92052 Doing Business 2015 Japan Economy Profile 2015 Japan Doing Business 2015 Japan 2 © 2014 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 All rights reserved. 1 2 3 4 17 16 15 14 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. 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Doing Business 2015 Japan 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 6 Starting a business ..................................................................................................................... 16 Dealing with construction permits ........................................................................................... 26 Getting electricity ....................................................................................................................... 38 Registering property .................................................................................................................. 46 Getting credit .............................................................................................................................. 52 Protecting minority investors ................................................................................................... 58 Paying taxes ................................................................................................................................ 67 Trading across borders .............................................................................................................. 74 Enforcing contracts .................................................................................................................... 78 Resolving insolvency .................................................................................................................. 84 Labor market regulation ........................................................................................................... 89 Distance to frontier and ease of doing business ranking ...................................................... 95 Resources on the Doing Business website .............................................................................. 98 Doing Business 2015 Japan 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is 1, 2014 (except for the paying taxes indicators, which for a local entrepreneur to open and run a small to cover the period January–December 2013). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 11 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, getting trading across borders and getting electricity), the credit, protecting minority investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts, resolving transparency of government procurement, insolvency and labor market regulation. macroeconomic conditions or the underlying strength of In a series of annual reports Doing Business presents institutions—are not directly studied by Doing Business. quantitative indicators on business regulations and the The indicators refer to a specific type of business, protection of property rights that can be compared generally a local limited liability company operating in across 189 economies, from Afghanistan to Zimbabwe, the largest business city. Because standard assumptions over time. The data set covers 47 economies in Sub- are used in the data collection, comparisons and Saharan Africa, 32 in Latin America and the Caribbean, 25 benchmarks are valid across economies. The data not in East Asia and the Pacific, 26 in Eastern Europe and only highlight the extent of obstacles to doing business; Central Asia, 20 in the Middle East and North Africa and they also help identify the source of those obstacles, 8 in South Asia, as well as 31 OECD high-income supporting policy makers in designing regulatory reform. economies. The indicators are used to analyze economic More information is available in the full report. Doing outcomes and identify what reforms have worked, where Business 2015 presents the indicators, analyzes their and why. relationship with economic outcomes and presents This economy profile presents the Doing Business business regulatory reforms. The data, along with indicators for Japan. To allow useful comparison, it also information on ordering Doing Business 2015, are provides data for other selected economies (comparator available on the Doing Business website at economies) for each indicator. The data in this report are http://www.doingbusiness.org. current as of June Doing Business 2015 Japan 5 CHANGES IN DOING BUSINESS 2015 As part of a 2-year update in methodology, Doing Finally, the name of the employing workers indicator set Business 2015 incorporates 7 important changes. First, has been changed to labor market regulation, and the the ease of doing business ranking as well as all topic- scope of this indicator set has also been changed. The level rankings are now computed on the basis of indicators now focus on labor market regulation distance to frontier scores (see the chapter on the applying to the retail sector rather than the distance to frontier and ease of doing business ranking). manufacturing sector, and their coverage has been Second, for the 11 economies with a population of more expanded to include regulations on labor disputes and than 100 million, data for a second city have been added on benefits provided to workers. The labor market to the data set and the ranking calculation. These regulation indicators continue to be excluded from the economies are Bangladesh, Brazil, China, India, aggregate distance to frontier score and ranking on the Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian ease of doing business. Federation and the United States. Third, for getting Beyond these changes there are 3 other updates in credit, the methodology has been revised for both the methodology. For paying taxes, the financial statement strength of legal rights index and the depth of credit variables have been updated to be proportional to 2012 information index. The number of points has been income per capita; previously they were proportional to increased in both indices, from 10 to 12 for the strength 2005 income per capita. For enforcing contracts, the of legal rights index and from 6 to 8 for the depth of value of the claim is now set at twice the income per credit information index. In addition, only credit bureaus capita or $5,000, whichever is greater. For dealing with and registries that cover at least 5% of the adult construction permits, the cost of construction is now set population can receive a score on the depth of credit at 50 times income per capita (before, the cost was information index. assessed by the Doing Business respondents). In addition, Fourth, the name of the protecting investors indicator set this indicator set no longer includes the procedures for has been changed to protecting minority investors to obtaining a landline telephone connection. better reflect its scope—and the scope of the indicator For more details on the changes, see the “What is set has been expanded to include shareholders’ rights in changing in Doing Business?” chapter starting on page corporate governance beyond related-party transactions. 24 of the Doing Business 2015 report. For more details Fifth, the resolving insolvency indicator set has been on the data and methodology, please see the “Data expanded to include an index measuring the strength of Notes” chapter starting on page 114 of the Doing the legal framework for insolvency. Sixth, the calculation Business 2015 report. For more details on the distance to of the distance to frontier score for paying taxes has frontier metric, please see the “Distance to frontier and been changed. The total tax rate component now enters ease of doing business ranking” chapter in this profile. the score in a nonlinear fashion, in an approach different from that used for all other indicators (see the chapter on the distance to frontier and ease of doing business ranking). Doing Business 2015 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. This Population: 127,338,621 year's report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing GNI per capita (US$): 46,140 business ranking. The ranking of economies is determined by sorting the aggregate distance to frontier (DTF) scores. DB2015 rank: 29 The distance to frontier score benchmarks economies with respect to regulatory practice, showing the absolute DB2014 rank: 27* distance to the best performance in each Doing Business Change in rank: -2 indicator. An economy’s distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the DB 2015 DTF: 74.8 worst performance and 100 the frontier. (See the chapter on the distance to frontier and ease of doing business). DB 2014 DTF: 74.9 The 10 topics included in the ranking in Doing Business 2015: starting a business, dealing with construction Change in DTF: -0.1 permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading * DB2014 ranking shown is not last year’s published across borders, enforcing contracts and resolving ranking but a comparable ranking for DB2014 that insolvency. The labor market regulation indicators captures the effects of such factors as data (formerly employing workers) are not included in this corrections and the changes in methodology. See year’s aggregate ease of doing business ranking, but the the data notes starting on page 114 of the Doing data are presented in this year’s economy profile. Business 2015 report for sources and definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. Doing Business 2015 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 2015 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 2014 and based on the average of each economy’s distance to frontier (DTF) scores for the 10 topics included in this year’s aggregate ranki ng. 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 2015 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) Note: The rankings are benchmarked to June 2014 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 2015 Japan 10 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing business tells Doing Business introduced the distance to frontier score. This only part of the story, so do changes in that ranking. Yearly measure shows how far on average an economy is from the movements in rankings can provide some indication of best performance achieved by any economy on each Doing changes in an economy’s regulatory environment for firms, Business indicator. 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 in over time—how far it has moved toward (or away from) the different areas. To aid in assessing such changes, 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 since 2010, except for getting credit, paying taxes, protecting minority investors and resolving insolvency which had methodology changes in 2014 and thus are only comparable to 2013. 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 114 of the Doing Business 2015 report for more details on the distance to frontier score. Source: Doing Business database. Doing Business 2015 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 DB2015 Korea, Rep. DB2015 Australia DB2015 Indicator Tokyo DB2015 Osaka DB2015 Japan DB2015 Japan DB2014 DB2015 DB2015 Starting a Business 83 78 -- -- 7 8 17 46 New Zealand (1) (rank) Starting a Business (DTF 86.21 86.21 86.13 86.38 96.47 96.38 94.36 91.22 New Zealand (99.96) Score) Procedures (number) 8.0 8.0 8.0 8.0 3.0 3.0 3.0 6.0 New Zealand (1.0)* Time (days) 10.7 10.7 11.0 10.0 2.5 2.5 4.0 5.6 New Zealand (0.5) Cost (% of income per 7.5 7.5 7.5 7.5 0.7 1.4 14.5 1.2 Slovenia (0.0) capita) Paid-in min. capital (% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 112 Economies (0.0)* of income per capita) Dealing with Hong Kong SAR, Construction Permits 83 83 -- -- 19 1 12 41 China (1) (rank) Dealing with Hong Kong SAR, Construction Permits 73.30 73.37 73.30 73.30 84.30 95.53 85.89 78.87 China (95.53) (DTF Score) Doing Business 2015 Japan 12 Best performer globally Hong Kong SAR, China United States DB2015 Korea, Rep. DB2015 Australia DB2015 Indicator Tokyo DB2015 Osaka DB2015 Japan DB2015 Japan DB2014 DB2015 DB2015 Hong Kong SAR, Procedures (number) 12.0 12.0 12.0 12.0 10.0 5.0 10.0 15.8 China (5.0) Time (days) 197.0 197.0 197.0 197.0 112.0 66.0 29.0 78.6 Singapore (26.0) Cost (% of warehouse 0.6 0.5 0.6 0.6 0.5 0.4 4.3 1.0 Qatar (0.0)* value) Getting Electricity 28 29 -- -- 55 13 1 61 Korea, Rep. (1) (rank) Getting Electricity (DTF 86.51 86.51 87.39 84.88 80.59 91.54 99.83 79.52 Korea, Rep. (99.83) Score) Procedures (number) 3.4 3.4 3.0 4.0 5.0 4.0 3.0 4.8 12 Economies (3.0)* Time (days) 97.7 97.7 105.0 84.0 75.0 38.0 18.0 89.6 Korea, Rep. (18.0)* Cost (% of income per 0.0 0.0 0.0 0.0 8.6 1.4 41.1 25.5 Japan (0.0) capita) Registering Property 73 70 -- -- 53 96 79 29 Georgia (1) (rank) Registering Property 71.33 71.32 71.33 71.33 76.87 66.19 70.99 82.92 Georgia (99.88) (DTF Score) Procedures (number) 6.0 6.0 6.0 6.0 5.0 5.0 7.0 