Control Office The Labor Control Office verifies worker compensation insurance for all companies annually. No cost is incurred for obtaining confirmation. Once a contractor obtains confirmation and insurance, it is valid for one year for any project of the contractor’s company. Application for worker compensation insurance is made with the local labor control office. The applicant must comply with the registration criteria. A worker 60 days no charge 4 compensation insurance fee must be paid within 50 days after the application is filed. Worker compensation insurance is valid for a year, and it must be extended every year between April 1 and May 20. The insurance cost is 2.05% of the company's total personnel costs (1.25% paid by employer, 0.8% paid by employee). Agency: Labor Control Office Doing Business 2016 Japan 35 Time to No. Procedure Cost to complete complete Purchase and post statutory construction notice sign board The construction notice sign board should include the following information: • Construction company registry certificate number • Proof of worker compensation insurance • Building permit number 1 day JPY 50,000 5 • Name of client, designer, contractor, project name, address, the person in charge, etc. Agency: Local Authority Submit construction method plan to local authority and obtain approval The construction method plan is submitted to the local authority for a crosscheck with the project drawings and to fill out the 7 days no charge 6 necessary application form. Agency: Local Authority Submit project safety and health and resources recycling plan to local authority and obtain approval The design drawings, construction schedule, method statement, and building permit are required for this application. The 7 application must be submitted 7 days before construction work 7 days no charge starts. Agency: Local Authority Receive intermediate inspection by Japan Building Center and obtain permit The Japan Building Center (a privatized building control institution) and the Fire Office inspect structural conditions and conduct new building position surveys when the construction is half-completed. The inspection usually takes one day and 8 construction work can continue if there are no serious 24 days JPY 211,000 irregularities. However, if there are any mistakes, construction work is suspended until proper measures are taken. An intermediate building permit is issued within 2 to 3 weeks. Agency: Japan Building Center Request and receive connection to water and sewage services 9 21 days no charge The installation cost is included in water and sewerage charges. Agency: Tokyo Water Company Doing Business 2016 Japan 36 Time to No. Procedure Cost to complete complete Request and receive final inspection from Japan Building Center BuildCo requests the inspection. After the completion of the inspection, the certificate is issued within 3 business days. If there are any outstanding issues pointed out by inspectors, remedial work must be completed and the building re-inspected before the completion certificate is issued. 10 The completion certificate is required to start occupying and 7 days JPY 220,000 using the building. This certificate is distinct from the land and building registration with the local authorities, and can be issued by the local authorities or by any of the authorized institutions at a very similar cost. Agency: Japan Building Center Obtain completion certificate 11 18 days no charge Agency: Japan Building Center Register the building with the Land and Building Registry The building registration involves two steps. First, the description of the building should be registered (usually through a notary public). This part cannot be done by BuildCo or its lawyer. No formal registration cost is required. Second, proof of building ownership should be registered. It 12 takes about 10 to 14 days for the registration to be completed. 12 days JPY 399,244 The cost of proof of building ownership registration varies depending on the value of the building (0.2% of the building’s taxable value). Agency: Land and Building Registry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for dealing with construction permits in Japan - Osaka Time to No. Procedure Cost to complete complete Doing Business 2016 Japan 37 Time to No. Procedure Cost to complete complete Obtain consent of neighborhood Obtaining neighborhood consent can be carried out simultaneously with the previous procedure. The initial step is to post a sign with specific information about the planned construction on the plot. Thereafter, BuildCo must obtain the endorsement of all neighbors 30 days no charge 1 (companies) stating that they do not object to the construction of the warehouse. Agency: Local Authority * Hold initial consultation with local authority BuildCo must have clearance at the initial consultation phase with at least 14 different departments at the prefecture level. Due to stricter requirements of compliance with construction regulations, the process now takes around 24 days. The purpose of this consultation is to avoid the risk of resubmitting the application for the actual building permit which if submitted wrongly, or some parts require alteration, the 24 days no charge 2 process can take another 2 -- 3 months. Closer scrutiny is paid to the structural component of the drawings and plans. The rules require an engineer to resubmit an entire construction plan, even to change a peg or location of windows. Agency: Local Authority Obtain building permit from Japan Building Center After the initial consultation with the local authority, BuildCo must submit a building permit application. The local authority examines the 3 application and issues the building permit. 70 days JPY 225,000 Agency: General Building Research Corporation * Request and obtain workmen’s compensation insurance proof from Labor Control Office The Labor Control Office verifies worker compensation insurance for all companies annually. No cost is incurred for obtaining confirmation. Once a contractor obtains confirmation and insurance, it is valid for one year for any project of the contractor’s company. Application for worker compensation insurance is made with the local labor control office. The applicant must comply with the registration criteria. A worker 60 days no charge 4 compensation insurance fee must be paid within 50 days after the application is filed. Worker compensation insurance is valid for a year, and it must be extended every year between April 1 and May 20. The insurance cost is 2.05% of the company's total personnel costs (1.25% paid by employer, 0.8% paid by employee). Agency: Labor Control Office Doing Business 2016 Japan 38 Time to No. Procedure Cost to complete complete Purchase and post statutory construction notice sign board Article 89 of the Building Standard Law stipulates that the Contractor must post a sign board on the construction site indicating the names or trade names of the building owner, designer, executor of construction work and field manager and the construction permit number. This sign 1 day JPY 50,000 5 board notice must be easily visible a t all time. The government agency may check the erected sign boards when construction works started. Agency: Local Authority Submit construction method plan to local authority and obtain approval The construction method plan is submitted to the local authority for a crosscheck with the project drawings and to fill out the necessary 7 days no charge 6 application form. Agency: Local Authority Submit project safety and health and resources recycling plan to local authority and obtain approval The design drawings, construction schedule, method statement, and building permit are required for this application. The application must 7 days no charge 7 be submitted 7 days before construction work starts. Agency: Local Authority Receive intermediate inspection by Japan Building Center and obtain permit The Japan Building Center (a privatized building control institution) and the Fire Office inspect structural conditions and conduct new building position surveys when the construction is half-completed. The inspection usually takes one day and construction work can continue if 24 days JPY 211,000 8 there are no serious irregularities. However, if there are any mistakes, construction work is suspended until proper measures are taken. An intermediate building permit is issued within 2 to 3 weeks. Agency: Japan Building Center Request and receive connection to water and sewage services The installation cost is included in water and sewerage charges. 9 21 days no charge Agency: Osaka City Water Doing Business 2016 Japan 39 Time to No. Procedure Cost to complete complete Request and receive final inspection from Japan Building Center BuildCo requests the inspection. After the completion of the inspection, the certificate is issued within 3 business days. If there are any outstanding issues pointed out by inspectors, remedial work must be completed and the building re-inspected before the completion certificate is issued. 10 The completion certificate is required to start occupying and using the 7 days JPY 220,000 building. This certificate is distinct from the land and building registration with the local authorities, and can be issued by the local authorities or by any of the authorized institutions at a very similar cost. Agency: Japan Building Center Obtain completion certificate 11 18 days no charge Agency: Japan Building Center Register the building with the Land and Building Registry The building registration involves two steps. First, the description of the building should be registered (usually through a notary public). This part cannot be done by BuildCo or its lawyer. No formal registration cost is required. Second, proof of building ownership should be registered. It takes 12 days JPY 399,244 12 about 10 to 14 days for the registration to be completed. The cost of proof of building ownership registration varies depending on the value of the building (0.2% of the building’s taxable value). Agency: Land and Building Registry * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. . Doing Business 2016 Japan 40 DEALING WITH CONSTRUCTION PERMITS Building Quality Control Index The building quality control index is the sum of the The index ranges from 0 to 15, with higher values scores on the quality of building regulations, quality indicating better quality control and safety mechanisms in control before construction, quality control during the construction permitting system. construction, quality control after construction, The indicator is based on the same case study liability and insurance regimes, and professional assumptions as the measures of efficiency. certifications indices. Source: Doing Business database. Table 3.3 Summary of time quality control and safety mechanisms in Japan Answer Score Answer Score (Osaka) (Tokyo) (Tokyo) (Osaka) Building quality control index (0-15) 10.00 10.00 Quality of building regulations index (0-2) 1.00 1.00 In what way are the building regulations (including the Available 1.0 Available building code) or any regulations dealing with online. 1.0 online. construction permits made available? (0-1) List of 0.0 List of Which requirements for obtaining a building permit are required required clearly specified by the building regulations or by any documents; documents; 0.0 accessible website, brochure or pamphlet? (0-1) Fees to be Fees to be paid. paid. Quality control before construction index (0-1) 1.00 1.00 Licensed 1.0 Licensed Who is part of the committee or team that reviews and architect; architect; approves building permit applications in the relevant 1.0 Licensed Licensed permit-issuing agency? (0-1) engineer. engineer. Quality control during construction index (0-3) 2.00 2.00 Inspections 1.0 by external engineer or Inspections at What types of inspections (if any) are required by law to firm; various 1.0 be carried out during construction? (0-2) Inspections phases. at various phases. Mandatory 1.0 Mandatory inspections inspections Do legally mandated inspections occur in practice during are always are always 1.0 construction? (0-1) done in done in practice. practice. Quality control after construction index (0-3) 3.00 3.00 Doing Business 2016 Japan 41 Answer Score Answer Score (Osaka) (Tokyo) (Tokyo) (Osaka) Yes, final 2.0 Yes, final Is there a final inspection required by law to verify that inspection inspection is the building was built in accordance with the approved is done by done by 2.0 plans and regulations? (0-2) government government agency. agency. Final 1.0 Final inspection Do legally mandated final inspections occur in practice? inspection always 1.0 (0-1) always occurs occurs in in practice. practice. Liability and insurance regimes index (0-2) 1.00 1.00 Architect or 1.0 Architect or Which parties (if any) are held liable by law for structural engineer; engineer; 1.0 flaws or problems in the building once it is in use? (0-1) Constructio Construction n company. company. No party is 0.0 No party is Which parties (if any) are required by law to obtain an required by required by insurance policy to cover possible structural flaws or law to 0.0 law to obtain problems in the building once it is in use? (0-1) obtain insurance . insurance . Professional certifications index (0-4) 2.00 2.00 Minimum 2.0 Minimum number of number of years of years of experience; experience; University University What are the qualification requirements for the degree in degree in professional responsible for verifying that the architecture architecture 2.0 architectural plans or drawings are in compliance with or or existing building regulations? (0-2) engineering engineering; ; Being a Being a registered registered architect or architect or engineer. engineer. Minimum 0.0 Minimum number of number of years of years of experience; experience; What are the qualification requirements for the Being a Being a professional who supervises the construction on the registered registered 0.0 ground? (0-2) architect or architect or engineer; engineer; Passing a Passing a certification certification exam. exam. Source: Doing Business database. Doing Business 2016 Japan 42 Doing Business 2016 Japan 43 GETTING ELECTRICITY Access to reliable and affordable electricity is vital for WHAT THE GETTING ELECTRICITY businesses. To counter weak electricity supply, many firms in developing economies have to rely on self- INDICATORS MEASURE supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the first step for Procedures to obtain an electricity connection a customer is always to gain access by obtaining a (number) connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for a Completing all required notifications and local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to complete them. These Obtaining external installation works and procedures include applications and contracts with possibly purchasing material for these works electricity utilities, clearances from other agencies Concluding any necessary supply contract and and the external and final connection works. In obtaining final supply addition, this year Doing Business adds two new measures: the reliability of supply and transparency Time required to complete each procedure of tariffs index (included in the aggregate distance to (calendar days) frontier score and ranking on the ease of doing Is at least 1 calendar day business) and the price of electricity (omitted from these aggregate measures). The ranking of Each procedure starts on a separate day economies on the ease of getting electricity is Does not include time spent gathering determined by sorting their distance to frontier information scores for getting electricity. These scores are the Reflects the time spent in practice, with little simple average of the distance to frontier scores for follow-up and no prior contact with officials each of the component indicators. To make the data comparable across economies, several assumptions Cost required to complete each procedure (% are used. of income per capita) Assumptions about the warehouse Official costs only, no bribes The warehouse: Excludes value added tax  Is owned by a local entrepreneur. The reliability of supply and transparency of tariffs index  Is located in the economy’s largest business city. For 11 economies the data Sum of the scores of six component indices: are also collected for the second largest Duration and frequency of outages business city. Tools to monitor power outages  Is located in an area where similar warehouses are typically located. In this Tools to restore power supply area a new electricity connection is not Regulatory monitoring of utilities’ performance eligible for a special investment promotion Financial deterrents aimed at limiting outages regime (offering special subsidization or faster service, for example). Transparency and accessibility of tariffs  Is located in an area with no physical Price of electricity (cents per kilowatt-hour)* constraints. For example, the property is Price based on monthly bill for commercial not near a railway. warehouse in case study  Is a new construction and is being *Price of electricity is not included in the calculation of connected to electricity for the first time. distance to frontier nor ease of doing business ranking Doing Business 2016 Japan 44 The warehouse (continued): Assumptions about the monthly consumption  Has two stories, both above ground, with a  It is assumed that the warehouse operates 8 total surface area of approximately 1,300.6 hours a day for 30 days a month, with square meters (14,000 square feet). The equipment utilized at 80% of capacity on plot of land on which it is built is 929 average, and that there are no electricity cuts square meters (10,000 square feet). (assumed for simplicity). The subscribed capacity of the warehouse is 140 kVA, with a  Is used for storage of goods. power factor of 1 (1 kVA = 1 kW). The monthly energy consumption is therefore Assumptions about the electricity connection 26,880 kWh, and the hourly consumption 112 kWh (26,880 kWh/30 days/8 hours). The electricity connection:  If multiple electricity suppliers exist, the  Is a permanent one. warehouse is served by the cheapest supplier.  