As the world’s third largest economy, Japan has a mature market economy and a strict legal system. Its business environment is known for its refined management, high standards and attention to detail. Although the Japanese market is full of opportunities, it also has extremely strict requirements for corporate compliance. From large multinational companies to small and medium-sized enterprises, all companies operating in Japan face complex and unique compliance challenges.

Japan’s business culture emphasizes integrity, etiquette and long-term partnerships. This cultural characteristic has deeply influenced its business regulations and practices. For example, Japan’s labor law attaches great importance to the protection of employee rights and interests, and environmental law rules reflect the high attention paid by Japanese society to sustainable development. At the same time, Japan’s business environment is also constantly changing. In recent years, trends such as digital transformation and work style reform are reshaping Japan’s business landscape.

In such an environment, compliance is not only a legal requirement, but also the key for companies to win trust and maintain competitiveness. Strict compliance management can help companies avoid legal risks and maintain their reputation. It is also the basis for winning the trust of customers, partners and investors. For companies that hope to succeed in the Japanese market, establishing a sound compliance system is not only a means to avoid penalties, but also a necessary condition for achieving sustainable development.

However, Japan’s compliance requirements are also known for their complexity and meticulousness. From company establishment, daily operations to specific industry regulations, there are detailed regulatory requirements for each link. For foreign companies entering the Japanese market for the first time, these requirements may seem particularly cumbersome and challenging. However, a thorough understanding and strict compliance with these regulations can not only ensure the legal operation of the company, but also lay a solid foundation for the company’s long-term success in the Japanese market.

Therefore, whether it is a company that has been rooted in Japan for many years or an emerging company that has just entered the Japanese market, it is necessary to continue to pay attention to compliance issues and regard it as a core component of corporate strategy. By establishing a comprehensive compliance inspection mechanism, companies can proactively identify potential risks and adjust their business strategies in a timely manner, so as to move forward steadily in Japan, a market with both opportunities and challenges, and achieve long-term sustainable development.

Company establishment and operation

The establishment and operation of a Japanese company is the first step to enter the Japanese market and an important basis for ensuring corporate compliance. In this process, companies need to pay attention to several key aspects: the choice of company type, company registration and change procedures, the management of deposits and company seals, and the operating norms of shareholders’ meetings and board meetings.

First, when setting up a company in Japan, the most common choices are Kabushiki-Kaisha (KK) and Godo-Kaisha (GK). Kabushiki-Kaisha is similar to a Western joint stock company, suitable for medium-sized and large enterprises or companies planning to go public. It has a high social reputation, but the establishment and operation costs are high. GK is similar to a limited liability company, suitable for small businesses or start-ups, with a simpler establishment procedure and lower operating costs. When choosing, you need to consider factors such as company size, business nature, and financing needs.

Secondly, company registration is a sign that a company is officially established. In Japan, company registration needs to be done at the Legal Affairs Bureau. The registration content includes the company name, address, capital, director information, etc. It is worth noting that Japan requires companies to promptly handle change registration when major changes occur (such as address changes, capital increases, director changes, etc.). These procedures usually require the assistance of professional judicial scriveners to ensure compliance with legal requirements.

• Articles of Incorporation are the basic articles of incorporation of a company, which stipulate important matters such as the company’s purpose, business scope, organizational structure, etc. In Japan, articles of incorporation must be certified by a notary public. In addition, company seals play an extremely important role in Japanese business activities. Japanese companies usually need to prepare a variety of seals, including representative seals (president seals), bank seals, corner seals, etc. The use and storage of these seals need to be strictly managed to prevent abuse and fraud.

Finally, for a limited company, the operation of the shareholders’ meeting and the board of directors is the core of corporate governance. Japanese company law requires that shareholders’ meetings be held regularly (at least once a year) to discuss and decide on major matters. The board of directors is responsible for the company’s daily business decisions. It is worth noting that Japan has high requirements for directors’ responsibilities, and directors need to fulfill their fiduciary duties and duty of care. In addition, certain types of resolutions (such as mergers, major asset disposals) require special resolutions, which require a higher proportion of shareholders to agree.

In short, setting up and operating a company in Japan requires strict compliance with relevant laws and regulations and attention to details. It is recommended to seek help from local professional organizations to ensure the company’s compliance and smooth operation. At the same time, as laws and regulations are constantly updated, companies also need to keep an eye on the latest regulations and make timely adjustments.

Labor Law Compliance

Compliance with labor laws and regulations is a top priority for Japanese companies. Japan’s labor law system is complete and strict, and companies must fully understand and strictly implement relevant regulations to ensure compliance and safeguard employee rights.

First of all, labor contracts and employment rules are the basis of labor-capital relations. In Japan, employers must sign written labor contracts with employees, clearly stipulating core terms such as work content, work location, working hours, and remuneration. For companies that employ more than 10 employees, they must also formulate employment rules and submit them to the Labor Standards Supervision Office. Employment rules should detail working hours, salary calculation methods, vacation systems, etc., and ensure that their content is not lower than the statutory standards.