4.4 4 Economies (1.0)* Time (days) 13.0 13.0 13.0 13.0 4.5 35.5 7.0 15.2 3 Economies (1.0)* Cost (% of property 5.8 5.8 5.8 5.8 5.2 7.7 5.1 2.4 4 Economies (0.0)* value) Getting Credit (rank) 71 67 -- -- 4 23 36 2 New Zealand (1) Getting Credit (DTF 50.00 50.00 50.00 50.00 90.00 70.00 65.00 95.00 New Zealand (100) Score) Strength of legal rights 4 4 4 4 11 7 5 11 3 Economies (12)* index (0-12) Doing Business 2015 Japan 13 Best performer globally Hong Kong SAR, China United States DB2015 Korea, Rep. DB2015 Australia DB2015 Indicator Tokyo DB2015 Osaka DB2015 Japan DB2015 Japan DB2014 DB2015 DB2015 Depth of credit 6 6 6 6 7 7 8 8 23 Economies (8)* information index (0-8) Credit registry coverage 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Portugal (100.0) (% of adults) Credit bureau coverage 100.0 100.0 100.0 100.0 100.0 96.1 100.0 100.0 23 Economies (100.0)* (% of adults) Protecting Minority 35 35 -- -- 71 2 21 25 New Zealand (1) Investors (rank) Protecting Minority 62.50 62.50 62.50 62.50 56.67 80.83 66.67 65.83 New Zealand (81.67) Investors (DTF Score) Extent of conflict of interest regulation 7.0 7.0 7.0 7.0 6.0 9.0 7.0 8.3 Singapore (9.3)* index (0-10) Extent of shareholder governance index (0- 5.5 5.5 5.5 5.5 5.3 7.2 6.3 4.8 France (7.8)* 10) Strength of minority investor protection 6.3 6.3 6.3 6.3 5.7 8.1 6.7 6.6 New Zealand (8.2) index (0-10) United Arab Emirates Paying Taxes (rank) 122 114 -- -- 39 4 25 47 (1)* Paying Taxes (DTF United Arab Emirates 67.19 68.53 67.21 67.15 82.48 98.51 86.09 80.84 Score) (99.44)* Payments (number per Hong Kong SAR, 14.0 13.0 14.0 14.0 11.0 3.0 10.0 10.6 year) China (3.0)* Time (hours per year) 330.0 330.0 330.0 330.0 105.0 78.0 187.0 175.0 Luxembourg (55.0) Trading Across Borders 20 20 -- -- 49 2 3 16 Singapore (1) (rank) Trading Across Borders 87.23 87.26 86.66 88.28 80.53 95.36 93.45 88.25 Singapore (96.47) Doing Business 2015 Japan 14 Best performer globally Hong Kong SAR, China United States DB2015 Korea, Rep. DB2015 Australia DB2015 Indicator Tokyo DB2015 Osaka DB2015 Japan DB2015 Japan DB2014 DB2015 DB2015 (DTF Score) Documents to export 3 3 3 3 5 3 3 3 Ireland (2)* (number) Time to export (days) 11.0 11.0 11.0 11.0 9.0 6.0 8.0 6.0 5 Economies (6.0)* Cost to export (US$ per 829.3 829.3 915.0 670.0 1,200.0 590.0 670.0 1,224.0 Timor-Leste (410.0) container) Cost to export (deflated 829.3 824.6 915.0 670.0 1,200.0 590.0 670.0 1,224.0 US$ per container) Documents to import 5 5 5 5 7 3 3 5 Ireland (2)* (number) Time to import (days) 11.0 11.0 11.0 11.0 8.0 5.0 7.0 5.4 Singapore (4.0) Cost to import (US$ per 1,021.3 1,021.3 1,107.0 862.0 1,220.0 565.0 695.0 1,289.0 Singapore (440.0) container) Cost to import (deflated 1,021.3 1,015.5 1,107.0 862.0 1,220.0 565.0 695.0 1,289.0 US$ per container) Enforcing Contracts 26 27 -- -- 12 6 4 41 Singapore (1) (rank) Enforcing Contracts 69.95 69.95 69.95 69.95 77.06 80.32 81.71 67.26 Singapore (89.54) (DTF Score) Time (days) 360.0 360.0 360.0 360.0 395.0 360.0 230.0 420.0 Singapore (150.0) Cost (% of claim) 32.2 32.2 32.2 32.2 21.8 21.2 10.3 30.5 Iceland (9.0) Procedures (number) 32.0 32.0 32.0 32.0 28.0 26.0 32.0 33.6 Singapore (21.0)* Resolving Insolvency 2 2 -- -- 14 25 5 4 Finland (1) (rank) Resolving Insolvency 93.74 93.71 93.74 93.74 81.60 75.06 90.06 90.12 Finland (93.85) (DTF Score) Doing Business 2015 Japan 15 Best performer globally Hong Kong SAR, China United States DB2015 Korea, Rep. DB2015 Australia DB2015 Indicator Tokyo DB2015 Osaka DB2015 Japan DB2015 Japan DB2014 DB2015 DB2015 Time (years) 0.6 0.6 0.6 0.6 1.0 0.8 1.5 1.5 Ireland (0.4) Cost (% of estate) 3.5 3.5 3.5 3.5 8.0 5.0 3.5 8.2 Norway (1.0) Outcome (0 as piecemeal sale and 1 as 1 1 1 1 1 1 1 1 going concern) Recovery rate (cents on 92.9 92.8 92.9 92.9 81.9 87.2 83.1 80.4 Japan (92.9) the dollar) Strength of insolvency 14.0 14.0 14.0 14.0 12.0 9.0 14.5 15.0 5 Economies (15.0)* framework index (0-16) Note: DB2014 rankings shown are not last year’s published rankings but comparable rankings for DB2014 that capture the effects of such factors as data corrections and changes to the methodology. Trading across borders deflated and non-deflated values are identical in DB2015 because it is defined as the base year for the deflator. The best performer on time for paying taxes is defined as the lowest time recorded among all economies in the DB2015 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” or “not possible” mark if regulation exists but is never used in practic e 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). Source: Doing Business database. Doing Business 2015 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 measures the ease of starting a business in an economy by recording all procedures Each procedure starts on a separate day (2 officially required or commonly done in practice by procedures cannot start on the same day). an entrepreneur to start up and formally operate an Procedures that can be fully completed industrial or commercial business—as well as the online are recorded as ½ day. time and cost required to complete these procedures. Procedure completed once final document is It also records the paid-in minimum capital that received companies must deposit before registration (or within 3 months). The ranking of economies on the No prior contact with officials ease of starting a business is determined by sorting Cost required to complete each procedure their distance to frontier scores for starting a (% of income per capita) business. These scores are the simple average of the distance to frontier scores for each of the component Official costs only, no bribes indicators. No professional fees unless services required To make the data comparable across economies, by law Doing Business uses several assumptions about the Paid-in minimum capital (% of income business and the procedures. It assumes that all per capita) information is readily available to the entrepreneur and that there has been no prior contact with Deposited in a bank or with a notary before officials. It also assumes that the entrepreneur will registration (or within 3 months) pay no bribes. And it assumes that the business:  Is a limited liability company, located in the  Has a start-up capital of 10 times income per largest business city and is 100% domestically capita. owned . 1  Has a turnover of at least 100 times income per  Has between 10 and 50 employees. capita.  Conducts general commercial or industrial  Does not qualify for any special benefits. activities.  Does not own real estate. 1 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Japan 17 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Japan? According business city of an economy, except for 11 economies for to data collected by Doing Business, starting a business which the data are a population-weighted average of the there requires 8.0 procedures, takes 10.7 days, costs 7.5% 2 largest business cities. See the chapter on distance to of income per capita and requires paid-in minimum frontier and ease of doing business ranking at the end of capital of 0.0% of income per capita (figure 2.1). Most this profile for more details. indicator sets refer to a case scenario in the largest Figure 2.1 What it takes to start a business in Japan - Tokyo Paid-in minimum capital (% of income per capita): 0.0 Doing Business 2015 Japan 18 What it takes to start a business in Japan - Osaka 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. Source: Doing Business database. Doing Business 2015 Japan 19 STARTING A BUSINESS Globally, Japan stands at 83 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 2015 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 and obtain the certificate of seal registration from the Legal Affairs Bureau 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 and head office address has been registered. 1 day JPY 450 (each) 1 The entrepreneur or company representative (natural person) must register the company seal and obtain the certificate of seal registration from the Legal Affairs Bureau at the Ministry of Justice upon registration. Certificate of corporation seal registration costs Yen 450, but the real registration itself is free of charge. 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 2015 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 - Certificate 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 0.7% of the capital - Confirmation from company representative that he agrees to the amount or JPY 3 appointment. 3 days 60,000, whichever is Once the filed documents are reviewed and approved, the company higher 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 File the notification of commencement of business at the tax office of the municipal or prefectural government 5 If the head office of the company is located within Tokyo’s 23 wards, 1 day no charge 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. Doing Business 2015 Japan 22 Time to No. Procedure Cost to complete complete 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 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 no charge - Notification of the acquisition of insured status (online procedure) - The insurance details covering Health and Employee Pension insurance Agency: Japan Pension Service File the company application for employment insurance at the Public Employment Security Office The notification of the company's application for employment insurance Less than one day no charge 8 must be filed at the Public Employment Security Office within 10 days (online procedure) 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 Doing Business 2015 Japan 23 Time to No. Procedure Cost to complete complete file a "Notification of Acquisition of Insured Status under Employment 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. 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 and obtain the certificate of seal registration from the Legal Affairs Bureau Entrepreneurs should check the uniqueness of the company name at the Legal Affairs Bureau before making a company seal, but need not to make the name reservation. The entrepreneur or company representative (natural person) must register the company seal and 1 obtain the certificate of seal registration from the Legal Affairs Bureau 1 day JPY 450 (each) at the Ministry of Justice upon registration. Certificate of corporation seal registration costs Yen 450, but the real registration itself is free of charge. 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 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, 0.7% of the capital including: - Articles of incorporation - Certificate of seal registration - amount or JPY 3 Letter of proxy (if company is registered by a lawyer or a judicial 2 days 60,000, whichever is scrivener) - Personal seal of the director or a lawyer registering the higher 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 appointment. Once the filed documents are reviewed and approved, the company applies for the issuance of a company registration certificate. Normally, a judicial Doing Business 2015 Japan 24 Time to No. Procedure Cost to complete complete 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 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 5 of the municipal government and the tax office of the prefectural 1 day no charge 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 1 day no charge 6 labor insurance • Notification of the commencement of labor insurance within 10 days of the insurance coverage commencement date • 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 Doing Business 2015 Japan 25 Time to No. Procedure Cost to complete complete 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 Less than one day 7 business insurance coverage commencement date: - Notification of the no charge (online procedure) acquisition of insured status - The insurance details covering Health and Employee Pension insurance Agency: Japan Pension Service 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 2015 Japan 26 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 the procedures, time and cost Obtaining utility connections for water and for a business in the construction industry to obtain sewerage all the necessary approvals to build a warehouse in Registering the warehouse after its the economy’s largest business city, connect it to completion (if required for use as collateral or basic utilities and register the warehouse so that it for transfer of the warehouse) can be used as collateral or transferred to another Time required to complete each procedure entity. (calendar days) The ranking of economies on the ease of dealing with Does not include time spent gathering construction permits is determined by sorting their information distance to frontier scores for dealing with Each procedure starts on a separate day. construction permits. These scores are the simple Procedures that can be fully completed online average of the distance to frontier scores for each of are recorded as ½ day. the component indicators. Procedure considered completed once final To make the data comparable across economies, document is received Doing Business uses several assumptions about the business and the warehouse, including the utility No prior contact with officials connections. Cost required to complete each procedure (% The business: of warehouse value) Official costs only, no bribes  Is a limited liability company operating in the construction business and located in  Will have complete architectural and the largest business city. For the 11 technical plans prepared by a licensed economies with a population of more than architect or engineer. 