Is a three-phase, four-wire Y, 140-kilovolt-  Tariffs effective in March of the current year ampere (kVA) (subscribed capacity) are used for calculation of the price of connection (where the voltage is 120/208 electricity for the warehouse. V, the current would be 400 amperes; where it is 230/400 B, the current would be nearly 200 amperes).  Is 150 meters long. The connection is to either the low-voltage or the medium- voltage distribution network and either overhead or underground, whichever is more common in the area where the warehouse is located.  Requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other owners’ private property because the warehouse has access to a road.  Includes only a negligible length in the customer’s private domain.  Will supply monthly electricity consumption of 26,880 kilowatt-hours (kWh).  Does not involve work to install the internal electrical wiring. This has already been completed, up to and including the customer’s service panel or switchboard and installation of the meter base. Doing Business 2016 Japan 45 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection business city of an economy, except for 11 economies for in Japan? According to data collected by Doing Business, which the data are a population-weighted average of the getting electricity there requires 3.40 procedures, takes 2 largest business cities. See the chapter on distance to 97.70 days and costs 0.00% of income per capita (figure frontier and ease of doing business ranking at the end of 4.1). this profile for more details. Most indicator sets refer to a case scenario in the largest Figure 4.1 What it takes to obtain an electricity connection in Japan - Tokyo What it takes to obtain an electricity connection in Japan - Osaka Doing Business 2016 Japan 46 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. For more information on the methodology of the getting electricity indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Japan 47 GETTING ELECTRICITY Globally, Japan stands at 14 in the ranking of 189 average ranking provide another perspective in assessing economies on the ease of getting electricity (figure 4.2). how easy it is for an entrepreneur in Japan to connect a The rankings for comparator economies and the regional warehouse to electricity. Figure 4.2 How Japan and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2016 Japan 48 GETTING ELECTRICITY What are the details? The indicators reported here for Japan are based on a set OBTAINING AN ELECTRICITY CONNECTION* of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution utility—identified by Name of utility - The Kansai Electric Power Doing Business. Data are collected from the distribution Osaka: Co., INC.- KEPCO utility, then completed and verified by electricity regulatory agencies and independent professionals such Name of utility - Tokyo Electric Power as electrical engineers, electrical contractors and Tokyo: Company (TEPCO) construction companies. The electricity distribution utility surveyed is the one serving the area (or areas) in which Price of electricity warehouses are located. If there is a choice of (US cents per kWh) - 20 distribution utilities, the one serving the largest number Osaka: of customers is selected. Price of electricity The procedures are those that apply to a warehouse and (US cents per kWh) - 29 electricity connection matching the standard Tokyo: assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the City: Tokyo, Osaka associated time and cost, are summarized below. *Price is calculated as a monthly consumption of 26,880 kWh for business customers, based on a standardized case study adopted by the Getting Electricity methodology. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. Table 4.2 Summary of time, cost and procedures for getting electricity in Japan Time to No. Procedure Cost to complete complete Consult with Tepco on timing for external works and contract A discussion between the customer and TEPCO to decide on the actual construction date and the effective date of the contract takes place. The design team of the warehouse project will initially have a discussion with 1 TEPCO regarding the project outline, construction period and basic 1 calendar day JPY 0 requirements for power supply and connection. Agency: Tepco Doing Business 2016 Japan 49 Time to No. Procedure Cost to complete complete Submit application to Tepco and await external connection works Required documents for the application are single-line diagram, a lay- out of premise, harmonic calculation documents and application form. There is no external inspection. As there is no inspection of the internal wiring, TEPCO is asking the customer for the necessary information regarding the licensed electrician who did the internal wiring. Japanese laws require every owner/user to hire a licensed electrician to install the wiring. The information is submitted on the formatted application document and contains the name, license number and contact information of the electrician. There is no notarization needed for the documents, however the signature of the customer needs to be on the documents when applying online. The contractor building the warehouse 2 will usually make an application for power supply and connection several 93 calendar days JPY 0 months before the required date of the connection to allow TEPCO sufficient time to survey the proposed area in terms of electricity supply route and capacity required for the specific building. If the electricity main supply is not suitable, TEPCO will carry out necessary infrastructure work to provide the required utility services. There is usually no estimate prior to the determination of the actual contract start date. There is no connection fee: In case of overhead wiring, up to 1000 meters long, construction work does not require any financial responsibility by the customer. Agency: Tepco Receive connection works and meter installation by Tepco With this class of customer TEPCO provides electricity on high-voltage (6600V) power line. On the primary side, TEPCO builds an aerial high- voltage service wire with some related equipments such as pole- mounted switches, and on the secondary side of the transformer (usually 200V) it installs a meter at a specified location and connects it to the 11 calendar days JPY 0 3 internal wiring system. TEPCO usually executes the external wiring construction and meter installation at the same time. All the material is provided by TEPCO. Agency: Tepco * Takes place simultaneously with another procedure. Source: Doing Business database. Summary of time, cost and procedures for getting electricity in Japan - Osaka Time to No. Procedure Cost to complete complete Doing Business 2016 Japan 50 Time to No. Procedure Cost to complete complete Consult with Kepco on timing for external works and contract The date of the external connection works start will be decided through the consultation between the customer and the electric power company when the customer applied to the electric power company. The internal wiring need to be done before the external connection works starts. In 1 this discussion, issues regarding the project outline, construction period 1 calendar day JPY 0 and basic requirements for power supply and connection will be discussed. Agency: Kepco Submit application to Kepco and await external connection works The application is submitted in person. Required documents for the application are single-line diagram, a lay-out of premise, harmonic calculation documents and application form. There is no external inspection. As there is no inspection of the internal wiring, KEPCO is asking the customer for the necessary information regarding the licensed electrician who did the internal wiring. Japanese laws require every owner/user to hire a licensed electrician to install the wiring. The information is submitted on the formatted application document and contains the name, license number and contact information of the electrician. There is no notarization needed for the documents, however the signature of the customer needs to be on the documents when 75 calendar days JPY 0 2 applying online. The contractor building the warehouse will usually make an application for power supply and connection several months before the required date of the connection to allow KEPCO sufficient time to survey the proposed area in terms of electricity supply route and capacity required for the specific building. If the electricity main supply is not suitable, KEPCO will carry out necessary infrastructure work to provide the required utility services. There is usually no estimate prior to the determination of the actual contract start date. There is no connection fee. Agency: Kepco * Receive external site inspection by Kepco for preparing technical study The utility visits the location of the building and conducts external site inspection necessary for preparation of technical study. It is necessary 1 calendar day JPY 0 3 that the customer is present on the plot during this inspection. Agency: Kepco Doing Business 2016 Japan 51 Time to No. Procedure Cost to complete complete Receive connection works and meter installation by Kepco With this class of customer KEPCO provides electricity on high-voltage (6600V) power line. On the primary side, KEPCO builds an aerial high- voltage service wire with some related equipment such as pole-mounted switches, and on the secondary side of the transformer (usually 200V) it installs a meter at a specified location and connects it to the internal 4 wiring system. KEPCO usually executes the external wiring construction 8 calendar days JPY 0 and meter installation at the same time. All the material is provided by KEPCO free of charge because all costs are included in consumption charges. Agency: Kepco * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2016 Japan 52 GETTING ELECTRICITY Reliability of supply and transparency of tariffs index The reliability of supply and transparency of tariffs Doing Business uses the system average interruption index encompasses quantitative data on the duration duration index (SAIDI) and the system average and frequency of power outages as well as interruption frequency index (SAIFI) to measure the qualitative information on the mechanisms put in duration and frequency of power outages in the largest place by the utility for monitoring power outages business city of each economy (for 11 economies the data and restoring power supply, the reporting are also collected for the second largest business city). relationship between the utility and the regulator for SAIDI is the average total duration of outages over the power outages, the transparency and accessibility of course of a year for each customer served, while SAIFI is tariffs and whether the utility faces a financial the average number of service interruptions experienced deterrent aimed at limiting outages (such as a by a customer in a year. Annual data (covering the requirement to compensate customers or pay fines calendar year) are collected from distribution utility when outages exceed a certain cap). companies and national regulators on SAIDI and SAIFI. Both SAIDI and SAIFI estimates include load shedding. The index ranges from 0 to 8, with higher values indicating greater reliability of electricity supply and greater transparency of tariffs. Table 4.3 Reliability of Supply and Transparency of Tariff Index in Japan Answer Score (Tokyo) Answer Score (Tokyo) (Osaka) (Osaka) Reliability of supply and transparency of tariff index 8.00 8.00 (0-8) Total duration and frequency of outages per customer 3.00 3.00 a year (0-3) System average interruption duration index (SAIDI) 0.1 0.9 System average interruption frequency index (SAIFI) 0.1 0.0 Mechanisms for monitoring outages (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes monitor outages? Mechanisms for restoring service (0-1) 1.0 1.0 Does the distribution utility use automated tools to Yes Yes restore service? Regulatory monitoring (0-1) 1.00 1.00 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability Yes Yes of supply? Doing Business 2016 Japan 53 Answer Score (Tokyo) Answer Score (Tokyo) (Osaka) (Osaka) Financial deterrents aimed at limiting outages (0-1) 1.00 1.00 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages Yes Yes exceed a certain cap? Communication of tariffs and tariff changes (0-1) 1.00 1.00 Are effective tariffs available online? Yes Yes http://www.te pco.co.jp/en/ http://www Link to the website, if available online customer/gui .kepco.co.j de/rateinfo- p/english/ e.html Are customers notified of a change in tariff ahead of Yes Yes the billing cycle? Source: Doing Business database. Note: If data on power outages is not collected or if the SAIFI index or SAIDI index are above the threshold of 100, the economy is not eligible to obtain a score in the Reliability of Supply and Transparency of Tariff Index. If SAIDI and SAIFI are 12 (equivalent to an outage of one hour each month) or below, a score of 1 is assigned. If SAIDI and SAIFI are 4 (equivalent to an outage of one hour each quarter) or below, 1 additional point is assigned. Finally, if SAIDI and SAIFI are 1 (equivalent to an outage of one hour per year) or below, 1 more point is assigned. Doing Business measures the price of electricity but does not include these data when calculating the distance to frontier score for getting electricity or the ranking on the ease of getting electricity. The price of electricity is measured in cents per kilowatt-hour. On the basis of the assumptions about monthly consumption, a monthly bill for a commercial warehouse in the largest business city of the economy is computed for the month of March (for 11 economies the data are also collected for the second largest business city). As noted, the warehouse uses electricity 30 days a month, from 9:00 a.m. to 5:00 p.m., so different tariff schedules may apply if a time-of- use tariff is available. Doing Business 2016 Japan 54 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being accepted immovable property (number) as collateral for loans—limiting access to finance. Preregistration (for example, checking for liens, notarizing sales agreement, paying property What do the indicators cover? transfer taxes) Doing Business records the full sequence of Registration in the economy’s largest business procedures necessary for a business to purchase city 2 property from another business and transfer the property title to the buyer’s name. The transaction is Postregistration (for example, filing title with the municipality) considered complete when it is opposable to third parties and when the buyer can use the property, Time required to complete each procedure use it as collateral for a bank loan or resell it. In (calendar days) addition, this year Doing Business adds a new Does not include time spent gathering measure to the set of registering property information indicators, an index of the quality of the land administration system in each economy. The Each procedure starts on a separate day. ranking of economies on the ease of registering Procedures that can be fully completed online are recorded as ½ day. property is determined by sorting their distance to frontier scores for registering property. These scores Procedure considered completed once final are the simple average of the distance to frontier document is received scores for each of the component indicators. To No prior contact with officials make the data comparable across economies, several assumptions about the parties to the Cost required to complete each procedure transaction, the property and the procedures are (% of property value) used. Official costs only, no bribes The parties (buyer and seller): No value added or capital gains taxes included  Are limited liability companies, 100% Quality of land administration index (0-30) domestically and privately owned and  Is located in a periurban commercial zone, and perform general commercial activities and no rezoning is required. are located in the economy’s largest business city .  