Working time management and overtime regulations are key areas of focus in Japan’s labor law. The legal working hours are 8 hours a day and 40 hours a week. Working hours exceeding this standard must be paid overtime wages, and the overtime rate must not be less than 125% of the normal salary. Late-night overtime (22:00-5:00) must not be less than 150%. It is worth noting that Japan has implemented “work style reforms” in recent years and set an upper limit on overtime hours. Companies need to establish an effective work time management system to avoid excessive overtime.

Annual leave and various types of vacation systems are an important part of protecting employee rights. In Japan, employees who have worked for six months and whose attendance rate is over 80% are entitled to paid annual leave, which is at least 10 days and can be up to 20 days as the length of service increases. In addition, Japan also has special vacation systems such as maternity leave, childcare leave, and nursing leave. Employers are not allowed to give unfavorable treatment to employees because they take these statutory holidays.

Equal pay for equal work and gender equality are the labor policies that Japan has focused on promoting in recent years. The Equal Employment Opportunity Law for Men and Women prohibits discrimination based on gender in recruitment, promotion, training, etc. At the same time, the Equal Pay for Equal Work Law requires companies to provide fair treatment to regular employees and informal employees (such as part-time and dispatched employees). Companies need to establish a transparent salary system to ensure that salary differences are based on work content and ability, rather than employment form or gender.

Finally, regulations on the employment of foreigners are becoming increasingly important. As Japan is facing a labor shortage, the number of foreign workers continues to increase. When hiring foreigners, companies must ensure that they hold legal residence status, comply with the “Foreigner Employment Status Reporting System”, and report employment status to the Public Employment Security Office (ハローワーク). At the same time, companies must also pay attention to work restrictions under different residence statuses, such as part-time work hours for international students.

Tax Compliance

Tax compliance in Japan is an important part of business operations that cannot be ignored. For companies operating in Japan, it is crucial to accurately understand and strictly comply with various tax regulations. This section will detail five areas of tax compliance that Japanese companies need to pay special attention to.

First of all, corporate tax declaration and payment is a basic obligation of every Japanese company. Companies must submit corporate tax returns within two months after the end of each fiscal year (extension can be applied for). It is worth noting that even if the company suffers a loss in the year, it is still required to declare. The corporate tax rate varies depending on the size and location of the company. The actual tax rate for large companies is about 29.74%. Accurately calculating taxable income and making reasonable use of various tax incentives are the key to corporate tax planning.

Secondly, consumption tax management is equally important for companies operating in Japan. Currently, Japan’s standard consumption tax rate is 10%, and some foods and newspapers are subject to a low tax rate of 8%. Companies with annual turnover exceeding 10 million yen must register as consumption tax taxpayers. The consumption tax declaration cycle can be monthly, quarterly or annual, and companies need to choose the appropriate declaration method based on their own circumstances. Correctly distinguishing between taxable and non-taxable transactions and accurately calculating input and output tax amounts are the core of consumption tax management.

Third, withholding income tax and resident tax involve the responsibilities of the enterprise as a withholding agent. When the company pays wages, bonuses, retirement benefits, etc., it needs to withhold income tax. At the same time, it also needs to pay resident tax for employees. Correctly calculating the withholding tax amount for various types of income, paying it to the tax authorities on time, and issuing withholding tax receipts for employees are all procedures that enterprises need to strictly follow.

Fourth, the preparation of transfer pricing documents is a compliance requirement that multinational companies must pay attention to. The Japanese tax authorities are increasingly strict in their review of related-party transactions. Companies need to prepare local documents, master documents and country reports to prove that related-party transactions comply with the arm’s length principle. Timely updating of transfer pricing policies and keeping complete transaction information can effectively reduce tax risks.

Finally, the Electronic Bookkeeping Act is a new requirement for tax compliance in Japan in recent years. With the advent of the digital age, the Japanese government encourages companies to electronically keep accounting books and related books. Companies that meet the requirements of the Electronic Bookkeeping Act can enjoy longer tax inspection periods and higher special deductions for blue returns. Companies need to ensure the security and traceability of the electronic storage system and obtain prior approval from the tax authorities.

Environmental compliance

Japan’s environmental regulations are strict and comprehensive, reflecting the country’s high regard for environmental protection. Enterprises must strictly abide by laws and regulations such as the Waste Disposal Law and the Law on Promoting Effective Utilization of Resources. In terms of waste disposal, companies need to establish a complete classification system to distinguish between general waste and industrial waste. For industrial waste, it must be entrusted to a qualified treatment company for treatment, and the entrusted treatment records must be kept for at least 5 years. At the same time, companies should actively promote the 3R principle: Reduce, Reuse and Recycle, and strive to reduce the amount of waste generated.