100 million, data for a second city have  Will be connected to water and sewerage been added. Is domestically owned and (sewage system, septic tank or their operated. equivalent). The connection to each utility  Has 60 builders and other employees. network will be 150 meters (492 feet) long. The warehouse:  Will be used for general storage, such as of books or stationery (not for goods requiring  Is valued at 50 times income per capita. special conditions).  Is a new construction (there was no  Will take 30 weeks to construct (excluding all previous construction on the land). delays due to administrative and regulatory requirements). Doing Business 2015 Japan 27 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to build an economy, except for 11 economies for which the data a warehouse in Japan? According to data collected by are a population-weighted average of the 2 largest Doing Business, dealing with construction permits there business cities. See the chapter on distance to frontier requires 12.0 procedures, takes 197.0 days and costs and ease of doing business ranking at the end of this 0.6% of the warehouse value (figure 3.1). Most indicator profile for more details. sets refer to a case scenario in the largest business city of Figure 3.1 What it takes to comply with formalities to build a warehouse in Japan - Tokyo Doing Business 2015 Japan 28 What it takes to comply with formalities to build a warehouse in Japan - Osaka 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. Source: Doing Business database. Doing Business 2015 Japan 29 DEALING WITH CONSTRUCTION PERMITS Globally, Japan stands at 83 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 2015 Japan 30 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 DB2010 to DB2015 DB year Reform Japan made dealing with construction permits costlier by DB2012 increasing inspection fees. 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. Source: Doing Business database. Doing Business 2015 Japan 31 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 cost of information collected from experts in construction JPY 194,637,691 construction : 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 The procedures, along with the associated time and cost, that apply to a company and structure matching the are summarized below. standard assumptions used by Doing Business in 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 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 1 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 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 2 (companies) stating that they do not object to the construction of the warehouse. Agency: Local Authority Obtain building permit from Japan Building Center After the initial consultation with the local authority, BuildCo must 3 submit a building permit application. The local authority examines the 70 days JPY 225,000 application and issues the building permit. Normally, architects submit the application on behalf of their clients. Doing Business 2015 Japan 32 Time to No. Procedure Cost to complete complete 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 Purchase and post statutory construction notice sign board The construction notice sign board should include the following information: 5 • Construction company registry certificate number 1 day JPY 50,000 • Proof of worker compensation insurance • Building permit number • Name of client, designer, contractor, project name, address, the person in charge, etc. Doing Business 2015 Japan 33 Time to No. Procedure Cost to complete complete 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: Tokyo Water Company 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 10 outstanding issues pointed out by inspectors, remedial work must be 7 days JPY 220,000 completed and the building re-inspected before the completion certificate is issued. The completion certificate is required to start occupying and using the Doing Business 2015 Japan 34 Time to No. Procedure Cost to complete complete 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 389,275 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. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Summary of time, cost and procedures for dealing with construction permits in Japan - Osaka Time to No. Procedure Cost to complete complete 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 1 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 Doing Business 2015 Japan 35 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 2 (companies) stating that they do not object to the construction of the warehouse. 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 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 Doing Business 2015 Japan 36 Time to No. Procedure Cost to complete complete 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 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 7 days JPY 220,000 The completion certificate is required to start occupying and 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 Doing Business 2015 Japan 37 Time to No. Procedure Cost to complete complete 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 389,275 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. Note: Online procedures account for 0.5 days in the total time calculation. Source: Doing Business database. Doing Business 2015 Japan 38 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 a customer is always to gain access by obtaining a connection (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. The obtaining final supply ranking of economies on the ease of getting electricity is determined by sorting their distance to Time required to complete each procedure frontier scores for getting electricity. These scores are (calendar days) the simple average of the distance to frontier scores Is at least 1 calendar day for each of the component indicators. To make the data comparable across economies, several Each procedure starts on a separate day assumptions are used. Does not include time spent gathering The warehouse: information  Is owned by a local entrepreneur, located Reflects the time spent in practice, with little in the economy’s largest business city, in follow-up and no prior contact with officials an area where other warehouses are Cost required to complete each procedure located. For the 11 economies with a (% of income per capita) population of more than 100 million, data Official costs only, no bribes for a second city have been added. Excludes value added tax  Is not in a special economic zone where the connection would be eligible for subsidization or faster service.  Is to either the low-voltage or the medium- voltage distribution network and either  Is located in an area with no physical overhead or underground, whichever is more constraints (ie. property not near a railway). common in the area where the warehouse is  Is a new construction being connected to located. Included only negligible length in the electricity for the first time. customer’s private domain.  Is 2 stories, both above ground, with a total  Requires crossing of a 10-meter road but all surface of about 1,300.6 square meters the works are carried out in a public land, so (14,000 square feet), is built on a plot of there is no crossing into other people's 929 square meters (10,000 square feet), is private property. used for storage of refrigerated goods  Involves installing one electricity meter. The The electricity connection: monthly electricity consumption will be 26880 kilowatt hour (kWh). The internal  Is 150 meters long and is a 3-phase, 4-wire electrical wiring has been completed. Y, 140-kilovolt-ampere (kVA) (subscribed capacity) connection. Doing Business 2015 Japan 39 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity connection Most indicator sets refer to a case scenario in the largest in Japan? According to data collected by Doing Business, business city of an economy, except for 11 economies for getting electricity there requires 3.4 procedures, takes which the data are a population-weighted average of the 97.7 days and costs 0.0% of income per capita (figure 2 largest business cities. See the chapter on distance to 4.1). frontier and ease of doing business ranking at the end of this profile for more details. 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 2015 Japan 40 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. Source: Doing Business database. Doing Business 2015 Japan 41 GETTING ELECTRICITY Globally, Japan stands at 28 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 2015 Japan 42 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 City: Tokyo, Osaka warehouses are located. If there is a choice of distribution utilities, the one serving the largest number The procedures are those that apply to a warehouse and of customers is selected. electricity connection matching the 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 4.2 Summary of time, cost and procedures for getting electricity in Japan - Tokyo Time to No. Procedure Cost to complete complete Obtain discussion with Tepco on the actual construction date and effective date of 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 calendar day JPY 0 1 TEPCO regarding the project outline, construction period and basic requirements for power supply and connection. Agency: Tepco Submit application at Tepco and await start of 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 93 calendar days JPY 0 2 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 Doing Business 2015 Japan 43 Time to No. Procedure Cost to complete complete will usually make an application for power supply and connection several 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 Tepco carries out connection works and installation of meter 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 Obtain discussion with Kepco on the actual construction date and effective date of 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 calendar day JPY 0 1 this discussion, issues regarding the project outline, construction period and basic requirements for power supply and connection will be discussed. Agency: Kepco Doing Business 2015 Japan 44 Time to No. Procedure Cost to complete complete Submit application at Kepco and await start of 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 2 the signature of the customer needs to be on the documents when 75 calendar days JPY 0 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 * Kepco conducts an external site inspection necessary for preparation of a 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 Kepco carries out connection works and installation of meter 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 8 calendar days JPY 0 4 wiring system. KEPCO usually executes the external wiring construction 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 Doing Business 2015 Japan 45 Time to No. Procedure Cost to complete complete * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2015 Japan 46 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. The (calendar days) ranking of economies on the ease of registering Does not include time spent gathering property is determined by sorting their distance to information frontier scores for registering property. These scores are the simple average of the distance to frontier Each procedure starts on a separate day. scores for each of the component indicators. To Procedures that can be fully completed online are recorded as ½ day. make the data comparable across economies, several assumptions about the parties to the Procedure considered completed once final transaction, the property and the procedures are document is received used. No prior contact with officials The parties (buyer and seller): Cost required to complete each procedure  Are limited liability companies, 100% (% of property value) domestically and privately owned and Official costs only, no bribes perform general commercial activities. No value added or capital gains taxes included  Are located in the economy’s largest business city . 2  Is located in a periurban commercial zone, and no rezoning is required.  Have 50 employees each, all of whom are nationals.  