Has no mortgages attached, has been under 2 the same ownership for the past 10 years.  Have 50 employees each, all of whom are nationals.  Consists of 557.4 square meters (6,000 square feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000  Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value and entire condition and complies with all safety property will be transferred. standards, building codes and legal  Is registered in the land registry or cada- requirements. There is no heating system. stre, or both, and is free of title disputes. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Japan 55 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in Most indicator sets refer to a case scenario in the largest Japan? According to data collected by Doing Business, business city of an economy, except for 11 economies for registering property there requires 6.00 procedures, which the data are a population-weighted average of the takes 13.00 days and costs 5.80% of the property value 2 largest business cities. See the chapter on distance to (figure 5.1). frontier and ease of doing business ranking at the end of this profile for more details. Figure 5.1 What it takes to register property in Japan - Tokyo What it takes to register property in Japan - Osaka Doing Business 2016 Japan 56 Source: Doing Business database. Note: Time shown in the figure above may not reflect simultaneity of procedures. Online procedures account for 0.5 days in the total time calculation. For more information on the methodology of the registering property indicators, see the Doing Business website (http://www.doingbusiness.org). For details on the procedures reflected here, see the summary at the end of this chapter. Doing Business 2016 Japan 57 REGISTERING PROPERTY Globally, Japan stands at 48 in the ranking of 189 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Japan to transfer property. Figure 5.2 How Japan and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2016 Japan 58 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business through information collected from local property lawyers, Property value: JPY 199,621,751 notaries and property registries. These procedures are those that apply to a transaction matching the City: Tokyo, Osaka standard assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). The procedures, along with the associated time and cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Japan Tokyo Time to No. Procedure Cost to complete complete The seller obtains a certificate of evaluation for fixed asset tax of the real property at a local tax office The seller must obtain a certificate of evaluation for fixed asset tax of the real property before the registration application. This should be obtained for the transaction because such certificate must show the most updated 1 day JPY 400 for land + evaluation and will be used later to calculate taxes to be paid. It can be (simultaneous 1 JPY 400 for obtained from a relevant local tax office, which governs the relevant real with Procedures building estate. The cost of the issuance is JYP 400 for land and JPY 400 for 2, 3, and 4) building. Agency: Local Tax Office * Obtain stamps for stamp duty at a post office Stamps for stamp duty can be purchased at various places, such as post offices. Stamp is the sole official cost for execution of the sale agreement, if a written agreement is prepared. The preparation and 1 day execution of a written sale agreement is not necessary. Even an oral (simultaneous 2 JPY 80,000 agreement is acceptable for transferring the title to the real estate, with Procedures although usually a written agreement is prepared. 1, 2, and 4) Agency: Post Office * Obtain a corporate registry certificate Less than a day (online procedure JPY 600 each copy The parties (as companies) must obtain a corporate registry certificate simultaneous or JPY 480 each 3 that must be issued within 3 months before the registration application. with Procedures copy online It can be obtained from a relevant registry office of a corporate registry 1, 2, and 4) at which the party is registered. The cost is JPY 60 per copy, JPY 480 if Doing Business 2016 Japan 59 Time to No. Procedure Cost to complete complete obtained online. Agency: Legal Affairs Bureau * Obtain a certificate of Seller's seal impression (inkan shomei) Seller must obtain a certificate of its seal impression for the seal used for Less than a day execution of the registration documents, which must be issued within 3 (online procedure months before the registration application. It can be obtained from the JPY 450 each copy 4 simultaneous Legal Affairs Bureau (homukyoku). JPY 390 online with Procedures 1, 2, and 3) Agency: Legal Affairs Bureau File an application at the Legal Affairs Bureau The parties file an application for registration at the Legal Affairs Bureau. The Legal Affairs Bureau will register the title under the name of the new owner. A registration and license tax must be paid at the Legal Affairs Bureau at the amount of 2% of building value plus 1.5 % of land value. As registration is a requirement for perfection vis-à-vis third parties, reviewing the certified copy of the real property registry is generally sufficient for identifying any existing perfected encumbrances over the real property. The parties may apply for registration by themselves. However, because of the complexity of filing, usually they retain a judicial scribe for registration. There is a 5% consumption tax in Japan. Sales or leases of land are 2% of building exempted. However, if the transaction includes the sale or lease of value + 1.5% of buildings, consumption tax applies only to the price of the building. land value 5 7-10 days evaluated for fixed The documentation shall include: asset tax • Executed original copy of the purchase and sale agreement (alternately (registration and a copy of registration application signed by the seller and the buyer) • "Certificate of registration of seller's title of the real property (toukizumi license tax) kenri sho) or registration identification code (touki shikibetsu joho) (Already in his possesion)" • Certificate of corporate registry of the parties (if any of them is a corporation) (obtained in Procedure 1) • Certificate of the parties’ seal impression (obtained in Procedure 2) • Certificate of evaluation for fixed asset tax of the real property (obtained in Procedure 3) • Power of attorney of the seller (if a judicial scribe applies for the registration on behalf of any of the parties) Agency: Legal Affairs Bureau Doing Business 2016 Japan 60 Time to No. Procedure Cost to complete complete Payment of the real property acquisition tax This is a post-closing matter, the purchaser will receive the notice of the real property acquisition tax from the local tax office a few months after 4% of property the registration. The real property acquisition tax must be paid at the 1 day price evaluated for 6 local tax office. fixed asset tax Agency: Local Tax Office * Takes place simultaneously with another procedure. Source: Doing Business database. Note: Online procedures account for 0.5 days in the total time calculation. Summary of time, cost and procedures for registering property in Japan Osaka Time to No. Procedure Cost to complete complete The seller obtains a certificate of evaluation for fixed asset tax of the real property at a local tax office The seller must obtain a certificate of evaluation for fixed asset tax of the real property before the registration application. This should be obtained for the transaction because such certificate must show the most updated 1 day JPY 400 for land + evaluation and will be used later to calculate taxes to be paid. It can be (simultaneous 1 JPY 400 for obtained from a relevant local tax office, which governs the relevant real with Procedures building estate. The cost of the issuance is JYP 400 for land and JPY 400 for 2, 3 and 4) building. Agency: Local Tax Office * Obtain stamps for stamp duty at a post office Stamps for stamp duty can be purchased at various places, such as post offices. Stamp is the sole official cost for execution of the sale agreement, if a written agreement is prepared. The preparation and 1 day execution of a written sale agreement is not necessary. Even an oral (simultaneous 2 JPY 80,000 agreement is acceptable for transferring the title to the real estate, with Procedures although usually a written agreement is prepared. 1, 3, and 4) Agency: Post Office * Obtain a corporate registry certificate Less than a day The parties (as companies) must obtain a corporate registry certificate (online procedure JPY 600 each copy 3 that must be issued within 3 months before the registration application. and simultaneous or JPY 480 each It can be obtained from a relevant registry office of a corporate registry with Procedures copy online at which the party is registered. The cost is JPY 600 per copy, JPY 480 if 1, 2, and 4) obtained online. Doing Business 2016 Japan 61 Time to No. Procedure Cost to complete complete Agency: Legal Affairs Bureau * Obtain a certificate of Seller's seal impression (inkan shomei) Seller must obtain a certificate of its seal impression for the seal used for Less than a execution of the registration documents, which must be issued within 3 day(online months before the registration application. It can be obtained from the procedure and JPY 450 each copy 4 Legal Affairs Bureau (homukyoku). simultaneous JPY 390 online with Procedures Agency: Legal Affairs Bureau 1, 2, and 4) File an application at the Legal Affairs Bureau 2% of building The parties file an application for registration at the Legal Affairs Bureau. value + 1.5% of The Legal Affairs Bureau will register the title under the name of the new land value 5 owner. 7 to 10 days evaluated for fixed asset tax Agency: Legal Affairs Bureau (registration and license tax) Payment of the real property acquisition tax This is a post-closing matter, the purchaser will receive the notice of the real property acquisition tax from the local tax office a few months after 4% of property the registration. The real property acquisition tax must be paid at the 1 day price evaluated for 6 local tax office. fixed asset tax Agency: Local Tax Office * Takes place simultaneously with another procedure. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2016 Japan 62 REGISTERING PROPERTY Quality of land administration The quality of land administration index is the sum of If private sector entities were unable to register property the scores on the reliability of infrastructure, transfers in an economy between June 2014 and June transparency of information, geographic coverage 2015, the economy receives a “no practice” mark on the and land dispute resolution indices. procedures, time and cost indicators. A “no practice” economy receives a score of 0 on the quality of land The index ranges from 0 to 30, with higher values administration index even if its legal framework includes indicating better quality of the land administration provisions related to land administration. system. Table 5.3 Summary of quality of land administration in Japan Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) Quality of the land administration index (0-30) 24.50 24.50 Reliability of infrastructure index (0-8) 8.00 8.00 Legal What is the institution in charge of immovable Legal Affairs Affairs property registration? Bureau Bureau In what format are the majority of title or deed records Computer/Ful Computer/ kept in the largest business city—in a paper format or in 2.0 2.0 ly digital Fully digital a computerized format (scanned or fully digital)? Is there an electronic database for checking for encumbrances (liens, mortgages, restrictions and the Yes 1.0 Yes 1.0 like)? Legal Institution in charge of the plans showing legal Legal Affairs Affairs boundaries in the largest business city: Bureau Bureau In what format are the majority of maps of land plots Computer/Ful Computer/ kept in the largest business city—in a paper format or in 2.0 2.0 ly digital Fully digital a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral Yes 1.0 Yes 1.0 information (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping Single Single 1.0 1.0 agency kept in a single database, in different but linked database database databases or in separate databases? Do the immovable property registration agency and Yes 1.0 Yes 1.0 Doing Business 2016 Japan 63 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) cadastral or mapping agency use the same identification number for properties? Transparency of information index (0–6) 3.50 3.50 Anyone Who is able to obtain information on land ownership at Anyone who who pays the agency in charge of immovable property pays the 1.0 1.0 the official registration in the largest business city? official fee fee Is the list of documents that are required to complete any type of property transaction made publicly Yes, online 0.5 Yes, online 0.5 available–and if so, how? http://www. http://www.to touki- Link for online access: uki-kyoutaku- kyoutaku- net.moj.go.jp/ net.moj.go.j p/ Is the applicable fee schedule for any property transaction at the agency in charge of immovable Yes, online 0.5 Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? link: link: https://ww https://www. w.nta.go.jp/ Link for online access: nta.go.jp/taxa taxanswer/i nswer/inshi/7 nshi/7191.h 191.htm tm Does the agency in charge of immovable property registration commit to delivering a legally binding document that proves property ownership within a No 0.0 No 0.0 specific time frame–and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 agency in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property Yes 0.5 Yes 0.5 registration agency? Doing Business 2016 Japan 64 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) Number of property transfers in the largest business 132000 74250 city in 2014: Anyone Anyone who Who is able to consult maps of land plots in the largest who pays pays the 0.5 0.5 business city? the official official fee fee Is the applicable fee schedule for accessing maps of Yes, online 0.5 Yes, online 0.5 land plots made publicly available—and if so, how? http://www. http://www.to touki- Link for online access: uki-kyoutaku- kyoutaku- net.moj.go.jp/ net.moj.go.j p/ Does the cadastral or mapping agency commit to delivering an updated map within a specific time No 0.0 No 0.0 frame—and if so, how does it communicate the service standard? Link for online access: Is there a specific and separate mechanism for filing complaints about a problem that occurred at the No 0.0 No 0.0 cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 8.00 8.00 Are all privately held land plots in the economy Yes 2.0 Yes 2.0 formally registered at the immovable property registry? Are all privately held land plots in the largest business city formally registered at the immovable property Yes 2.0 Yes 2.0 registry? Are all privately held land plots in the economy Yes 2.0 Yes 2.0 mapped? Are all privately held land plots in the largest business Yes 2.0 Yes 2.0 city mapped? Land dispute resolution index (0–8) 5.00 5.00 Does the law require that all property sale transactions be registered at the immovable property registry to Yes 1.5 Yes 1.5 make them opposable to third parties? Doing Business 2016 Japan 65 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) Is the system of immovable property registration Yes 0.5 Yes 0.5 subject to a state or private guarantee? Is there a specific compensation mechanism to cover for losses incurred by parties who engaged in good faith in a property transaction based on erroneous No 0.0 No 