Has no mortgages attached, has been under the same ownership for the past 10 years. The property (fully owned by the seller):  Consists of 557.4 square meters (6,000 square  Has a value of 50 times income per capita. feet) of land and a 10-year-old, 2-story The sale price equals the value. warehouse of 929 square meters (10,000  Is registered in the land registry or cada- square feet). The warehouse is in good stre, or both, and is free of title disputes. condition and complies with all safety standards, building codes and legal  Property will be transferred in its entirety. requirements. There is no heating system. 2 For the 11 economies with a population of more than 100 million, data for a second city have been added. Doing Business 2015 Japan 47 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 6.0 procedures, takes which the data are a population-weighted average of the 13.0 days and costs 5.8% of the property value (figure 2 largest business cities. See the chapter on distance to 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 2015 Japan 48 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. Source: Doing Business database. Doing Business 2015 Japan 49 REGISTERING PROPERTY Globally, Japan stands at 73 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 2015 Japan 50 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 194,637,691 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 The procedures, along with the associated time and what the indicators cover). cost, are summarized below. Table 5.2 Summary of time, cost and procedures for registering property in Japan 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 2015 Japan 51 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 2015 Japan 52 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 Strength of legal rights index (0–12) 3 lenders’ rights to view a potential borrower’s financial 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 Depth of credit information index (0–8) 4 movable property, as security to generate capital— 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 2015 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. 3 For the legal rights index, 2 new points are added in Doing Business 2015 for new data collected to assess the overall legal framework for secured transactions and the functioning of the collateral registry. 4 For the credit information index, 2 new points are added in Doing Business 2015 for new data collected on accessing borrowers’ credit information online and availability of credit scores. Doing Business 2015 Japan 53 GETTING CREDIT Where does the economy stand today? How well do the credit information system and collateral Globally, Japan stands at 71 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 on the depth of credit rankings for comparator economies and the regional information index and a score of 4 on the strength of average ranking provide other useful information for legal rights index (see the summary of scoring at the end assessing how well regulations and institutions in Japan of this chapter for details). Higher scores indicate more support lending and borrowing. 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 2015 Japan 54 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 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. Source: Doing Business database. Doing Business 2015 Japan 55 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 Index score: 4 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 2015 Japan 56 Tokyo Osaka Strength of legal rights index (0–12) Index score: 4 Index score: 4 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 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: Prior to Doing Business 2015, the depth of credit information index covered only the first 6 features listed above. 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 2015 Japan 57 Credit bureau Credit registry Coverage (% of adults) (% of adults) Number of firms 0 0 Number of individuals 83,720,000 0 Percent of total 100.0 0.0 Source: Doing Business database. Doing Business 2015 Japan 58 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-party transactions What do the indicators cover? 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 interested indicators and shareholders’ rights in corporate directors liable for prejudicial related-party transactions; governance through another. The ranking of economies Available legal remedies (damages, disgorgement of on the strength of minority investor protections is profits, fines, imprisonment, rescission of the transaction) determined by sorting their distance to frontier scores Ease of shareholder suits index (0–10) for protecting minority investors. These scores are the Access to internal corporate documents; Evidence simple average of the distance to frontier scores for the obtainable during trial and allocation of legal expenses extent of conflict of interest regulation index and the extent of shareholder governance index. To make the Extent of conflict of interest regulation index data comparable across economies, a case study uses (0–10) several assumptions about the business and the Sum of the extent of disclosure, extent of director liability transaction. and ease of shareholder indices, divided by 3 The business (Buyer): Extent of shareholder rights index (0-10.5)  Is a publicly traded corporation listed on the Shareholders’ rights and role in major corporate decisions economy’s most important stock exchange (or at least a large private company with Strength of governance structure index (0- multiple shareholders). 10.5) Governance safeguards protecting shareholders from  Has a board of directors and a chief executive undue board control and entrenchment officer (CEO) who may legally act on behalf of Buyer where permitted, even if this is not Extent of corporate transparency index (0-9) specifically required by law. Corporate transparency on ownership stakes, The transaction involves the following details: compensation, audits and financial prospects  Mr. James, a director and the majority Extent of shareholder governance index shareholder of the company, proposes that (0–10) the company purchase used trucks from Sum of the extent of shareholders rights, strength of another company he owns. governance structure and extent of corporate transparency indices, divided by 3  The price is higher than the going price for used trucks, but the transaction goes forward. Strength of investor protection index (0–10)  All required approvals are obtained, and all Simple average of the extent of conflict of interest required disclosures made, though the regulation and extent of shareholder governance indices transaction is prejudicial to Buyer.  Shareholders sue the interested parties and the members of the board of directors. Doing Business 2015 Japan 59 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 6.3 on not measure all aspects related to the protection of the strength of minority investor protection index, with a minority investors, a higher ranking does indicate that an higher score indicating stronger protections. economy’s regulations offer stronger minority investor protections against self-dealing in the areas measured. Globally, Japan stands at 35 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 2015 Japan 60 PROTECTING MINORITY INVESTORS One way to put an economy’s scores on the protecting indices for Japan in 2014. A summary of scoring for the minority investors indicators into context is to see where protecting minority investors indicators at the end of this the economy stands in the distribution of scores across chapter provides details on how the indices were comparator economies. Figures 7.2 through 7.7 highlight calculated. the scores on the various minority investor protection Figure 7.2 How extensive are disclosure Figure 7.3 How extensive is the liability regime for directors? requirements? Extent of director liability index (0-10) Extent of disclosure index (0-10) Note: Higher scores indicate greater liability of directors. Note: Higher scores indicate greater disclosure. Source: Doing Business database. Source: Doing Business database. Doing Business 2015 Japan 61 PROTECTING MINORITY INVESTORS Figure 7.4 How easy is accessing internal corporate documents? Ease of shareholder suits index (0-10) Note: Higher scores indicate greater minority shareholder access to evidence before and during trial. Source: Doing Business database. Doing Business 2015 Japan 62 PROTECTING MINORITY INVESTORS Figure 7.5 How extensive are shareholder rights? Extent of shareholder rights index (0-10.5) Note: The higher the score, the stronger the protections. Source: Doing Business database. Figure 7.6 How strong is the governance structure? Strength of governance structure index (0-10.5) Note: Higher scores indicate more stringent governance structure requirements. Source: Doing Business database. Doing Business 2015 Japan 63 Figure 7.7 How extensive is corporate transparency? Extent of corporate transparency index (0-9) Note: Higher scores indicate greater transparency. Source: Doing Business database. Doing Business 2015 Japan 64 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, governance structure 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 2015 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) Extent of disclosure index (0-10) 7.0 7.0 Board of Board of directors directors Which corporate body can provide legally sufficient approval excluding 2 excluding 2 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 of all material 2 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 and on the 2 (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 the transaction 1 and/or shareholders required? (0-2) transaction only only Must an external body review the terms of the transaction No 0 No 0 before it takes place? (0-1) Extent of director liability index (0-10) 6.0 6.0 Can shareholders sue directly or derivatively for the damage Yes 1 Yes 1 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 2 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 2 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 Yes 1 shareholder plaintiff? (0-1) Must the interested director repay profits made from the transaction upon a successful claim by a shareholder No 0 No 0 plaintiff? (0-1) Can both fines and imprisonment be applied against the No 0 No 0 Doing Business 2015 Japan 65 interested indrector? (0-1) Only in case of Can a court void the transaction upon a successful claim by a Only in case of 0 fraud or bad 0 shareholder plaintiff? (0-2) fraud or bad faith faith Ease of shareholder suits index (0-10) 8.0 8.0 Before filing suit, can shareholders owning 10% of the company’s share capital inspect the transaction documents? Yes 1 Yes 1 (0-1) Can the plaintiff obtain any documents from the defendant Any relevant Any relevant 3 3 and witnesses during trial? (0-3) document document Can the plaintiff request categories of documents from the No 0 No 0 defendant without identifying specific ones? (0-1) Can the plaintiff directly question the defendant and Yes 2 Yes 2 witnesses during trial? (0-2) Is the level of proof required for civil suits lower than that of Yes 1 Yes 1 criminal cases? (0-1) Can shareholder plaintiffs recover their legal expenses from Yes if Yes if successful 1 1 the company? (0-2) successful Strength of minority investor protection index (0-10) 6.3 6.3 Extent of conflict of interest regulation index (0-10) 7.0 7.0 Extent of shareholder rights index (0-10.5) 7.5 7.5 Can shareholders amend company bylaws or statutes with a No 0 No 0 simple majority? Can shareholders owning 10% of the company's share Yes 1.5 Yes 1.5 capital call for an extraordinary meeting of shareholders? Can shareholders remove members of the board of directors Yes 1.5 Yes 1.5 before the end of their term. Must a company obtain its shareholders’ approval every time Yes 1.5 Yes 1.5 it issues new shares? Are shareholders automatically granted subscription rights No 0 No 0 on new shares? Must shareholders approve the election and dismissal of the Yes 1.5 Yes 1.5 external auditor? Can shareholders freely trade shares prior to a major Yes 1.5 Yes 1.5 corporate action or meeting of shareholders? Strength of governance structure index (0-10.5) 4.5 4.5 Is the CEO barred from also serving as chair of the board of Yes 1.5 Yes 1.5 directors? Must the board of directors include independent board Yes 1.5 Yes 1.5 members? Must a company have a separate audit committee? No 0 No 0 Must changes to the voting rights of a series or class of shares be approved only by the holders of the affected Yes 1.5 Yes 1.5 shares? Must a potential acquirer make a tender offer to all No 0 No 0 shareholders upon acquiring 50% of a company? Is cross-shareholding between 2 independent companies No 0 No 0 limited to 10% of outstanding shares? Is a subsidiary barred from acquiring shares issued by its No 0 No 0 parent company? Extent of corporate transparency index (0-9) 4.5 4.5 Must ownership stakes representing 10% be disclosed? No 0 No 0 Doing Business 2015 Japan 66 Must information about board members’ other directorships Yes for listed Yes for listed as well as basic information on their primary employment be 1 1 companies companies disclosed? Must the compensation of individual managers be disclosed? No 0 No 0 Must financial statements contain explanatory notes on Yes for listed Yes for listed significant accounting policies, trends, risks, uncertainties 1 1 companies companies and other factors influencing the reporting? Must annual financial statements be audited by an external Yes 1.5 Yes 1.5 auditor? Yes for listed Yes for listed Must audit reports be disclosed to the public? 