0.0 information certified by the immovable property registry? Does the legal system require a control of legality of the documents necessary for a property transaction Yes 0.5 Yes 0.5 (e.g., checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of Registrar. Registrar. the documents? Does the legal system require verification of the Yes 0.5 Yes 0.5 identity of the parties to a property transaction? If yes, who is responsible for verifying the identity of . Registrar. the parties? Is there a national database to verify the accuracy of No 0.0 No 0.0 identity documents? For a standard land dispute between two local businesses over tenure rights of a property worth 50 District times gross national income (GNI) per capita and District Court court located in the largest business city, what court would be in charge of the case in the first instance? How long does it take on average to obtain a decision Between 1 Between 1 from the first-instance court for such a case (without 2.0 2.0 and 2 years and 2 years appeal)? Are there any statistics on the number of land disputes No 0.0 No 0.0 in the first instance? Number of land disputes in the largest business city in 2014: Source: Doing Business database. Doing Business 2016 Japan 66 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders’ rights to view a potential borrower’s financial Strength of legal rights index (0–12) history (positive or negative)—valuable information to Rights of borrowers and lenders through consider when assessing risk. And they permit collateral laws borrowers to establish a good credit history that will Protection of secured creditors’ rights through allow easier access to credit. Sound collateral laws bankruptcy laws enable businesses to use their assets, especially movable property, as security to generate capital— Depth of credit information index (0–8) while strong creditors’ rights have been associated Scope and accessibility of credit information with higher ratios of private sector credit to GDP. distributed by credit bureaus and credit registries What do the indicators cover? Credit bureau coverage (% of adults) Doing Business assesses the sharing of credit information and the legal rights of borrowers and Number of individuals and firms listed in lenders with respect to secured transactions through largest credit bureau as percentage of adult 2 sets of indicators. The depth of credit information population index measures rules and practices affecting the Credit registry coverage (% of adults) coverage, scope and accessibility of credit Number of individuals and firms listed in information available through a credit registry or a credit registry as percentage of adult credit bureau. The strength of legal rights index population measures whether certain features that facilitate lending exist within the applicable collateral and bankruptcy laws. Doing Business uses two case scenarios, Case A and Case B, to determine the scope of the secured transactions system, involving a  Has up to 50 employees. secured borrower and a secured lender and  Is 100% domestically owned, as is the lender. examining legal restrictions on the use of movable collateral (for more details on each case, see the Data The ranking of economies on the ease of getting Notes section of the Doing Business 2016 report). credit is determined by sorting their distance to These scenarios assume that the borrower: frontier scores for getting credit. These scores are the distance to frontier score for the strength of legal  Is a private limited liability company. rights index and the depth of credit information  Has its headquarters and only base of index. operations in the largest business city. For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2016 Japan 67 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Japan stands at 79 in the ranking of 189 and bankruptcy laws in Japan facilitate access to credit? economies on the ease of getting credit (figure 6.1). The The economy has a score of 6.00 on the depth of credit rankings for comparator economies provide useful information index and a score of 4.00 on the strength of information for assessing how well regulations and legal rights index (see the summary of scoring at the end institutions in Japan support lending and borrowing. of this chapter for details). Higher scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Japan and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2016 Japan 68 GETTING CREDIT One way to put an economy’s score on the getting credit rights index for Japan and shows the scores for indicators into context is to see where the economy comparator economies as well as the regional average stands in the distribution of scores across economies. score. Figure 6.3 shows the same for the depth of credit Figure 6.2 highlights the score on the strength of legal information index. Figure 6.2 How strong are legal rights for borrowers Figure 6.3 How much credit information is shared— and lenders? and how widely? Economy scores on strength of legal rights index Economy scores on depth of credit information index Source: Doing Business database. Source: Doing Business database. Note: Higher scores indicate that collateral and bankruptcy Note: Higher scores indicate the availability of more credit laws are better designed to facilitate access to credit. information, from either a credit registry or a credit bureau, Source: Doing Business database. to facilitate lending decisions. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Japan 69 GETTING CREDIT What are the details? The getting credit indicators reported here for Japan are The data on the legal rights of borrowers and lenders are based on detailed information collected in that economy. gathered through a survey of financial lawyers and The data on credit information sharing are collected verified through analysis of laws and regulations as well through a survey of a credit registry and/or credit bureau as public sources of information on collateral and (if one exists). To construct the depth of credit bankruptcy laws. For the strength of legal rights index, a information index, a score of 1 is assigned for each of 8 score of 1 is assigned for each of 10 aspects related to features of the credit registry or credit bureau (see legal rights in collateral law and 2 aspects in bankruptcy summary of scoring below). law. Tokyo Osaka Strength of legal rights index (0–12) Index score: 4.00 Index score: 4.00 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional No No equivalents to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description Yes Yes of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of No No collateral? May a security right extend to future or after-acquired assets, and may it extend automatically to the products, proceeds or replacements of the No No original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between Yes Yes parties; and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non- incorporated entities, that is unified geographically and by asset type, with No No an electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional No No equivalents can be registered? Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any No No interested third party? Are secured creditors paid first (i.e. before tax claims and employee Yes Yes claims) when a debtor defaults outside an insolvency procedure? Doing Business 2016 Japan 70 Tokyo Osaka Strength of legal rights index (0–12) Index score: 4.00 Index score: 4.00 Are secured creditors paid first (i.e. before tax claims and employee No No claims) when a business is liquidated? Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No No protect secured creditors’ rights by providing clear grounds for relief from the stay and/or sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor Yes Yes to sell the collateral through public auction and private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Depth of credit information index (0–8) Credit bureau Credit registry Index score: 6.00 Are data on both firms and individuals distributed? No No 0 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and financial institutions - Yes No 1 distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries that distribute more than 10 years of negative data or erase data on Yes No 1 defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per Yes No 1 capita distributed? By law, do borrowers have the right to access their Yes No 1 data in the credit bureau or credit registry? Can banks and financial institutions access borrowers’ credit information online (for example, through an Yes No 1 online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value- added service to help banks and financial institutions No No 0 assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Doing Business 2016 Japan 71 Coverage Credit bureau Credit registry Number of firms 0 0 Number of individuals 86,580,000 0 Total 86,580,000 0 Total percentage of adult population 100.00 0.00 Source: Doing Business database. Doing Business 2016 Japan 72 PROTECTING MINORITY INVESTORS Protecting minority investors matters for the ability of companies to raise the capital they need to grow, WHAT THE PROTECTING MINORITY innovate, diversify and compete. Effective regulations INVESTORS INDICATORS MEASURE define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the Extent of disclosure index (0–10) company and set detailed standards of accountability Review and approval requirements for related-party for company insiders. transactions; Disclosure requirements for related- What do the indicators cover? party transactions Doing Business measures the protection of minority Extent of director liability index (0–10) investors from conflicts of interest through one set of Ability of minority shareholders to sue and hold indicators and shareholders’ rights in corporate interested directors liable for prejudicial related- governance through another. The ranking of economies party transactions; Available legal remedies on the strength of minority investor protections is (damages, disgorgement of profits, fines, determined by sorting their distance to frontier scores imprisonment, rescission of the transaction) for protecting minority investors. These scores are the Ease of shareholder suits index (0–10) simple average of the distance to frontier scores for the extent of conflict of interest regulation index and the Access to internal corporate documents; Evidence extent of shareholder governance index. To make the obtainable during trial and allocation of legal data comparable across economies, a case study uses expenses several assumptions about the business and the Extent of conflict of interest regulation index transaction. (0–10) The business (Buyer): Simple average of the extent of disclosure, extent of director liability and ease of shareholder indices  Is a publicly traded corporation listed on the economy’s most important stock exchange Extent of shareholder rights index (0-10) (or at least a large private company with Shareholders’ rights and role in major corporate multiple shareholders). decisions  Has a board of directors and a chief executive Extent of ownership and control index (0-10) officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Governance safeguards protecting shareholders from undue board control and entrenchment specifically required by law. Extent of corporate transparency index (0-10) The transaction involves the following details: Corporate transparency on ownership stakes,  Mr. James, a director and the majority compensation, audits and financial prospects shareholder of the company, proposes that the company purchase used trucks from Extent of shareholder governance index another company he owns. (0–10)  The price is higher than the going price for Simple average of the extent of shareholders rights, used trucks, but the transaction goes forward. extent of ownership and control and extent of corporate transparency indices  All required approvals are obtained, and all required disclosures made, though the Strength of investor protection index (0–10) transaction is prejudicial to Buyer. Simple average of the extent of conflict of interest regulation and extent of shareholder governance  Shareholders sue the interested parties and indices the members of the board of directors. Doing Business 2016 Japan 73 PROTECTING MINORITY INVESTORS Where does the economy stand today? How strong are minority investor protections against protection index (figure 7.1). While the indicator does self-dealing in Japan? The economy has a score of 6.30 not measure all aspects related to the protection of on the strength of minority investor protection index, minority investors, a higher ranking does indicate that an with a higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Japan stands at 36 in the ranking of 189 economies on the strength of minority investor Figure 7.1 How Japan and comparator economies perform on the strength of minority investor protection index Source: Doing Business database. Doing Business 2016 Japan 74 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the A summary of scoring for the protecting minority investors protecting minority investors indicators into context indicators at the end of this chapter provides details on is to see where the economy stands in the how the indices were calculated. distribution of scores across comparator economies. Figure 7.2 highlights the scores on the various minority investor protection indices for Japan. Figure 7.2 Summary of the various minority investor protection indices for Japan and comparator economies. Source: Doing Business database. Doing Business 2016 Japan 75 PROTECTING MINORITY INVESTORS What are the details? The protecting minority investors indicators reported to disclosure, director liability, shareholder suits, here for Japan are based on detailed information shareholder rights, ownership and control and corporate collected through a survey of corporate and securities transparency in a standard case study (for more details, lawyers about securities regulations, company laws and see the Data Notes section of the Doing Business 2016 court rules of evidence and procedure. To construct the report). The summary below shows the details underlying six indicators on minority investor protection, scores are the scores for Japan. assigned to each based on a range of conditions relating Table 7.2 Summary of scoring for the protecting minority investors indicators in Japan Answer Answer (Tokyo) Score (Tokyo) Score (Osaka) (Osaka) Strength of minority investor protection index (0-10) 6.30 6.30 Extent of conflict of interest regulation index (0-10) 7.00 7.00 Extent of disclosure index (0-10) 7.00 7.00 Board of Board of directors directors Which corporate body can provide legally sufficient approval excluding 2.0 excluding 2.0 for the Buyer-Seller transaction? (0-3) interested interested members members Full disclosure Is disclosure by the interested director to the board of Full disclosure of 2.0 of all material 2.0 directors required? (0-2) all material facts facts Disclosure on Disclosure on the the transaction Is disclosure of the transaction in published periodic filings transaction and 2.0 and on the 2.0 (annual reports) required? (0-2) on the conflict of conflict of interest interest Disclosure on Is immediate disclosure of the transaction to the public Disclosure on the 1.0 the transaction 1.0 and/or shareholders required? (0-2) transaction only only Must an external body review the terms of the transaction No 0.0 No 0.0 before it takes place? (0-1) Extent of director liability index (0-10) 6.00 6.00 Can shareholders sue directly or derivatively for the damage Yes 1.0 Yes 1.0 caused by the Buyer-Seller transaction to the company? (0-1) Can shareholders hold the interested director liable for the Liable if unfair or Liable if unfair 2.0 2.0 damage caused by the transaction to the company? (0-2) prejudicial or prejudicial Can shareholders hold members of the approving body Liable if unfair or Liable if unfair liable for the damage cause by the transaction to the 2.0 2.0 prejudicial or prejudicial company? (0-2) Must the interested director pay damages for the harm caused to the company upon a successful claim by a Yes 1.0 Yes 1.0 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0.0 No 0.0 plaintiff? (0-1) Doing Business 2016 Japan 76 Is the interested director fined and imprisoned or disqualified upon a successful claim by the shareholder No 0.0 No 0.0 plaintiff? (0-1) Only in case of Can a court void the transaction upon a successful claim by a Only in case of 0.0 fraud or