1 1 companies companies Extent of shareholder governance index (0-10) 5.5 5.5 Source: Doing Business database. Doing Business 2015 Japan 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 2013 (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, sales tax or goods and service tax) Using a case scenario, Doing Business measures the 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 the Time required to comply with 3 major taxes administrative burden of paying taxes and (hours per year) contributions. This case scenario uses a set of financial statements and assumptions about Collecting information and computing the tax payable transactions made over the year. Information is also 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 required the simple average of the distance to frontier scores for each of the component indicators, with a Total tax rate (% of profit before all taxes) threshold and a nonlinear transformation applied to Profit or corporate income tax one of the component indicators, the total tax rate . 5 The financial statement variables have been updated Social contributions and labor taxes paid by to be proportional to 2012 income per capita; the employer previously they were proportional to 2005 income Property and property transfer taxes per capita. To make the data comparable across Dividend, capital gains and financial economies, several assumptions are used. transactions taxes  TaxpayerCo is a medium-size business that Waste collection, vehicle, road and other taxes started operations on January 1, 2012.  Taxes and mandatory contributions include  The business starts from the same financial corporate income tax, turnover tax and all position in each economy. All the taxes labor taxes and contributions paid by the and mandatory contributions paid during company. the second year of operation are recorded.  A range of standard deductions and  Taxes and mandatory contributions are exemptions are also recorded. measured at all levels of government. 5 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. The threshold is defined as the total tax rate at the 15th percentile of the overall distribution for all years included in the analysis. It is calculated and adjusted on a yearly basis. The threshold is not based on any economic theory of an “optimal tax rate” that minimizes distortions or maximizes efficiency in the tax system of an economy overall. Instead, it is mainly empirical in nature, set at the lower end of the distribution of tax rates levied on medium-size enterprises in the manufacturing sector as observed through the paying taxes indicators. This reduces the bias in the indicators toward economies that do not need to levy significant taxes on companies like the Doing Business standardized case study company because they raise public revenue in other ways—for example, through taxes on foreign companies, through taxes on sectors other than manufacturing or from natural resources (all of which are outside the scope of the methodology). This year’s threshold is 26.1%. Doing Business 2015 Japan 68 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 14.0 tax payments a year, spend this profile for more details. 330.0 hours a year filing, preparing and paying taxes and Globally, Japan stands at 122 in the ranking of 189 pay total taxes amounting to 51.3% of profit (see the economies on the ease of paying taxes (figure 8.1). 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 2015 Japan 69 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue rise. consolidating filings, reducing the frequency of What tax reforms has Doing Business recorded in Japan payments or offering electronic filing and payment. (table 8.1)? Many have lowered tax rates. Changes have brought Table 8.1 How has Japan made paying taxes easier—or not? By Doing Business report year from DB2010 to DB2015 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. 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. Source: Doing Business database. Doing Business 2015 Japan 70 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 assumptions and transactions that the company The taxes and contributions paid are listed in the completed during its 2nd year of operation. summary below, along with the associated number of Respondents are asked how much taxes and payments, time and tax rate. 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 filing 155 25.5% 19 profit Employer paid - Welfare gross 0 paid jointly 0 8.56% 9.6 pension insurance salaries online filing Tokyo Metropolitan - 9.10243011 taxable 0 and paid 0 6.2 Enterprise Tax (on income) 250739% profits jointly Employer paid - Health gross 1 online filing 140 4.985% 5.6 insurance salaries taxable profit (plus Inhabitants tax 1 online filing 0 5.2785% 3.8 530,000 yen) Employer paid - Workmen's gross 0 paid jointly 0 1.9% 1.9 accident compensation salaries net value Tokyo City - Depreciable 1 online filing 0 1.4% of fixed 1.6 Fixed Assets Tax assets Doing Business 2015 Japan 71 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 Tokyo City - Fixed Assets Tax property 1 0 1.4% 1.3 (on land and building) value 70% of Tokyo Metropolitan - Real building Property Acquisition Tax (for 1 0 4% 0.8 expansion building expansion) value Employer paid - Employment gross 1 online filing 0 0.85% 0.8 insurance salaries paid jointly Tokyo City - City Planning Tax property 0 with Fixed 0 0.3% 0.3 (on land and building) value Assets Tax Employer paid - Child gross 0 paid jointly 0 0.15% 0.2 allowance contribution salaries 70% of building Registration and license tax 1 0 0.4% 0.1 expansion value National - Stamp Tax (on per contracts for land sale and 1 0 125,000 yen 0.1 contract building expansion) Tokyo Metropolitan - 1 0 67,100 yen fixed fee 0 Automobile Tax National - Automobile 1 0 41,600 yen fixed fee 0 Tonnage Tax value not Value added tax (VAT) 1 online filing 35 5% 0 added included taxable included in Restoration surtax 1 online filing 0 2.55% 0 profits other taxes fuel 34,140 yen small Fuel tax 1 0 consumpti 0 per kiloliter amount on interest included in Tax on interest 0 0 20.315% 0 income other taxes Employee paid - Welfare gross 0 paid jointly 0 8.383% 0 withheld pension insurance salaries Employee paid - Health gross 0 paid jointly 0 4.985% 0 withheld insurance salaries Doing Business 2015 Japan 72 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 Employee paid - Employment gross 0 paid jointly 0 0.5% 0 withheld insurance salaries Totals 14.0 330.0 51.2 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 filing 155 25.5% 19 profit Employer paid - Welfare gross 0 paid jointly 0 8.56% 9.6 pension insurance salaries Osaka Metropolitan - 9.10151726 taxable 0 paid jointly 0 6.2 Enterprise Tax (on income) 790689% profits Employer paid - Health gross 1 online filing 140 5.03% 5.7 insurance salaries taxable profit (plus Inhabitants tax 1 online filing 0 5.2275% 3.8 660,000 yen) Employer paid - Workmen's gross 0 paid jointly 0 1.9% 1.9 accident compensation salaries net value Osaka City - Depreciable 1 0 1.4% of fixed 1.6 Fixed Assets Tax assets Osaka City - Fixed Assets Tax property 1 0 1.4% 1.3 (on land and building) value 70% of Osaka Metropolitan - Real building Property Acquisition Tax (for 1 0 4% 0.8 expansion building expansion) value Employer paid - Employment gross 1 online filing 0 0.85% 0.8 insurance salaries paid jointly Osaka City - City Planning Tax property 0 with Fixed 0 0.3% 0.3 (on land and building) value Assets Tax Employer paid - Child gross 0 paid jointly 0 0.15% 0.2 allowance contribution salaries Doing Business 2015 Japan 73 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 70% of building Registration and license tax 1 0 0.4% 0.1 expansion value National - Stamp Tax (on per contracts for land sale and 1 0 125,000 yen 0.1 contract building expansion) Osaka Metropolitan - 1 0 67,100 yen fixed fee 0 Automobile Tax National - Automobile 1 0 41,600 yen fixed fee 0 Tonnage Tax value not Value added tax (VAT) 1 online filing 35 5% 0 added included taxable included in Restoration surtax 1 online filing 0 2.55% 0 profit other taxes fuel 34,390 yen small Fuel tax 1 0 consumpti 0 per kiloliter amount on interest included in Tax on interest 0 0 20.315% 0 income other taxes Employee paid - Welfare gross 0 paid jointly 0 8.383% 0 withheld pension insurance salaries Employee paid - Health gross 0 paid jointly 0 4.985% 0 withheld insurance salaries Employee paid - Employment gross 0 paid jointly 0 0.5% 0 withheld insurance salaries Totals 14.0 330.0 51.4 Source: Doing Business database. Doing Business 2015 Japan 74 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from a Customs clearance documents 10% drop in their trading costs than from a similar reduction in the tariffs applied to their products in Port and terminal handling documents global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining, filling out and submitting all the (excluding tariffs and the time and cost for sea documents transport) associated with exporting and importing a Inland transport and handling standard shipment of goods by sea transport, and the number of documents necessary to complete the Customs clearance and inspections transaction. The indicators cover predefined stages Port and terminal handling such as documentation requirements and procedures Does not include sea transport time at customs and other regulatory agencies as well as at the port. They also cover trade logistics, including Cost required to export and import (US$ per the time and cost of inland transport to the largest container) business city. The ranking of economies on the ease All documentation of trading across borders is determined by sorting their distance to frontier scores for trading across Inland transport and handling borders. These scores are the simple average of the Customs clearance and inspections distance to frontier scores for each of the component Port and terminal handling indicators. To make the data comparable across economies, Doing Business uses several assumptions Official costs only, no bribes about the business and the traded goods. The business:  Is located in the economy’s largest The traded product: business city. For the 11 economies with a population of more than 100 million, data  Is not hazardous nor includes military items. for a second city have been added.  Does not require refrigeration or any other  Is a private, limited liability company, special environment. domestically owned and does not operate  Do not require any special phytosanitary or with special export or import privileges. environmental safety standards other than  Conducts export and import activities, but accepted international standards. does not have any special accreditation  Is one of the economy’s leading export or such as an authorized economic operator import products. status.  Is transported in a dry-cargo, 20-foot full container load. Doing Business 2015 Japan 75 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Japan? population-weighted average of the 2 largest business According to data collected by Doing Business, exporting cities. See the chapter on distance to frontier and ease of a standard container of goods requires 3 documents, doing business ranking at the end of this profile for more takes 11.0 days and costs $829.3. Importing the same details. container of goods requires 5 documents, takes 11.0 Globally, Japan stands at 20 in the ranking of 189 days and costs $1021.3 (see the summary of four economies on the ease of trading across borders (figure predefined stages and documents at the end of this 9.1). The rankings for comparator economies and the chapter for details). Most indicator sets refer to a case regional average ranking provide other useful scenario in the largest business city of an economy, information for assessing how easy it is for a business in except for 11 economies for which the data are a Japan to export and import goods. Figure 9.1 How Japan and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2015 Japan 76 TRADING ACROSS BORDERS What are the details? The indicators reported here for Japan are based on a LOCATION OF STANDARDIZED COMPANY set of specific predefined stages for trading a standard shipment of goods by ocean transport (see the section in this chapter on what the indicators Port Name - Osaka: Osaka for imports and Kobe cover). Information on the required documents and for exports the time and cost to complete export and import is collected from local freight forwarders, shipping lines, Port Name - Tokyo: Tokyo customs brokers, port officials and banks. City: Tokyo, Osaka The predefined stages, and the associated time and cost, for exporting and importing a standard shipment of goods are listed in the summary below, along with the required documents. Tokyo Osaka Stages to export Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 2 75 2 75 Documents preparation 5 145 5 145 Inland transportation and handling 2 445 2 200 Ports and terminal handling 2 250 2 250 Totals 11 915 11 670 Tokyo Osaka Stages to import Time (days) Cost (US$) Time (days) Cost (US$) Customs clearance and inspections 2 135 2 135 Documents preparation 5 277 5 277 Inland transportation and handling 2 445 2 200 Ports and terminal handling 2 250 2 250 Totals 11 1,107 11 862 Doing Business 2015 Japan 77 Documents to export Bill of lading Commercial Invoice Customs export declaration Documents to import Bill of lading Cargo dispatch document Commercial invoice Customs import declaration Packing list Source: Doing Business database. Doing Business 2015 Japan 78 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 Procedures to enforce a contract through businesses know they can rely on the courts if a new the courts (number) customer fails to pay. Speedy trials are essential for Steps to file and serve the case small enterprises, which may lack the resources to Steps for trial and judgment stay in business while awaiting the outcome of a long court dispute. Steps to enforce the judgment What do the indicators cover? Time required to complete procedures (calendar days) Doing Business measures the efficiency of the judicial system in resolving a commercial dispute before Time to file and serve the case local courts. Following the step-by-step evolution of Time for trial and obtaining judgment a standardized case study, it collects data relating to Time to enforce the judgment the time, cost and procedural complexity of resolving a commercial lawsuit. The ranking on the ease of Cost required to complete procedures (% of enforcing contracts is the simple average of the claim) percentile rankings on its component indicators: Average attorney fees procedures, time and cost. Court costs The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. The Enforcement costs case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. To make the data comparable across economies, Doing Business uses several assumptions about the case:  The seller and buyer are located in the economy’s largest business city. For the 11 economies with a population of more than  The seller requests a pretrial attachment to 100 million, data for a second city have secure the claim. been added.  The dispute on the quality of the goods  The buyer orders custom-made goods, requires an expert opinion. then fails to pay.  The judge decides in favor of the seller; there  The seller sues the buyer before a is no appeal. competent court.  The seller enforces the judgment through a  The value of the claim is 200% of the public sale of the buyer’s movable assets. income per capita or the equivalent in local currency of USD 5,000, whichever is greater. Doing Business 2015 Japan 79 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial cities. See the chapter on distance to frontier and ease of dispute through the courts in Japan? According to data doing business ranking at the end of this profile for more collected by Doing Business, contract enforcement takes details. 360.0 days, costs 32.2% of the value of the claim and Globally, Japan stands at 26 in the ranking of 189 requires 32.0 procedures (see the summary at the end of economies on the ease of enforcing contracts (figure this chapter for details). Most indicator sets refer to a 10.1). The rankings for comparator economies and the case scenario in the largest business city of an economy, regional average ranking provide other useful except for 11 economies for which the data are a benchmarks for assessing the efficiency of contract population-weighted average of the 2 largest business enforcement in Japan. Figure 10.1 How Japan and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2015 Japan 80 ENFORCING CONTRACTS What are the details? The indicators reported here for Japan are based on COURT NAME a set of specific procedural steps required to resolve a standardized commercial dispute through the courts (see the section in this chapter on what the Claim value - Osaka: JPY 7,692,924 indicators cover). These procedures, and the time and cost of completing them, are identified through Claim value - Tokyo: JPY 7,692,924 study of the codes of civil procedure and other court regulations, as well as through questionnaires Court name - Osaka: completed by local litigation lawyers (and, in a quarter of the economies covered by Doing Business, by judges as well). Court name - Tokyo: Tokyo District Court City: Tokyo, Osaka Table 10.2 Summary of time, cost and procedures for enforcing a contract in Japan OECD high Indicator Tokyo Osaka income average Time (days) 360 360 540 Filing and service 20 20 Trial and judgment 280 280 Enforcement of judgment 60 60 Cost (% of claim) 32.2 32.2 21.4 Attorney cost (% of claim) 18.5 18.5 Court cost (% of claim) 13.3 13.3 Enforcement Cost (% of claim) 0.4 0.4 Procedures (number) 32 32 32 Number of procedures (without bonus points) 32 32 Total number of procedures (including bonus points) 32 32 Doing Business 2015 Japan 81 No. Tokyo Procedures Filing and service: Plaintiff requests payment: Plaintiff or his lawyer asks Defendant orally or in writing to comply with the 1 contract. 2 Plaintiff hires a lawyer: Plaintiff hires a lawyer. Plaintiff files a summons and complaint: Plaintiff files a summons and complaint with the court (orally or * in writing). Plaintiff pays court fees: Plaintiff pays court fees (e.g. court duties, stamp duties, or any other type of court * fees). Answer ‘yes’ even if Plaintiff recovers these costs. Registration of court case: Registration of court case by the court administration (this can include 3 assigning a reference number to the case). Assignment of court case to a judge: Assignment of court case to a judge (through a random procedure, * automated system, ruling of an administrative judge, court officer, etc). Judicial scrutiny of summons and complaint: Judge examines Plaintiff's summons and complaint for 4 formal requirements as a matter of law or standard practice. Mailing of summons and complaint: Court or process server, including (private) bailiff, mails summons * and complaint to Defendant. Application for pre-judgment attachment: Plaintiff submits an application in writing for the attachment of * Defendant's property prior to judgment. Decision on pre-judgment attachment: Judge decides whether to grant Plaintiff’s request for pre- * judgment attachment of Defendant’s property and notifies Plaintiff and Defendant of the decision. Guarantees securing attached property: Plaintiff submits guarantees or bonds to secure Defendant 5 against possible damages to attached property. Pre-judgment attachment order: Defendant's property is attached prior to judgment. Attachment order 6 either involves physical attachment, or is achieved by freezing, registering, marking, or otherwise separating and restricting Defendant’s movement of specific moveable assets. Trial and judgment: Defendant files an answer to Plaintiff’s claim: Defendant files a written pleading which includes his answer 7 or defense on the merits of the case (see assumption 4). Deadline for Plaintiff to reply to Defendant's defense or answer: Judge sets a deadline for Plaintiff’s 8 submission of a reply to the Defendant's defense or answer. Plaintiff’s written reply to Defendant's answer: Plaintiff responds to Defendant’s answer with a written 9 pleading, which may or may not include witness statements or expert (witness) statements. Filing of written submissions: Plaintiff and Defendant file written pleadings and submissions with the court 10 and transmit copies of the written pleadings or submissions to one another. The pleadings may or may not include witness statements or expert (witness) statements. Doing Business 2015 Japan 82 No. Tokyo Procedures Adjournments: Court procedure is delayed because one or both parties request and obtain an 11 adjournment to submit written pleadings. Check as ‘yes’ if this commonly happens. Court appointment of independent expert: Judge appoints, either at the parties' request or at his own * initiative, an independent expert to decide whether the quality of the goods Plaintiff delivered to Defendant is adequate. (see assumption 5-b). Notification of court-appointment of independent expert: The court notifies both parties that the court is 12 appointing an independent expert (see assumption 5-b). Delivery of expert report by court-appointed expert: The independent expert, appointed by the court, * delivers his or her expert report to the court (see assumption 5-b). Pre-trial conference on procedure: The judge meets with the parties to discuss procedural issues (for 13 example which applications and motions parties intend to file, which documents parties intend to rely on, etc.). Setting of date for mediation hearing: The judge sets a date for a mediation hearing, sometimes also * called a 'pre-trial conference,' and notifies the parties of the hearing date. Mediation hearing: The judge, during this informal meeting with the parties, encourages them to settle 14 the case (acting as mediator). The case cannot be settled, the judge may draft a pre-trial conference report, after which the case may be allocated to another judge for tr * Setting of date(s) for oral hearing or trial: Judge sets the date(s) for the oral hearing or trial. * List of (expert) witnesses: The parties file a list of (expert) witnesses with the court (see assumption 5-a). Adjournments: Court proceedings are delayed because one or both parties request and obtain an 15 adjournment to prepare for the oral hearing or trial as a matter of common practice. Oral hearing (prevalent in civil law): The parties argue the merits of the case at an oral hearing before the 16 judge. Witnesses and a court-appointed independent expert may be heard and questioned at the oral hearing. Final arguments: The parties present their final factual and legal arguments to the court either by oral * presentation or by a written submission. 17 Judgment date: The judge sets a date for delivery of the judgment. 18 Notification of judgment in court: The parties are notified of the judgment at a court hearing. 19 Writing of judgment: The judge produces a written copy of the judgment. Court notification of availability of the written judgment: The court notifies the parties that the written 20 judgment is available at the courthouse. Plaintiff receives a copy of the judgment: Plaintiff receives a copy of the written judgment which is 100% 21 in favor of Plaintiff (see assumption 6). Appeal period: By law Defendant has the opportunity to appeal the judgment during a specified period. 22 Defendant decides not to appeal. Seller decides to start enforcing the judgment when the appeal period ends (see assumption 8). Doing Business 2015 Japan 83 No. Tokyo Procedures Order for reimbursement by Defendant of Plaintiff's court fees: The judgment orders Defendant to 23 reimburse Plaintiff for the court fees Plaintiff has advanced, because Defendant has lost the case. Enforcement of judgment: Plaintiff hires a lawyer: Plaintiff hires a lawyer to enforce the judgment or continues to be represented by * a lawyer during the enforcement of judgment phase. Plaintiff retains an enforcement agent to enforce the judgment.: Plaintiff retains the services of a court 24 enforcement officer such as a court bailiff or sheriff, or a private bailiff. Plaintiff requests an enforcement order: Plaintiff applies to the court to obtain the enforcement order * ('seal' on judgment). 25 Plaintiff advances enforcement fees: Plaintiff pays the fees related to the enforcement of the judgment. Attachment of enforcement order to judgment: The judge attaches the enforcement order (‘seal’) to the 26 judgment. Plaintiff’s request for physical enforcement: As Plaintiff commonly fears that Defendant might physically * resist the taking into custody of its previously attached movable assets, Plaintiff requests the judge or the police authorities to obtain police assistance during the physical enforcement of the 27 Plaintiff identifies Defendant's assets for attachment: Plaintiff identifies Defendant's assets for attachment. Attachment: Defendant’s movable goods are attached (physically or by registering, marking or separatin g 28 assets). Enforcement disputes before court: The enforcement of the judgment is delayed because Defendant 29 opposes aspects of the enforcement process before the judge. 