bad 0.0 shareholder plaintiff? (0-2) fraud or bad faith faith Ease of shareholder suits index (0-10) 8.00 8.00 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1.0 Yes 1.0 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant Any relevant 3.0 3.0 and witnesses during trial? (0-3) document document Can the plaintiff request categories of documents from the No 0.0 No 0.0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2.0 Yes 2.0 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1.0 Yes 1.0 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1.0 1.0 the company? (0-2) successful Extent of shareholder governance index (0-10) 5.70 5.70 Extent of shareholder rights index (0-10) 8.00 8.00 Does the sale of 51% of Buyer’s assets require shareholder Yes 1.0 Yes 1.0 approval? Can shareholders representing 10% of Buyer’s share capital Yes 1.0 Yes 1.0 call for an extraordinary meeting of shareholders? Must Buyer obtain its shareholders’ approval every time it Yes 1.0 Yes 1.0 issues new shares? Do shareholders automatically receive preemption rights No 0.0 No 0.0 every time Buyer issues new shares? Must shareholders approve the election and dismissal of the Yes 1.0 Yes 1.0 external auditor? Must changes to the voting rights of a class of shares be Yes 1.0 Yes 1.0 approved only by the holders of the affected shares? Assuming that Buyer is a limited company, does the sale of Yes 1.0 Yes 1.0 51% of Buyer’s assets requires shareholder approval? Assuming that Buyer is a limited company, can shareholders representing 10% of Buyer’s share capital call for an Yes 1.0 Yes 1.0 extraordinary meeting of shareholders? Assuming that Buyer is a limited company, must Buyer obtain its shareholders’ approval every time it issues new Yes 1.0 Yes 1.0 shares? Assuming that Buyer is a limited company, do shareholders automatically receive preemption rights every time Buyer No 0.0 No 0.0 issues new shares? Extent of ownership and control index (0-10) 4.00 4.00 Is the CEO prohibited from also being chair of the board of No 0.0 No 0.0 directors? Must the board of directors include independent and Yes 1.0 Yes 1.0 nonexecutive board members? Can shareholders remove members of Buyer’s board of Yes 1.0 Yes 1.0 directors without cause before the end of their term? Doing Business 2016 Japan 77 Must Buyer’s board of directors include a separate audit No 0.0 No 0.0 committee? Must a potential acquirer make a tender offer to all No 0.0 No 0.0 shareholders upon acquiring 50% of Buyer? Must Buyer pay dividends within a maximum period set by No 0.0 No 0.0 law after the declaration date? Is a subsidiary prohibited from acquiring shares issued by its Yes 1.0 Yes 1.0 parent company? Assuming that Buyer is a limited company, can shareholders remove members of Buyer’s board of directors without cause Yes 1.0 Yes 1.0 before the end of their term? Assuming that Buyer is a limited company, must a potential acquirer make a tender offer to all shareholders upon No 0.0 No 0.0 acquiring 50% of Buyer? Assuming that Buyer is a limited company, must Buyer pay dividends within a maximum period set by law after the No 0.0 No 0.0 declaration date? Extent of corporate transparency index (0-10) 5.00 5.00 Must Buyer disclose direct and indirect beneficial ownership No 0.0 No 0.0 stakes representing 5%? Must Buyer disclose information about board members’ other directorships as well as basic information on their Yes 1.0 Yes 1.0 primary employment? Must Buyer disclose the compensation of individual No 0.0 No 0.0 managers? Must a detailed notice of general meeting be sent 30 days No 0.0 No 0.0 before the meeting? Can shareholders representing 5% of Buyer’s share capital Yes 1.0 Yes 1.0 put items on the agenda for the general meeting? Must Buyer's annual financial statements be audited by an Yes 1.0 Yes 1.0 external auditor? Must Buyer disclose its audit reports to the public. Yes 1.0 Yes 1.0 Assuming that Buyer is a limited company, must a detailed notice of general meeting be sent 30 days before the No 0.0 No 0.0 meeting? Assuming that Buyer is a limited company, can shareholders representing 5% of Buyer’s share capital put items on the Yes 1.0 Yes 1.0 agenda for the general meeting? Assuming that Buyer is a limited company, must Buyer's annual financial statements be audited by an external No 0.0 No 0.0 auditor? Source: Doing Business database. Doing Business 2016 Japan 78 PAYING TAXES Taxes are essential. The level of tax rates needs to be carefully chosen—and needless complexity in tax WHAT THE PAYING TAXES INDICATORS rules avoided. Firms in economies that rank better MEASURE on the ease of paying taxes in the Doing Business study tend to perceive both tax rates and tax Tax payments for a manufacturing company administration as less of an obstacle to business in 2014 (number per year adjusted for according to the World Bank Enterprise Survey electronic and joint filing and payment) research. Total number of taxes and contributions paid, What do the indicators cover? including consumption taxes (value added tax, Using a case scenario, Doing Business records the sales tax or goods and service tax) taxes and mandatory contributions that a medium- Method and frequency of filing and payment size company must pay in a given year as well as Time required to comply with 3 major taxes measures of the administrative burden of paying (hours per year) taxes and contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax transactions made over the year. Information is also payable compiled on the frequency of filing and payments as Completing tax return forms, filing with well as time taken to comply with tax laws. The proper agencies ranking of economies on the ease of paying taxes is Arranging payment or withholding determined by sorting their distance to frontier scores on the ease of paying taxes. These scores are Preparing separate tax accounting books, if the simple average of the distance to frontier scores required for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to one of the component indicators, the total tax rate . 3 Profit or corporate income tax All financial statement variables are proportional to Social contributions and labor taxes paid by 2012 income per capita. To make the data the employer comparable across economies, several assumptions Property and property transfer taxes are used. Dividend, capital gains and financial  TaxpayerCo is a medium-size business that transactions taxes started operations on January 1, 2013. Waste collection, vehicle, road and other taxes  The business starts from the same financial  Taxes and mandatory contributions include position in each economy. All the taxes corporate income tax, turnover tax and all and mandatory contributions paid during labor taxes and contributions paid by the the second year of operation are recorded. company.  Taxes and mandatory contributions are  A range of standard deductions and measured at all levels of government. exemptions are also recorded. The nonlinear distance to frontier for the total tax rate is equal to the distance to frontier for the total tax rate to the power of 0.8. 3 The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax rate below this threshold receive the same score as the economy at the threshold. Doing Business 2016 Japan 79 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with 2 largest business cities. See the chapter on distance to taxes in Japan—and how much do firms pay in taxes? On frontier and ease of doing business ranking at the end of average, firms make 14.00 tax payments a year, spend this profile for more details. 330.00 hours a year filing, preparing and paying taxes Globally, Japan stands at 121 in the ranking of 189 and pay total taxes amounting to 51.30% of profit (see economies on the ease of paying taxes (figure 8.1). The the summary at the end of this chapter for details). Most rankings for comparator economies and the regional indicator sets refer to a case scenario in the largest average ranking provide other useful information for business city of an economy, except for 11 economies for assessing the tax compliance burden for businesses in which the data are a population-weighted average of the Japan. Figure 8.1 How Japan and comparator economies rank on the ease of paying taxes Source: Doing Business database. Doing Business 2016 Japan 80 PAYING TAXES Economies around the world have made paying taxes and exemptions. Many have lowered tax rates. Changes faster, easier and less costly for businesses—such as by have brought concrete results. Some economies consolidating payments and filings of taxes, offering simplifying tax payment and reducing rates have seen electronic systems for filing and payment, establishing tax revenue rise. What tax reforms has Doing Business taxpayer service centers or allowing for more deductions recorded in Japan (table 8.1)? Table 8.1 How has Japan made paying taxes easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Japan made paying taxes less costly for companies by reducing DB2013 the corporate income tax rate—though it also introduced a restoration surtax for a 3-year period. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Japan 81 PAYING TAXES What are the details? The indicators reported here for Japan are based on LOCATION OF STANDARDIZED COMPANY the taxes and contributions that would be paid by a standardized case study company used by Doing Business in collecting the data (see the section in this City: Tokyo, Osaka chapter on what the indicators cover). Tax practitioners are asked to review a set of financial statements as well as a standardized list of The taxes and contributions paid are listed in the assumptions and transactions that the company summary below, along with the associated number of completed during its 2nd year of operation. payments, time and tax rate. Respondents are asked how much taxes and mandatory contributions the business must pay and how these taxes are filed and paid. Table 8.2 Summary of tax rates and administration Total tax Notes on Tokyo: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 155 0.255 18.93 profit Employer paid - Welfare gross 0 jointly 0.08737 9.72 pension insurance salaries Tokyo Metropolitan - online and 0.09104101 taxable 0 6.15 Enterprise Tax (on income) jointly 8768522 profits Employer paid - Health gross 1 online 140 0.04985 5.62 insurance salaries taxable profit (plus Inhabitants tax 1 online 0.052785 3.8 530,000 yen) Employer paid - Workmen's gross 0 jointly 0.019 1.86 accident compensation salaries net value Tokyo City - Depreciable 1 online 0.014 of fixed 1.65 Fixed Assets Tax assets Tokyo City - Fixed Assets Tax property 1 0.014 1.28 (on land and building) value Doing Business 2016 Japan 82 Total tax Notes on Tokyo: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate 70% of Tokyo Metropolitan - Real building Property Acquisition Tax (for 1 0.04 0.85 expansion building expansion) value Employer paid - Employment gross 1 online 0.0085 0.83 insurance salaries Tokyo City - City Planning Tax property 0 jointly 0.003 0.27 (on land and building) value Employer paid - Child gross 0 jointly 0.0015 0.17 allowance contribution salaries 70% of building Registration and license tax 1 0.004 0.08 expansion value National - Stamp Tax (on per contracts for land sale and 1 125,000 yen 0.05 contract building expansion) Tokyo Metropolitan - 1 67,100 yen fixed fee 0.03 Automobile Tax National - Automobile 1 41,600 yen fixed fee 0.02 Tonnage Tax value not Value added tax (VAT) 1 online 35 0.05 0 added included taxable included in Restoration surtax 1 online 0.0255 0 profits other taxes fuel 34,140 yen small Fuel tax 1 consumpti 0 per kiloliter amount on interest included in Tax on interest 0 0.20315 0 income other taxes Employee paid - Welfare gross 0 jointly 0.08383 0 withheld pension insurance salaries Employee paid - Health gross 0 jointly 0.04985 0 withheld insurance salaries Employee paid - Employment gross 0 jointly 0.005 0 withheld insurance salaries Totals 14.00 330.00 51.30 Doing Business 2016 Japan 83 Total tax Notes on Osaka: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate taxable Corporate income tax 1 online 155 0.255 18.91 profit Employer paid - Welfare gross 0 jointly 0.08737 9.72 pension insurance salaries Osaka Metropolitan - 0.09105263 taxable 0 jointly 6.14 Enterprise Tax (on income) 42977109 profits Employer paid - Health gross 1 online 140 0.0503 5.67 insurance salaries taxable profit (plus Inhabitants tax 1 online 0.052275 3.81 660,000 yen) Employer paid - Workmen's gross 0 jointly 0.019 1.86 accident compensation salaries net value Osaka City - Depreciable 1 0.014 of fixed 1.65 Fixed Assets Tax assets Osaka City - Fixed Assets Tax property 1 0.014 1.3 (on land and building) value 70% of Osaka Metropolitan - Real building Property Acquisition Tax (for 1 0.04 0.85 expansion building expansion) value Employer paid - Employment gross 1 online 0.0085 0.83 insurance salaries Osaka City - City Planning Tax property 0 jointly 0.003 0.28 (on land and building) value Employer paid - Child gross 0 jointly 0.0015 0.17 allowance contribution salaries 70% of building Registration and license tax 1 0.004 0.08 expansion value National - Stamp Tax (on per contracts for land sale and 1 125,000 yen 0.05 contract building expansion) Osaka Metropolitan - 1 67,100 yen fixed fee 0.03 Automobile Tax Doing Business 2016 Japan 84 Total tax Notes on Osaka: Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate National - Automobile 1 41,600 yen fixed fee 0.02 Tonnage Tax value not Value added tax (VAT) 1 online 35 0.05 0 added included taxable included in Restoration surtax 1 online 0.0255 0 profit other taxes fuel 34,390 yen small Fuel tax 1 consumpti 0 per kiloliter amount on interest included in Tax on interest 0 0.20315 0 income other taxes Employee paid - Welfare gross 0 jointly 0.08383 0 withheld pension insurance salaries Employee paid - Health gross 0 jointly 0.04985 0 withheld insurance salaries Employee paid - Employment gross 0 jointly 0.005 0 withheld insurance salaries Totals 14.00 330.00 51.40 Source: Doing Business database. Doing Business 2016 Japan 85 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE FOR IMPORT & EXPORT business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead Documentary compliance – cost (USD) & time to extra costs and delays for exporters and (hours) importers, stifling trade potential. Obtain, prepare and submit documents: What do the indicators cover? -During transport, clearance, inspections and port or border handling in origin economy Doing Business records the time and cost associated with the logistical process of exporting -Required by origin, destination and transit and importing goods. Under the new methodology economies introduced this year, Doing Business measures the Covers all documents by law and in practice time and cost (excluding tariffs) associated with Border compliance – cost (USD) & time (hours) three sets of procedures—documentary compliance, border compliance and domestic Customs clearance and inspections transport—within the overall process of exporting Inspections by other agencies or importing a shipment of goods. The ranking of Port or border handling economies on the ease of trading across borders is determined by sorting their distance to frontier Obtaining, preparing and submitting documents scores for trading across borders. These scores are during clearance, inspections and port or border the simple average of the distance to frontier handling scores for the time and cost for documentary Domestic transport* compliance and border compliance to export and Loading and unloading of shipment import. Transport between warehouse and terminal/port To make the data comparable across economies, a Transport between terminal/port and border few assumptions are made about the traded goods Obtaining, preparing and submitting documents and the transactions: during domestic transport Time Traffic delays and road police checks while shipment is en route  Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as * Although Doing Business collects and publishes data on the 22 × 24 = 528 hours). If customs clearance time and cost for domestic transport, it does not use these takes 7.5 hours, the data are recorded as is. data in calculating the distance to frontier score for trading Alternatively, suppose that documents are across borders or the ranking on the ease of trading across submitted to a customs agency at 8:00 a.m., borders. are processed overnight and can be picked up Cost at 8:00 a.m. the next day. In this case the time  Insurance cost and informal payments for which no for customs clearance would be recorded as receipt is issued are excluded from the costs 24 hours because the actual procedure took recorded. Costs are reported in U.S. dollars. 24 hours. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. Doing Business 2016 Japan 86 Assumptions of the case study  Shipping cost based on weight is assumed to be  For each of the 189 economies covered by greater than shipping cost based on volume. Doing Business, it is assumed that a shipment travels from a warehouse in the largest business city of the exporting economy to a  If government fees are determined by the value of warehouse in the largest business city of the the shipment, the value is assumed to be $50,000. importing economy. For 11 economies the data are also collected, under the same case  The product is new, not secondhand or used study assumptions, for the second largest merchandise. business city.  The exporting firm is responsible for hiring and  The import and export case studies assume paying for a freight forwarder or customs broker (or different traded products. It is assumed that both) and pays for all costs related to international each economy imports a standardized shipping, domestic transport, clearance and shipment of 15 metric tons of containerized mandatory inspections by customs and other auto parts (HS 8708) from its natural import government agencies, port or border handling, partner—the economy from which it imports documentary compliance fees and the like for the largest value (price times quantity) of auto exports. The importing firm is responsible for the parts. It is assumed that each economy above costs for imports. exports the product of its comparative advantage (defined by the largest export  The mode of transport is the one most widely used value) to its natural export partner—the for the chosen export or import product and the economy that is the largest purchaser of this trading partner, as is the seaport, airport or land product. Precious metal and gems, live border crossing. animals and pharmaceuticals are excluded from the list of possible export products,  All electronic submissions of information requested however, and the second largest product by any government agency in connection with the category is considered as needed. shipment are considered to be documents obtained, prepared and submitted during the export or import  To identify the trading partners and export process. product for each economy, Doing Business collected data on trade flows for the most  A port or border is defined as a place (seaport, recent four-year period from international airport or land border crossing) where merchandise databases such as the United Nations can enter or leave an economy. Commodity Trade Statistics Database (UN Comtrade). For economies for which trade  Government agencies considered relevant are flow data were not available, data from agencies such as customs, port authorities, road ancillary government sources (various police, border guards, standardization agencies, ministries and departments) and World Bank ministries or departments of agriculture or industry, Group country offices were used to identify national security agencies and any other government the export product and natural trading authorities. partners.  A shipment is a unit of trade. Export shipments do not necessarily need to be containerized, while import shipments of auto parts are assumed to be containerized. Doing Business 2016 Japan 87 TRADING ACROSS BORDERS Where does the economy stand today? The Trading across Border indicator refers to a case Globally, Japan stands at 52 in the ranking of 189 study scenario of a warehouse in the largest business city economies on the ease of trading across borders (figure of an economy (except for 11 economies for which the 9.1). For more information on distance to frontier and data are a population-weighted average of the 2 largest ease of doing business ranking, please see the Distance business cities) trading with the main import and export to frontier and ease of doing business ranking chapter. partner through the economy’s main border crossing. Figure 9.1 How Japan and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2016 Japan 88 TRADING ACROSS BORDERS What are the details? The indicators reported here for Japan are based on a LOCATION OF STANDARDIZED COMPANY set of specific predefined procedures for trading a shipment of goods by the most widely used mode of transport (whether sea, land, air or some combination City: Tokyo, Osaka of these). The information on the time and cost to complete export and import is collected from local The details on the predefined set of procedures, and the freight forwarders, customs brokers and traders. associated time and cost, for exporting and importing a shipment of goods are listed in the summary bellow, along with the required documents. Table 9.2 Summary of export and import time and cost for trading across borders in Japan Tokyo Osaka OECD high income Time to export: Border compliance 48 48 15 (hours) Cost to export: Border compliance 305 309 160 (USD) Time to export: Documentary 3 4 5 compliance (hours) Cost to export: Documentary 15 15 36 compliance (USD) Time to import: Border compliance 48 48 9 (hours) Cost to import: Border compliance 334 344 123 (USD) Time to import: Documentary 3 4 4 compliance (hours) Cost to import: Documentary 27 15 25 compliance (USD) Source: Doing Business database. Doing Business 2016 Japan 89 Table 9.3 Summary of trading details, transport time and documents for trading across borders in Japan Tokyo Osaka Export Import Export Import HS 84 : Nuclear HS 84 : Nuclear reactors, boilers, reactors, boilers, HS 8708: Parts and HS 8708: Parts and machinery and machinery and Product accessories of accessories of mechanical mechanical motor vehicles motor vehicles appliances; parts appliances; parts thereof thereof Trade partner China China China China Domestic transport time (hours) 3 3 2 2 Domestic transport cost (USD) 323 323 280 280 Border Yokohama port Yokohama port Kobe port Kobe port Distance (km) 20 20 37 37 Domestic transport speed 7.6 7.6 21.1 21.1 (km/hour) Domestic transport cost per 16.1 16.1 7.6 7.6 distance (USD/km) Source: Doing Business database. Documents to export Commercial invoice Customs Export Declaration Handling manual Packing list Specifications Documents to import Bill of lading Commercial invoice Customs import declaration Packing list Source: Doing Business database. Note: Doing Business continues to collect data on the number of documents needed to trade internationally. Unlike in previous years, however, these data are excluded from the calculation of the distance to frontier score and ranking. The time and cost for documentary compliance serve as better measures of the overall cost and complexity of compliance with documentary requirements than does the number of documents required. Doing Business 2016 Japan 90 Figure 9.2 Summary of Japan on the ease of trading across borders Export (Tokyo) Import (Tokyo) Export (Osaka) Import (Osaka) Source: Doing Business database. Doing Business 2016 Japan 91 ENFORCING CONTRACTS Effective commercial dispute resolution has many WHAT THE ENFORCING CONTRACTS benefits. Courts are essential for entrepreneurs INDICATORS MEASURE because they interpret the rules of the market and protect economic rights. Efficient and transparent courts encourage new business relationships because Time required to enforce a contract through businesses know they can rely on the courts if a new the courts (calendar days) customer fails to pay. Speedy trials are essential for Time to file and serve the case small enterprises, which may lack the resources to Time for trial and to obtain the judgment stay in business while awaiting the outcome of a long court dispute. Time to enforce the judgment What do the indicators cover? Cost required to enforce a contract through the courts (% of claim) Doing Business measures the time and cost for resolving a standardized commercial dispute through Attorney fees a local first-instance court. In addition, this year it Court fees introduces a new measure, the quality of judicial Enforcement fees processes index, evaluating whether each economy has adopted a series of good practices that promote Quality of judicial processes index (0-18) quality and efficiency in the court system. This new Court structure and proceedings (0-5) index replaces the indicator on procedures, which was eliminated this year. The ranking of economies Case management (0-6) on the ease of enforcing contracts is determined by Court automation (0-4) sorting their distance to frontier scores. These scores Alternative dispute resolution (0-3) are the simple average of the distance to frontier scores for each of the component indicators. The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The  The value of the dispute is 200% of the case study assumes that the court hears an expert on income per capita or the equivalent in local the quality of the goods in dispute. This distinguishes currency of USD 5,000, whichever is greater. the case from simple debt enforcement. To make the  The seller sues the buyer before the court data comparable across economies, Doing Business with jurisdiction over commercial cases worth uses several assumptions about the case: 200% of income per capita or $5,000.  The dispute concerns a lawful transaction  The seller requests a pretrial attachment to between two businesses (Seller and Buyer), secure the claim. both located in the economy’s largest  The dispute on the quality of the goods business city. For 11 economies the data requires an expert opinion. are also collected for the second largest business city.  The judge decides in favor of the seller; there is no appeal.  The buyer orders custom-made goods, then fails to pay.  The seller enforces the judgment through a public sale of the buyer’s movable assets. Doing Business 2016 Japan 92 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial and ease of doing business ranking at the end of this dispute through the courts in Japan? According to data profile for more details. collected by Doing Business, contract enforcement takes Globally, Japan stands at 51 in the ranking of 189 360.00 days and costs 23.40% of the value of the claim. economies on the ease of enforcing contracts (figure Most indicator sets refer to the largest business city of an 10.1). The rankings for comparator economies and the economy, except for 11 economies for which the data regional average ranking provide other useful are a population-weighted average of the 2 largest benchmarks for assessing the efficiency of contract business cities. See the chapter on distance to frontier enforcement in Japan. Figure 10.1 How Japan and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2016 Japan 93 ENFORCING CONTRACTS What are the details? The data on time and cost reported here for Japan ECONOMY DETAILS are built by following the step-by-step evolution of a commercial sale dispute within the court, under the Court name - Osaka: Osaka District Court assumptions about the case described above (figure 10.2). The time and cost of resolving the Court name - Tokyo: Tokyo District Court standardized dispute are identified through study of the codes of civil procedure and other court City: Tokyo, Osaka regulations, as well as through questionnaires completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Figure 10.2 Time and cost of contract enforcement in Japan and comparator economies Source: Doing Business database. Doing Business 2016 Japan 94 Table 10.2 Details on time and cost for enforcing contracts in Japan OECD high Indicator Tokyo Osaka income average Time (days) 360.00 360.00 538 Filing and service 20.0 20.0 Trial and judgment 280.0 280.0 Enforcement of judgment 60.0 60.0 Cost (% of claim) 23.40 23.40 21.1 Attorney fees (% of claim) 18.5 18.5 Court fees (% of claim) 4.5 4.5 Enforcement fees (% of claim) 0.4 0.4 Source: Doing Business database. Doing Business 2016 Japan 95 ENFORCING CONTRACTS Quality of judicial processes index The quality of judicial processes index measures The scores reported here show which of these good whether each economy has adopted a series of good practices are available in Japan. practices in its court system in four areas: court This methodology was initially developed by Djankov and structure and proceedings, case management, court others (2003) and is adopted here with several changes. automation and alternative dispute resolution. The The quality of judicial processes index was introduced in score on the quality of judicial processes index is the Doing Business 2016. The good practices tested in this sum of the scores on these 4 sub-components. The index were developed on the basis of internationally index ranges from 0 to 18, with higher values recognized good practices promoting judicial efficiency. indicating better, more efficient judicial processes. Figure 10.3 Quality of judicial processes index in Japan and comparator economies Source: Doing Business database. Doing Business 2016 Japan 96 Table 10.3 Details of the quality of judicial processes index in «dsGetData.Economy_Name» Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) Quality of judicial processes index (0-18) 7.50 7.50 Court structure and proceedings (0-5) 3.0 3.0 1. Is there a court or division of a court dedicated No 0.0 No 0.0 solely to hearing commercial cases? 2. Small claims court 1.5 1.5 2.a. Is there a small claims court or a fast-track Yes Yes procedure for small claims? 2.b. If yes, is self-representation allowed? Yes Yes 3. Is pretrial attachment available? Yes 1.0 Yes 1.0 4. Are new cases assigned randomly to judges? Yes 0.5 Yes 0.5 Case management (0-6) 1.0 1.0 1. Time standards 0.0 0.0 1.a. Are there laws setting overall time standards for Yes Yes key court events in a civil case? 1.b. If yes, are the time standards set for at least No No three court events? 1.c. Are these time standards respected in more than Yes Yes 50% of cases? 2. Adjournments 0.0 0.0 2.a. Does the law regulate the maximum number of No No adjournments that can be granted? 2.b. Are adjournments limited to unforeseen and No No exceptional circumstances? 2.c. If rules on adjournments exist, are they respected n.a. n.a. in more than 50% of cases? 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) clearance rate report; (iii) age of No 0.0 No 0.0 pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the competent Yes 1.0 Yes 1.0 court? 5. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by judges? Doing Business 2016 Japan 97 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) 6. Are there any electronic case management tools in No 0.0 No 0.0 place within the competent court for use by lawyers? Court automation (0-4) 1.0 1.0 1. Can the initial complaint be filed electronically through a dedicated platform within the competent No 0.0 No 0.0 court? 2. Is it possible to carry out service of process electronically for claims filed before the competent No 0.0 No 0.0 court? 3. Can court fees be paid electronically within the No 0.0 No 0.0 competent court? 4. Publication of judgments 1.0 1.0 4.a Are judgments rendered in commercial cases at all levels made available to the general public Yes Yes through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made available to the general public through publication in official Yes Yes gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 2.5 1. Arbitration 1.5 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements Yes Yes usually enforced by the courts? 