30 Sale through public auction: The Defendant’s movable property is sold at public auction. Reimbursement of Plaintiff’s enforcement fees: Defendant reimburses Plaintiff's enforcement fees which 31 Plaintiff had advanced previously. 32 Payment: Court orders that the proceeds of the public auction or the direct sale be delivered to Plaintiff. No. Osaka Procedures Filing and service: * Not counted in the total number of procedures. Source: Doing Business database. Doing Business 2015 Japan 84 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient INDICATORS MEASURE companies and reallocating the resources of 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 improving the expectations of creditors Appeals and requests for extension are and debtors about the outcome of insolvency included proceedings, well-functioning insolvency systems can facilitate access to finance, save more viable Cost required to recover debt (% of debtor’s businesses and thereby improve growth and estate) sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome of Fees of insolvency administrators insolvency proceedings involving domestic legal Lawyers’ fees entities. These variables are used to calculate the recovery rate, which is recorded as cents on the Assessors’ and auctioneers’ fees dollar recouped by secured creditors through Other related fees reorganization, liquidation or debt enforcement (foreclosure) proceedings. To determine the present Outcome value of the amount recovered by creditors, Doing Whether business continues operating as a Business uses the lending rates from the International going concern or business assets are sold Monetary Fund, supplemented with data from piecemeal central banks and the 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) determines the maximum value that can be framework index. The index tests whether economies recovered adopted internationally accepted good practices in 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 the Resolving Insolvency indicator is account based on the recovery rate and the total score of the Present value of debt recovered strength of insolvency framework index. The Strength of insolvency framework index (0- Resolving Insolvency indicator does not measure 16) insolvency proceedings of individuals and financial institutions. The data are derived from survey Sum of the scores of four component indices: responses by local insolvency practitioners and Commencement of proceedings index (0-3) verified through a study of laws and regulations as well as public information on bankruptcy systems. Management of debtor’s assets index (0-6) Reorganization proceedings index (0-3) Creditor participation index (0-4) Doing Business 2015 Japan 85 RESOLVING INSOLVENCY Where does the economy stand today? Combination of quality regulations and efficient practice According to data collected by Doing Business, Japan characterize the top-performing economies. How scores 3.0 out of 3 points on the commencement of efficient are insolvency proceedings in Japan? According proceedings index, 6.0 out of 6 points on the to data collected by Doing Business, resolving insolvency management of debtor’s assets index, 3.0 out of 3 points takes 0.6 years on average and costs 3.5% of the debtor’s on the reorganization proceedings index, and 2.0 out of estate, with the most likely outcome being that the 4 points on the creditor participation index. Japan’s total company will be sold as going concern. The average score on the strength of insolvency framework index is recovery rate is 92.9 cents on the dollar. Most indicator 14.0 out of 16. sets refer to a case scenario in the largest business city of Globally, Japan stands at 2 in the ranking of 189 an economy, except for 11 economies for which the data economies on the ease of resolving insolvency (figure are a population-weighted average of the 2 largest 11.1). The rankings for comparator economies and the business cities. See the chapter on distance to frontier regional average ranking provide other useful and ease of doing business ranking at the end of this benchmarks for assessing the efficiency of insolvency profile for more details. proceedings in Japan. Figure 11.1 How Japan and comparator economies rank on the ease of resolving insolvency Doing Business 2015 Japan 86 Source: Doing Business database. Doing Business 2015 Japan 87 Figure 11.2 Recovery Rate (0-100) - Japan Source: Doing Business database. Figure 11.3 Strength of insolvency framework index (0-16) - Japan Source: Doing Business database. Doing Business 2015 Japan 88 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 11.1)? even viable businesses are liquidated. This is starting to Table 11.1 How has Japan made resolving insolvency easier—or not? By Doing Business report year from DB2010 to DB2015 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. 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. Source: Doing Business database. Doing Business 2015 Japan 89 LABOR MARKET REGULATION Doing Business measures flexibility in the regulation of Doing Business 2015 presents the data for the labor employment, specifically as it affects the hiring and market regulation indicators in an annex. The report redundancy of workers and the rigidity of working hours. does not present rankings of economies on these This year, for the first time, the indicators measuring indicators nor include the topic in the aggregate distance flexibility in labor market regulations focus on those to frontier score or ranking on the ease of doing affecting the food retail industry, using a standardized business. Detailed data collected on labor market case study of a cashier in a supermarket. Also new is that regulations are available on the Doing Business website Doing Business collects data on regulations applying to (http://www.doingbusiness.org). The data on labor employees hired through temporary-work agencies as market regulations are based on a detailed survey of well as on those applying to permanent employees or employment regulations that is completed by local employees hired on fixed-term contracts. The indicators lawyers and public officials. Employment laws and also cover additional areas of labor market regulation, regulations as well as secondary sources are reviewed to including social protection schemes and benefits as well ensure accuracy. To make the data comparable across as labor disputes. economies, several assumptions about the worker and the business are used. Over the period from 2007 to 2011 improvements were made to align the methodology for the labor market The worker: regulation indicators (formerly the employing workers  Is a cashier in a supermarket or a grocery store indicators) with the letter and spirit of the International  Is a full-time employee Labour Organization (ILO) conventions. Only 6 of the 188  Is not a member of the labor union, unless ILO conventions cover areas measured by Doing membership is mandatory Business: employee termination, weekend work, holiday The business: with pay, night work, protection against unemployment  Is a limited liability company (or the equivalent and medical care and sickness benefits. The Doing in the economy) with 60 employees. Business methodology is fully consistent with these 6  Operates a supermarket or grocery store in the conventions. The ILO conventions covering areas related economy’s largest business city. For 11 to the labor market regulation indicators do not include economies the data are also collected for the the ILO core labor standards—8 conventions covering second largest business city. the right to collective bargaining, the elimination of  Is subject to collective bargaining agreements if forced labor, the abolition of child labor and equitable such agreements cover more than 50% of the treatment in employment practices. food retail sector and they apply even to firms that are not party to them. Between 2009 and 2011 the World Bank Group worked  Abides by every law and regulation but does not with a consultative group—including labor lawyers, grant workers more benefits than those employer and employee representatives, and experts mandated by law, regulation or (if applicable) from the ILO, the Organisation for Economic Co- collective bargaining agreements. operation and Development (OECD), civil society and the private sector—to review the methodology for the labor market regulation indicators and explore future areas of research. A full report with the conclusions of the consultative group is available at: http://www.doingbusiness.org/methodology/employing-workers. Doing Business 2015 Japan 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 Difficulty of hiring index Difficulty of hiring covers 4 areas: (i) whether fixed-term wage to the average value added per worker. The contracts are prohibited for permanent tasks; (ii) the average value added per worker is the ratio of an maximum cumulative duration of fixed-term contracts; economy’s GNI per capita to the working-age population (iii) the minimum wage for a cashier, age 19, with 1 year as a percentage of the total population. of work experience; and (iv) the ratio of the minimum Tokyo Osaka Difficulty of hiring index Data Data Fixed-term contracts prohibited for permanent tasks? No No Maximum length of a single fixed-term contract (months) 36 36 Maximum length of fixed-term contracts, including renewals (months) No limit No limit Minimum wage applicable to the worker assumed in the case study 1785.35 1682.62 (US$/month) Ratio of minimum wage to value added per worker 0.29 0.27 Source: Doing Business database. Doing Business 2015 Japan 91 LABOR MARKET REGULATION Rigidity of hours index Rigidity of hours covers 7 areas: (i) whether the premium for work on a weekly rest day (as a percentage workweek can extend to 50 hours or more (including of hourly pay); (v) whether there are restrictions on night overtime) for 2 months in a year to respond to a work; (vi) whether there are restrictions on weekly seasonal increase in workload; (ii) the maximum number holiday work; and (vii) the average paid annual leave for of days allowed in the workweek; (iii) the premium for workers with 1 year of tenure, 5 years of tenure and 10 night work (as a percentage of hourly pay); (iv) the years of tenure. Tokyo Osaka Rigidity of hours index Data Data 50-hour workweek allowed for 2 months a year in case of a seasonal Yes Yes increase in workload? Maximum working days per week 6.0 6.0 Premium for night work (% of hourly pay) 25% 25% Premium for work on weekly rest day (% of hourly pay) 35% 35% Major restrictions on night work? No No Major restrictions on weekly holiday? No No Paid annual leave for a worker with 1 year of tenure (in working days) 10.0 10.0 Paid annual leave for a worker with 5 years of tenure (in working days) 16.0 16.0 Paid annual leave for a worker with 10 years of tenure (in working 20.0 20.0 days) 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. Doing Business 2015 Japan 92 LABOR MARKET REGULATION Difficulty of redundancy index Difficulty of redundancy index looks at 9 questions: (i) whether the employer needs approval from a third party what the length is in months of the maximum to terminate 1 redundant worker; (vi) whether the probationary period; (ii) whether redundancy is employer needs approval from a third party to terminate disallowed as a basis for terminating workers; (iii) a group of 9 redundant workers; (vii) whether the law whether the employer needs to notify a third party (such requires the employer to reassign or retrain a worker as a government agency) to terminate 1 redundant before making the worker redundant; (viii) whether worker; (iv) whether the employer needs to notify a third priority rules apply for redundancies; and (ix) whether party to terminate a group of 9 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 1 worker is dismissed? No No Third-party approval if 1 worker is dismissed? No No Third-party notification if 9 workers are dismissed? No No Third-party approval if 9 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 2015 Japan 93 LABOR MARKET REGULATION Redundancy cost Redundancy cost measures the cost of advance notice requirements and severance payments applicable to a requirements, severance payments and penalties due worker with 1 year of tenure, a worker with 5 years and when terminating a redundant worker, expressed in a worker with 10 years is considered. One month is weeks of salary. The average value of notice recorded as 4 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. Social protection schemes and benefits & Labor disputes