2. Mediation/Conciliation 1.0 1.0 2.a. Is voluntary mediation or conciliation available? Yes Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or section Yes Yes of the applicable code of civil procedure encompassing substantially all their aspects? Doing Business 2016 Japan 98 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Source: Doing Business database. Doing Business 2016 Japan 99 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses Time required to recover debt (years) to normal operation and increase returns to Measured in calendar years creditors. By clarifying the expectations of creditors and debtors about the outcome of insolvency Appeals and requests for extension are proceedings, well-functioning insolvency systems can included facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and sustainably grow the economy. estate) What do the indicators cover? Measured as percentage of estate value Doing Business studies the time, cost and outcome of Court fees insolvency proceedings involving domestic legal Fees of insolvency administrators entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Lawyers’ fees dollar recovered by secured creditors through Assessors’ and auctioneers’ fees reorganization, liquidation or debt enforcement Other related fees (foreclosure or receivership) proceedings. To determine the present value of the amount Outcome recovered by creditors, Doing Business uses the Whether business continues operating as a lending rates from the International Monetary Fund, going concern or business assets are sold supplemented with data from central banks and the piecemeal Economist Intelligence Unit. Recovery rate for creditors In addition, Doing Business evaluates the adequacy Measures the cents on the dollar recovered and integrity of the existing legal framework by secured creditors applicable to liquidation and reorganization proceedings through the strength of insolvency Outcome for the business (survival or not) framework index. The index tests whether economies determines the maximum value that can be adopted internationally accepted good practices in recovered four areas: commencement of proceedings, Official costs of the insolvency proceedings management of debtor’s assets, reorganization are deducted proceedings and creditor participation. Depreciation of furniture is taken into The ranking of economies on the ease of resolving account insolvency is determined by sorting their distance to Present value of debt recovered frontier scores for resolving insolvency. These scores are the simple average of the distance to frontier Strength of insolvency framework index (0- scores for the recovery rate and the strength of 16) insolvency framework index. The Resolving Sum of the scores of four component indices: Insolvency indicator does not measure insolvency Commencement of proceedings index (0-3) proceedings of individuals and financial institutions. The data are derived from questionnaire responses Management of debtor’s assets index (0-6) by local insolvency practitioners and verified through Reorganization proceedings index (0-3) a study of laws and regulations as well as public information on bankruptcy systems. Creditor participation index (0-4) Doing Business 2016 Japan 100 RESOLVING INSOLVENCY Where does the economy stand today? According to data collected by Doing Business, resolving 11.1). The resolving insolvency indicators are based on insolvency takes 0.60 years on average and costs 3.50% detailed information collected through questionnaires of the debtor’s estate. The average recovery rate is 92.90 completed by insolvency experts, including lawyers, cents on the dollar. Most indicator sets refer to a case practitioners (administrators, trustees), accountants and scenario in the largest business city of an economy, judges. Data on the time, cost and outcome refer to the except for 11 economies for which the data are a most likely in-court insolvency procedure applicable population-weighted average of the 2 largest business under specific case study assumptions. Data on cities. provisions applicable to judicial liquidation and reorganization is based on the current law governing Globally, Japan stands at 2 in the ranking of 189 insolvency proceedings in each economy. economies on the ease of resolving insolvency (figure Figure 11.1 How Japan and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2016 Japan 101 Figure 11.2 Efficiency of proceedings - time, cost and recovery rate in Japan and comparator economies. Source: Doing Business database. Note: The recovery rate is calculated based on the time, cost and outcome of insolvency proceedings involving domestic legal entities and is recorded as cents on the dollar recovered by secured creditors. The calculation takes into account the outcome: whether the business emerges from the proceedings as a going concern or the assets are sold piecemeal. Then the costs of the proceedings are deducted. Finally, the value lost as a result of the time the money remains tied up in insolvency proceedings is taken into account. The recovery rate is the present value of the remaining proceeds, based on end-2014 lending rates. Doing Business 2016 Japan 102 Table 11.1 Summary of data for the strength of insolvency framework index Japan Answer Explanation The most likely procedure applicable to our case study would be a reorganization (civil rehabilitation). Mirage may use the rehabilitation proceeding to gain time, find a new investor, or renegotiate its debt. The rehabilitation proceeding starts with Mirage (debtor) filing for Tokyo, court-supervised rehabilitation with the Tokyo District Court. Mirage’s Proceeding reorganization Osaka managers will draft a rehabilitation plan which is likely to be approved by creditors. BizBank will likely support the rehabilitation proceedings as according to the case assumption the continuation of Mirage’s operations as a going concern would fetch 100% of Mirage's market value. Tokyo, Yes, the hotel will continue operating as a going concern after Outcome going concern Osaka approval of the rehabilitation plan by creditors. A reorganization (civil rehabilitation) procedure will approximately take 7 months in total. Creditors will file the proof of claims and, in the Time (in Tokyo, meantime, Mirage will prepare the plan. The plan will be submitted 3 0.6 years) Osaka months from the commencement (the court designates the date). The supervisor will submit his opinion regarding the plan and a creditors' meeting will be convened to approve the plan. The costs associated with the case would amount to approximately 3.5% of the value of the debtor's estate (JPY 379,562,150). Cost incurred during the entire insolvency process mainly include court or Cost (% of Tokyo, 3.5 government agency fees (1%), attorney fees (2%), costs of notification estate) Osaka and publication (<1%), insolvency representative or receiver fees (1%), and fees of accountants, assessors, inspectors and other professionals (<1%). Recovery rate: 92.90 Source: Doing Business database. Doing Business 2016 Japan 103 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Japan (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Japan made resolving insolvency easier—or not? By Doing Business report year from DB2011 to DB2016 DB year Reform Japan made it easier to deal with insolvency by establishing a new entity, the Enterprise Turnaround Initiative Corporation, to DB2011 support the revitalization of companies suffering from excessive debt but professionally managed. Source: Doing Business database. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Doing Business 2016 Japan 104 RESOLVING INSOLVENCY Strength of resolving insolvency index The strength of insolvency framework index is the with higher values indicating insolvency legislation that is sum of the scores on the commencement of better designed for rehabilitating viable firms and proceedings index, management of debtor’s assets liquidating nonviable ones. Japan scores 14.00 out of 16 index, reorganization proceedings index and creditor on the strength of resolving insolvency index. participation index. The index ranges from 0 to 16, Figure 11.3 Strength of insolvency framework index (0-16) in Japan and comparator economies Source: Doing Business database. Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice”. Doing Business 2016 Japan 105 Table 11.3 Summary of data for the strength of insolvency framework index Japan Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) Strength of insolvency framework index (0-16) 14.00 14.00 Commencement of proceedings index (0-3) 3.00 3.00 (a) Debtor (a) Debtor may file for may file for both both What procedures are available to a DEBTOR when liquidation 1.0 liquidation 1.0 commencing insolvency proceedings? and and reorganizatio reorganizati n on (a) Yes, a (a) Yes, a creditor creditor may may file for file for both Does the insolvency framework allow a CREDITOR to both liquidation 1.0 1.0 file for insolvency of the debtor? liquidation and and reorganizatio reorganizati n on (c) Both (a) (c) Both (a) and (b) and (b) options are options are available, What basis for commencement of the insolvency available, but but only proceedings is allowed under the insolvency only one of 1.0 1.0 one of framework? them needs them needs to be to be complied complied with with Management of debtor's assets index (0-6) 6.00 6.00 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to Yes 1.0 Yes 1.0 the debtor? Does the insolvency framework allow the rejection by Yes 1.0 Yes 1.0 the debtor of overly burdensome contracts? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 preferential transactions? Does the insolvency framework allow avoidance of Yes 1.0 Yes 1.0 undervalued transactions? Does the insolvency framework provide for the Yes 1.0 Yes 1.0 Doing Business 2016 Japan 106 Answer Answer Score Score (Tokyo) (Tokyo) (Osaka) (Osaka) possibility of the debtor obtaining credit after commencement of insolvency proceedings? (b) Yes over (b) Yes over ordinary ordinary unsecured unsecured Does the insolvency framework assign priority to post- creditors creditors but 1.0 1.0 commencement credit? but not not over over secured secured creditors creditors Reorganization proceedings index (0-3) 3.00 3.00 (b) Only (b) Only creditors creditors whose whose rights Which creditors vote on the proposed reorganization rights are are affected 1.0 1.0 plan? affected by by the the proposed proposed plan plan Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as Yes 1.0 Yes 1.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class Yes 1.0 Yes 1.0 vote separately and are creditors in the same class treated equally? Creditor participation index (0-4) 2.00 2.00 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency No 0.0 No 0.0 representative? Does the insolvency framework require approval by the No 0.0 No 0.0 creditors for sale of substantial assets of the debtor? Does the insolvency framework provide that a creditor has the right to request information from the insolvency Yes 1.0 Yes 1.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or Yes 1.0 Yes 1.0 rejecting creditors' claims? Source: Doing Business database. Doing Business 2016 Japan 107 Doing Business 2016 Japan 108 LABOR MARKET REGULATION Doing Business has historically studied the flexibility of regulations as well as secondary sources are reviewed to regulation of employment, specifically as it relates to the ensure accuracy. areas of hiring, working hours and redundancy. This year Doing Business has expanded the scope of the labor To make the data comparable across economies, several market regulation indicators by adding 16 new assumptions about the worker and the business are questions, most of which focus on measuring job quality. used. Over the period from 2007 to 2011 improvements were The worker: made to align the methodology for the labor market  Is a cashier in a supermarket or grocery store, regulation indicators (formerly the employing workers age 19, with one year of work experience. indicators) with the letter and spirit of the International  Is a full-time employee. Labour Organization (ILO) conventions. Ten of the 189  Is not a member of the labor union, unless ILO conventions cover areas now measured by Doing membership is mandatory. Business (up from four previously): employee The business: termination, weekend work, holiday with pay, night work,  Is a limited liability company (or the equivalent protection against unemployment, sickness benefits, in the economy). maternity protection, working hours, equal remuneration  Operates a supermarket or grocery store in the and labor inspections. economy’s largest business city. For 11 economies the data are also collected for the Between 2009 and 2011 the World Bank Group worked second largest business city. with a consultative group—including labor lawyers,  Has 60 employees. employer and employee representatives, and experts  Is subject to collective bargaining agreements if from the ILO, the Organisation for Economic Co- such agreements cover more than 50% of the operation and Development (OECD), civil society and the food retail sector and they apply even to firms private sector—to review the methodology for the labor that are not party to them. market regulation indicators and explore future areas of  Abides by every law and regulation but does not research. grant workers more benefits than those mandated by law, regulation or (if applicable) A full report with the conclusions of the consultative collective bargaining agreements. group, along with the methodology it proposed, is available on the Doing Business website at: http://www.doingbusiness.org/methodology/labor- market-regulation. Doing Business 2016 presents the data for the labor market regulation indicators in an annex. The report does not present rankings of economies on these indicators or include the topic in the aggregate distance to frontier score or ranking on the ease of doing business. Detailed data collected on labor market regulation are available on the Doing Business website (http://www.doingbusiness.org). The data on labor market regulation are based on a detailed questionnaire on employment regulations that is completed by local lawyers and public officials. Employment laws and Doing Business 2016 Japan 109 LABOR MARKET REGULATION What are the details? The data reported here for Japan are based on a detailed regulations as well as secondary sources are reviewed to survey of labor market regulation that is completed by ensure accuracy. local lawyers and public officials. Employment laws and Hiring Data on hiring cover five areas: (i) whether fixed-term wage to the average value added per worker (the ratio of contracts are prohibited for permanent tasks; (ii) the an economy’s GNI per capita to the working-age maximum cumulative duration of fixed-term contracts; population as a percentage of the total population), and (iii) the minimum wage for a cashier, age 19, with one (v) the availability of incentives for employers to hire year of work experience; (iv) the ratio of the minimum employees under the age of 25*. Tokyo Osaka Hiring Data Data Fixed-term contracts prohibited for permanent tasks? No No Maximum length of a single fixed-term contract (months) 36.0 36.0 Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 1619.2 1528.0 (US$/month) Ratio of minimum wage to value added per worker 0.3 0.3 Incentives for employing workers under age 25? No No Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Japan 110 LABOR MARKET REGULATION Working hours Data on working hours cover nine areas: i) the maximum and nonnursing women can work the same night hours number of working days allowed per week; (ii) the as men*; (vii) whether there are restrictions on weekly premium for night work (as a percentage of hourly pay); holiday work; (viii) whether there are restrictions on (iii) the premium for work on a weekly rest day (as a overtime work*; and (ix) the average paid annual leave percentage of hourly pay); (iv) the premium for overtime for workers with 1 year of tenure, 5 years of tenure, and work (as a percentage of hourly pay)*; (v) whether there 10 years of tenure. are restrictions on night work; (vi) whether nonpregnant Tokyo Osaka Working Hours Data Data Maximum number of working days per week 6.0 6.0 Premium for night work (% of hourly pay) 25.0 25.0 Premium for work on weekly rest day (% of hourly pay) 35.0 35.0 Premium for overtime work (% of hourly pay) 25.0 25.0 Restrictions on night work? 0.0 0.0 Whether nonpregnant and nonnursing women can work the same Yes Yes night hours as men Restrictions on weekly holiday? 0.0 0.0 Restrictions on overtime work? Yes Yes Paid annual leave for a worker with 1 year of tenure (working days) 10.0 10.0 Paid annual leave for a worker with 5 years of tenure (working days) 16.0 16.0 Paid annual leave for a worker with 10 years of tenure (working days) 20.0 20.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, 15.3 15.3 in working days) Source: Doing Business database. *A new question introduced in the Doing Business 2016 report for the first time. Doing Business 2016 Japan 111 LABOR MARKET REGULATION Redundancy rules Data on redundancy cover nine areas: (i) the length of whether the employer needs approval from a third party the maximum probationary period (in months) for to terminate one redundant worker; (vi) whether the permanent employees; (ii) whether redundancy is employer needs approval from a third party to terminate allowed as a basis for terminating workers; (iii) whether a group of nine redundant workers; (vii) whether the law the employer needs to notify a third party (such as a requires the employer to reassign or retrain a worker government agency) to terminate one redundant worker; before making the worker redundant; (viii) whether (iv) whether the employer needs to notify a third party to priority rules apply for redundancies; and (ix) whether terminate a group of nine redundant workers; (v) priority rules apply for reemployment. Tokyo Osaka Difficulty of redundancy index Data Data Maximum length of probationary period (months) n.a. n.a. Dismissal due to redundancy allowed by law? Yes Yes Third-party notification if one worker is dismissed? No No Third-party approval if one worker is dismissed? No No Third-party notification if nine workers are dismissed? No No Third-party approval if nine workers are dismissed? No No Retraining or reassignment obligation before redundancy? Yes Yes Priority rules for redundancies? No No Priority rules for reemployment? No No Source: Doing Business database. Doing Business 2016 Japan 112 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice severance payments applicable to a worker with 1 year requirements and severance payments due when of tenure, a worker with 5 years and a worker with 10 terminating a redundant worker, expressed in weeks of years is considered. One month is recorded as 4 and salary. The average value of notice requirements and 1/3 weeks. Tokyo Osaka Redundancy cost indicator (in salary weeks) Data Data Notice period for redundancy dismissal for a worker with 1 year of 4.3 4.3 tenure Notice period for redundancy dismissal for a worker with 5 years of 4.3 4.3 tenure Notice period for redundancy dismissal for a worker with 10 years of 4.3 4.3 tenure Notice period for redundancy dismissal (average for workers with 1, 5 4.3 4.3 and 10 years of tenure) Severance pay for redundancy dismissal for a worker with 1 year of 0.0 0.0 tenure Severance pay for redundancy dismissal for a worker with 5 years of 0.0 0.0 tenure Severance pay for redundancy dismissal for a worker with 10 years of 0.0 0.0 tenure Severance pay for redundancy dismissal (average for workers with 1, 5 0.0 0.0 and 10 years of tenure) Source: Doing Business database. Doing Business 2016 Japan 113 LABOR MARKET REGULATION Job quality Doing Business 2016 report presents, for the first time, on-the-job training at no cost to the employee; (viii) data on 12 job quality areas: (i) whether the law whether a worker is eligible for an unemployment mandates equal remuneration for work of equal value; protection scheme after one year of service; (ix) the (ii) whether the law mandates nondiscrimination based minimum duration of the contribution period (in months) on gender in hiring, (iii) whether the law mandates paid required for unemployment protection; (x) whether an or unpaid maternity leave; (iv) the minimum length of employee can create or join a union; (xi) the availability maternity leave in calendar days (minimum number of of administrative or judicial relief in case of infringement days that legally have to be paid by the government, the of employees’ rights; and (xii) the availability of a labor employer or both); (v) whether employees on maternity inspection system. If no maternity leave is mandated by leave receive 100 % of wages; (vi) the availability of five law, parental leave is measured if applicable. fully paid days of sick leave a year; (vii) the availability of Tokyo Osaka Job Quality Data Data Equal remuneration for work of equal value? No No Gender nondiscrimination in hiring? Yes Yes Paid or unpaid maternity leave mandated by law? Yes Yes Minimum length of maternity leave (calendar days)? 98.0 98.0 Receive 100% of wages on maternity leave? No No Five fully paid days of sick leave a year? No No On-the-job training? Yes Yes Unemployment protection after one year of employment? Yes Yes Minimum contribution period for unemployment protection (months)? 12.0 12.0 Can employee create or join union? Yes Yes Administrative or judicial relief for infringement of employees' rights? Yes Yes Labor inspection system? Yes Yes Source: Doing Business database. Doing Business 2016 Japan 114 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING Doing Business presents results for two aggregate even though it is no longer at the frontier in a measures: the distance to frontier score and the ease of subsequent year. doing business ranking, which is based on the distance For scores such as those on the strength of legal rights to frontier score. The ease of doing business ranking index or the quality of land administration index, the compares economies with one another; the distance to frontier is set at the highest possible value. For the total frontier score benchmarks economies with respect to tax rate, consistent with the use of a threshold in regulatory best practice, showing the absolute distance calculating the rankings on this indicator, the frontier is to the best performance on each Doing Business defined as the total tax rate at the 15th percentile of the indicator. When compared across years, the distance to overall distribution for all years included in the analysis frontier score shows how much the regulatory up to and including Doing Business 2015. For the time to environment for local entrepreneurs in an economy has pay taxes the frontier is defined as the lowest time changed over time in absolute terms, while the ease of recorded among all economies that levy the three major doing business ranking can show only how much the taxes: profit tax, labor taxes and mandatory regulatory environment has changed relative to that in contributions, and value added tax (VAT) or sales tax. For other economies. the different times to trade across borders, the frontier is Distance to Frontier defined as 1 hour even though in many economies the time is less than that. The distance to frontier score captures the gap between an economy’s performance and a measure of best In the same formulation, to mitigate the effects of practice across the entire sample of 36 indicators for 10 extreme outliers in the distributions of the rescaled data Doing Business topics (the labor market regulation for most component indicators (very few economies indicators are excluded). For starting a business, for need 700 days to complete the procedures to start a example, the former Yugoslav Republic of Macedonia business, but many need 9 days), the worst performance and New Zealand have the smallest number of is calculated after the removal of outliers. The definition procedures required (1), and New Zealand the shortest of outliers is based on the distribution for each time to fulfill them (0.5 days). Slovenia has the lowest component indicator. To simplify the process two rules cost (0.0), and Australia, Colombia and 103 other were defined: the 95th percentile is used for the economies have no paid-in minimum capital indicators with the most dispersed distributions requirement (table 14.1 in the Doing Business 2016 (including minimum capital, number of payments to pay report). taxes, and the time and cost indicators), and the 99th percentile is used for number of procedures. No outlier is Calculation of the distance to frontier score removed for component indicators bound by definition Calculating the distance to frontier score for each or construction, including legal index scores (such as the economy involves two main steps. In the first step depth of credit information index, extent of conflict of individual component indicators are normalized to a interest regulation index and strength of insolvency common unit where each of the 36 component framework index) and the recovery rate. indicators y (except for the total tax rate) is rescaled In the second step for calculating the distance to frontier using the linear transformation (worst − y)/(worst − score, the scores obtained for individual indicators for frontier). In this formulation the frontier represents the each economy are aggregated through simple averaging best performance on the indicator across all economies into one distance to frontier score, first for each topic since 2005 or the third year in which data for the and then across all 10 topics: starting a business, dealing indicator were collected. Both the best performance and with construction permits, getting electricity, registering the worst performance are established every five years property, getting credit, protecting minority investors, based on the Doing Business data for the year in which paying taxes, trading across borders, enforcing contracts they are established, and remain at that level for the five and resolving insolvency. More complex aggregation years regardless of any changes in data in interim years. methods—such as principal components and Thus an economy may set the frontier for an indicator unobserved components—yield a ranking nearly Doing Business 2016 Japan 115 identical to the simple average used by Doing Business . The nonlinear transformation is not based on any 4 Thus Doing Business uses the simplest method: economic theory of an “optimal tax rate” that minimizes weighting all topics equally and, within each topic, giving distortions or maximizes efficiency in an economy’s equal weight to each of the topic components . overall tax system. Instead, it is mainly empirical in 5 nature. The nonlinear transformation along with the An economy’s distance to frontier score is indicated on a threshold reduces the bias in the indicator toward scale from 0 to 100, where 0 represents the worst economies that do not need to levy significant taxes on performance and 100 the frontier. All distance to frontier companies like the Doing Business standardized case calculations are based on a maximum of five decimals. study company because they raise public revenue in However, indicator ranking calculations and the ease of other ways—for example, through taxes on foreign doing business ranking calculations are based on two companies, through taxes on sectors other than decimals. manufacturing or from natural resources (all of which are The difference between an economy’s distance to outside the scope of the methodology). In addition, it frontier score in any previous year and its score in 2015 acknowledges the need of economies to collect taxes illustrates the extent to which the economy has closed from firms. the gap to the regulatory frontier over time. And in any Calculation of scores for economies with 2 cities given year the score measures how far an economy is covered from the best performance at that time. For each of the 11 economies in which Doing Business Treatment of the total tax rate collects data for the second largest business city as well The total tax rate component of the paying taxes as the largest one, the distance to frontier score is indicator set enters the distance to frontier calculation in calculated as the population-weighted average of the a different way than any other indicator. The distance to distance to frontier scores for these two cities (table frontier score obtained for the total tax rate is 13.1). This is done for the aggregate score, the scores for transformed in a nonlinear fashion before it enters the each topic and the scores for all the component distance to frontier score for paying taxes. As a result of indicators for each topic. the nonlinear transformation, an increase in the total tax rate has a smaller impact on the distance to frontier score for the total tax rate—and therefore on the distance to frontier score for paying taxes—for economies with a below-average total tax rate than it would have had before this approach was adopted in Doing Business 2015 (line B is smaller than line A in figure 14.2 in the Doing Business 2016 report). And for economies with an extreme total tax rate (a rate that is very high relative to the average), an increase has a greater impact on both these distance to frontier scores than it would have had before (line D is bigger than line C in figure 14.2 in the Doing Business 2016 report). 4 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to that from the simple average method because both these methods assign roughly equal weights to the topics, since the pairwise correlations among indicators do not differ much. An alternative to the simple average method is to give different weights to the topics, depending on which are considered of more or less importance in the context of a specific economy. 5 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned to the strength of legal rights index and 40% to the depth of credit information index. Indicators for all other topics are assigned equal weights Doing Business 2016 Japan 116 Table 13.1 Weights used in calculating the distance to implemented regulatory reforms making it easier to do frontier scores for economies with 2 cities covered business in 3 or more of the 10 topics included in this year’s aggregate distance to frontier score. Changes Economy City Weight (%) making it more difficult to do business are subtracted Dhaka 78 Bangladesh from the total number of those making it easier to do Chittagong 22 São Paulo 61 business. Twenty-four economies meet this criterion: Brazil Armenia; Azerbaijan; Benin; Costa Rica; Côte d’Ivoire; Rio de Janeiro 39 Shanghai 55 Cyprus; Hong Kong SAR, China; Indonesia; Jamaica; China Beijing 45 Kazakhstan; Kenya; Lithuania; Madagascar; Mauritania; Mumbai 47 Morocco; Romania; the Russian Federation; Rwanda; India Delhi 53 Senegal; Togo; Uganda; the United Arab Emirates; Jakarta 78 Uzbekistan; and Vietnam. Second, Doing Business sorts Indonesia Surabaya 22 these economies on the increase in their distance to Tokyo 65 Japan frontier score from the previous year using comparable Osaka 35 data. Mexico City 83 Mexico Monterrey 17 Selecting the economies that implemented regulatory Lagos 77 reforms in at least three topics and had the biggest Nigeria Kano 23 improvements in their distance to frontier scores is Karachi 65 intended to highlight economies with ongoing, broad- Pakistan Lahore 35 based reform programs. The improvement in the Moscow 70 Russian Federation distance to frontier score is used to identify the top St. Petersburg 30 New York 60 improvers because this allows a focus on the absolute United States improvement—in contrast with the relative improvement Los Angeles 40 Source: United Nations, Department of Economic and Social shown by a change in rankings—that economies have Affairs, Population Division, World Urbanization Prospects, made in their regulatory environment for business. 2014 Revision. http://esa.un.org/unpd/wup/CD- ROM/Default.aspx. Ease of Doing Business ranking Economies that improved the most across 3 or more Doing Business topics in 2014/15 The ease of doing business ranking ranges from 1 to 189. The ranking of economies is determined by sorting the Doing Business 2016 uses a simple method to calculate aggregate distance to frontier scores, rounded to 2 which economies improved the ease of doing business decimals. the most. First, it selects the economies that in 2014/15 Doing Business 2016 Japan 117 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Law library News on the Doing Business project Online collection of business laws and regulations http://www.doingbusiness.org relating to business http://www.doingbusiness.org/law-library Rankings How economies rank—from 1 to 189 Contributors http://www.doingbusiness.org/rankings More than 11,400 specialists in 189 economies who participate in Doing Business Data http://www.doingbusiness.org/contributors/doing- All the data for 189 economies—topic rankings, business indicator values, lists of regulatory procedures and details underlying indicators Entrepreneurship data http://www.doingbusiness.org/data Data on business density (number of newly registered companies per 1,000 working-age Reports people) for 136 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, case studies and repreneurship customized economy and regional profiles http://www.doingbusiness.org/reports Distance to frontier Data benchmarking 189 economies to the frontier Methodology in regulatory practice and a distance to frontier The methodologies and research papers underlying calculator Doing Business http://www.doingbusiness.org/data/distance-to- http://www.doingbusiness.org/methodology frontier Research Information on good practices Abstracts of papers on Doing Business topics and Showing where the many good practices identified related policy issues by Doing Business have been adopted http://www.doingbusiness.org/research http://www.doingbusiness.org/data/good-practice Doing Business reforms Short summaries of DB2016 business regulation reforms and lists of reforms since DB2008 http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2016 Japan 118