Doing Business collects data on the existence of unemployment protection schemes as well as data on whether employers are legally required to provide health insurance for employees with permanent contracts. Doing Business also assesses the mechanisms available to resolve labor disputes. More specifically, it collects data on what courts would be competent to hear labor disputes and whether the competent court is specialized in resolving labor disputes. Doing Business 2015 Japan 94 Tokyo Osaka Social protection schemes and benefits & Labor disputes indicator Data Data Availability of unemployment protection scheme? Yes Yes Health insurance existing for permanent employees? Yes Yes Availability of courts or court sections specializing in labor disputes? Yes Yes Source: Doing Business database. Doing Business 2015 Japan 95 DISTANCE TO FRONTIER AND EASE OF DOING BUSINESS RANKING This year’s report presents results for 2 aggregate defined as the total tax rate at the 15th percentile of the measures: the distance to frontier score and the ease of overall distribution for all years included in the analysis. doing business ranking, which for the first time this year For the time to pay taxes the frontier is defined as the is based on the distance to frontier score. The ease of lowest time recorded among all economies that levy the doing business ranking compares economies with one 3 major taxes: profit tax, labor taxes and mandatory another; the distance to frontier score benchmarks contributions, and value added tax (VAT) or sales tax. In economies with respect to regulatory best practice, addition, the cost to export and cost to import for each showing the absolute distance to the best performance year are divided by the GDP deflator, to take the general on each Doing Business indicator. When compared price level into account when benchmarking these across years, the distance to frontier score shows how absolute-cost indicators across economies with different much the regulatory environment for local entrepreneurs inflation trends. The base year for the deflator is 2013 for in an economy has changed over time in absolute terms, all economies. while the ease of doing business ranking can show only In the same formulation, to mitigate the effects of how much the regulatory environment has changed extreme outliers in the distributions of the rescaled data relative to that in other economies. for most component indicators (very few economies Distance to Frontier need 700 days to complete the procedures to start a business, but many need 9 days), the worst performance The distance to frontier score captures the gap between is calculated after the removal of outliers. The definition an economy’s performance and a measure of best of outliers is based on the distribution for each practice across the entire sample of 31 indicators for 10 component indicator. To simplify the process, 2 rules Doing Business topics (the labor market regulation were defined: the 95th percentile is used for the indicators are excluded). For starting a business, for indicators with the most dispersed distributions example, Canada and New Zealand have the smallest (including time, cost, minimum capital and number of number of procedures required (1), and New Zealand the payments to pay taxes), and the 99th percentile is used shortest time to fulfill them (0.5 days). Slovenia has the for number of procedures and number of documents to lowest cost (0.0), and Australia, Colombia and 110 other trade. No outlier was removed for component indicators economies have no paid-in minimum capital bound by definition or construction, including legal requirement (table 15.1 in the Doing Business 2015 index scores (such as the depth of credit information report). index, extent of conflict of interest regulation index and strength of insolvency framework index) and the Calculation of the distance to frontier score recovery rate (figure 15.1 in the Doing Business 2015 Calculating the distance to frontier score for each report). economy involves 2 main steps. First, individual Second, for each economy the scores obtained for component indicators are normalized to a common unit individual indicators are aggregated through simple where each of the 31 component indicators y (except for averaging into one distance to frontier score, first for the total tax rate) is rescaled using the linear each topic and then across all 10 topics: starting a transformation (worst − y)/(worst − frontier). In this business, dealing with construction permits, getting formulation the frontier represents the best performance electricity, registering property, getting credit, protecting on the indicator across all economies since 2005 or the minority investors, paying taxes, trading across borders, third year after data for the indicator were collected for enforcing contracts and resolving insolvency. More the first time. For legal indicators such as those on complex aggregation methods—such as principal getting credit or protecting minority investors, the components and unobserved components —yield a frontier is set at the highest possible value. For the total ranking nearly identical to the simple average used by tax rate, consistent with the use of a threshold in Doing Business . Thus Doing Business uses the simplest 6 calculating the rankings on this indicator, the frontier is 6 See Djankov, Manraj and others (2005). Principal components and unobserved components methods yield a ranking nearly identical to Doing Business 2015 Japan 96 method: weighting all topics equally and, within each overall tax system. Instead, it is mainly empirical in topic, giving equal weight to each of the topic nature. The nonlinear transformation along with the components . threshold reduces the bias in the indicator toward 7 economies that do not need to levy significant taxes on An economy’s distance to frontier score is indicated on a companies like the Doing Business standardized case scale from 0 to 100, where 0 represents the worst study company because they raise public revenue in performance and 100 the frontier. All distance to frontier other ways—for example, through taxes on foreign calculations are based on a maximum of 5 decimals. companies, through taxes on sectors other than However, indicator ranking calculations and the ease of manufacturing or from natural resources (all of which are doing business ranking calculations are based on 2 outside the scope of the methodology). In addition, it decimals. The difference between an economy’s distance acknowledges the need of economies to collect taxes to frontier score in any previous year and its score in from firms. 2014 illustrates the extent to which the economy has closed the gap to the regulatory frontier over time. And Calculation of scores for economies with 2 cities in any given year the score measures how far an covered economy is from the best performance at that time. For each of the 11 economies for which a second city Treatment of the total tax rate was added in this year’s report, the distance to frontier score is calculated as the population-weighted average This year, for the first time, the total tax rate component of the distance to frontier scores for the 2 cities covered of the paying taxes indicator set enters the distance to (table 12.1). This is done for the aggregate score, the frontier calculation in a different way than any other scores for each topic and the scores for all the indicator. The distance to frontier score obtained for the component indicators for each topic. total tax rate is transformed in a nonlinear fashion before it enters the distance to frontier score for paying taxes. Table 12.1 Weights used in calculating the distance to As a result of the nonlinear transformation, an increase in frontier scores for economies with 2 cities covered the total tax rate has a smaller impact on the distance to Economy City Weight (%) frontier score for the total tax rate—and therefore on the Dhaka 78 distance to frontier score for paying taxes—for Bangladesh Chittagong 22 economies with a below-average total tax rate than it São Paulo 61 would have in the calculation done in previous years (line Brazil Rio de Janeiro 39 B is smaller than line A in figure 15.2 of the Doing Shanghai 55 China Business 2015 report). And for economies with an Beijing 45 extreme total tax rate (a rate that is very high relative to Mumbai 47 India the average), an increase has a greater impact on both Delhi 53 these distance to frontier scores than before (line D is Jakarta 78 Indonesia bigger than line C in figure 15.2 of the Doing Business Surabaya 22 Tokyo 65 2015 report). Japan Osaka 35 The nonlinear transformation is not based on any Mexico City 83 Mexico economic theory of an “optimal tax rate” that minimizes Monterrey 17 distortions or maximizes efficiency in an economy’s Lagos 77 Nigeria Kano 23 Karachi 65 Pakistan that from the simple average method because both these methods Lahore 35 assign roughly equal weights to the topics, since the pairwise Moscow 70 Russian Federation correlations among indicators do not differ much. An alternative to the St. Petersburg 30 simple average method is to give different weights to the topics, New York 60 depending on which are considered of more or less importance in the United States Los Angeles 40 context of a specific economy. Source: United Nations, Department of Economic and Social 7 For getting credit, indicators are weighted proportionally, according to their contribution to the total score, with a weight of 60% assigned Affairs, Population Division, World Urbanization Prospects, to the strength of legal rights index and 40% to the depth of credit 2014 Revision. http://esa.un.org/unpd/wup/CD- information index. Indicators for all other topics are assigned equal ROM/Default.aspx. weights Doing Business 2015 Japan 97 Economies that improved the most across 3 or more Selecting the economies that implemented regulatory Doing Business topics in 2013/14 reforms in at least 3 topics and had the biggest improvements in their distance to frontier scores is Doing Business 2015 uses a simple method to calculate intended to highlight economies with ongoing, broad- which economies improved the ease of doing business based reform programs. The improvement in the the most. First, it selects the economies that in 2013/14 distance to frontier score is used to identify the top implemented regulatory reforms making it easier to do improvers because this allows a focus on the absolute business in 3 or more of the 10 topics included in this improvement—in contrast with the relative improvement year’s aggregate distance to frontier score. Twenty-one shown by a change in rankings—that economies have economies meet this criterion: Azerbaijan; Benin; the made in their regulatory environment for business. Democratic Republic of Congo; Côte d’Ivoire; the Czech Republic; Greece; India; Ireland; Kazakhstan; Lithuania; the former Yugoslav Republic of Macedonia; Poland; Ease of Doing Business ranking Senegal; the Seychelles; Spain; Switzerland; Taiwan, China; Tajikistan; Togo; Trinidad and Tobago; and the The ease of doing business ranking ranges from 1 to 189. United Arab Emirates. Second, Doing Business sorts these The ranking of economies is determined by sorting the economies on the increase in their distance to frontier aggregate distance to frontier scores, rounded to 2 score from the previous year using comparable data. decimals. Doing Business 2015 Japan 98 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 10,700 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 139 economies Access to Doing Business reports as well as http://www.doingbusiness.org/data/exploretopics/ent subnational and regional reports, reform case repreneurship studies and customized economy and regional profiles Distance to frontier http://www.doingbusiness.org/reports Data benchmarking 189 economies to the frontier in regulatory practice Methodology http://www.doingbusiness.org/data/distance-to- The methodologies and research papers underlying frontier Doing Business http://www.doingbusiness.org/methodology Information on good practices Showing where the many good practices identified Research by Doing Business have been adopted Abstracts of papers on Doing Business topics and http://www.doingbusiness.org/data/good-practice related policy issues http://www.doingbusiness.org/research Doing Business iPhone App Doing Business at a Glance—presenting the full Doing Business reforms report, rankings and highlights for each topic for Short summaries of DB2015 business regulation the iPhone, iPad and iPod touch reforms, lists of reforms since DB2008 and a ranking http://www.doingbusiness.org/specialfeatures/ simulation tool iphone http://www.doingbusiness.org/reforms Historical data Customized data sets since DB2004 http://www.doingbusiness.org/custom-query Doing Business 2015 Japan 99