In terms of energy efficiency, Japan has implemented the Energy Conservation Law (officially known as the Energy Rationalization Law), which requires companies whose annual energy usage exceeds a certain standard to designate energy management personnel and submit energy usage reports to the government every year. Companies should actively adopt high-efficiency energy-saving equipment, implement energy management systems, and conduct regular energy audits. In addition, the Japanese government has also introduced certification systems such as the “Energy Star” to encourage companies to adopt high-efficiency products and technologies.

Regarding greenhouse gas emission management, Japan has enacted the “Global Warming Countermeasures Promotion Law”, which requires large emitting companies to calculate and report their greenhouse gas emissions. Companies should establish a greenhouse gas emission monitoring system, regularly evaluate carbon footprints, and develop emission reduction plans. Japan has also implemented a carbon credit trading system, allowing companies to offset their own emissions by purchasing carbon credits. It is worth noting that the Japanese government has set a goal of achieving carbon neutrality by 2050, which means that companies will face stricter emission reduction requirements in the future.

Complying with these environmental regulations is not only a legal obligation, but also a manifestation of corporate social responsibility, which helps to enhance the corporate image and competitiveness. Companies should incorporate environmental compliance into their overall strategy, regularly update environmental policies, train employees, and work with supply chain partners to achieve sustainable development goals. At the same time, actively participating in environmental protection activities organized by the government and industry associations can help companies keep abreast of policy trends and obtain valuable resources and support.

Personal Information Protection

In Japan, personal information protection has become one of the core issues of corporate compliance. The revised Personal Information Protection Act, which will be fully implemented in April 2022, further strengthens the protection of personal information. Companies must strictly abide by relevant regulations to avoid legal risks and reputation damage.

First, companies need to clearly understand what personal information is. In Japan, personal information is defined as information that can identify a specific individual, including name, date of birth, address, etc. It is worth noting that even if the information alone is not sufficient to identify an individual, it is also considered personal information if it can identify a specific individual when combined with other information. Companies should establish a comprehensive personal information management system, including designating a person in charge of personal information protection, formulating internal regulations, and conducting regular training for employees.

For the collection and use of personal information, companies must follow the “notice and consent” principle. When collecting personal information, the purpose of collection must be clearly informed and the consent of the information subject must be obtained. If personal information is to be used for purposes not stated at the time of collection, consent must be obtained again. Companies should also ensure that personal information is accurate and up-to-date, and delete or anonymize it in a timely manner when it is no longer needed.

Cross-border data transfer is an important issue facing Japanese companies, especially multinational corporations. Under the revised law, when transferring personal information overseas, companies need to obtain the consent of the data subject, unless the destination country is recognized as having a personal information protection system at the same level as Japan. Companies should formulate strict cross-border data transfer policies, including reviewing overseas recipients and signing data protection agreements. At the same time, companies need to keep relevant records so that they can explain to regulators when necessary.

Cybersecurity is an important part of protecting personal information. The Japanese Personal Information Protection Commission requires companies to take necessary and appropriate security management measures. This includes technical measures (such as encryption, access control, firewalls, etc.) and organizational measures (such as developing security policies, employee training, regular audits, etc.). Companies should determine the appropriate level of security based on their size, nature of business, and the sensitivity of the personal information they handle.

In addition, companies are required to develop a data breach response plan. Once a data breach occurs, companies must immediately take measures to prevent the damage from expanding, report the breach to the Personal Information Protection Commission within a certain period of time after becoming aware of the breach, and notify the affected individuals.

Finally, with the development of technology, emerging data processing methods such as artificial intelligence and big data analysis have also brought new challenges. When using these technologies, companies need to pay special attention to the anonymization of personal information to ensure that while the value of data is maximized, personal privacy is not violated.

Antitrust and fair competition

Companies doing business in the Japanese market must strictly comply with antitrust and fair competition regulations to ensure fairness and transparency in the market order. Japan’s main laws in this regard include the Monopoly Prohibition Law and the Unfair Competition Prevention Law, and there are also strict compliance requirements for advertising and marketing activities.

1. Compliance with the Monopoly Prohibition Law

The Anti-Monopoly Law (Anti-Monopoly Law) is a fundamental law in Japan to maintain fair competition in the market. The law prohibits private monopoly, improper trade restrictions (such as cartels), unfair trade methods and other behaviors. Companies should pay special attention to avoid reaching agreements with competitors to fix prices, divide the market or limit production. In addition, companies with a dominant market position should act with caution to avoid abusing their dominant position to exclude competitors or unreasonably restrict the business freedom of trading partners.

To ensure compliance with anti-monopoly laws, companies should establish a sound internal compliance mechanism, regularly train employees, and remain vigilant when participating in industry association activities to avoid inadvertent involvement in anti-competitive behavior. At the same time, when conducting mergers and acquisitions or establishing joint ventures, companies need to evaluate whether they need to report to the Fair Trade Commission to avoid violating corporate merger control regulations.

2. Response to the Unfair Competition Prevention Act

The Unfair Competition Prevention Law aims to maintain fair competition and protect commercial interests and consumer rights. The law stipulates a variety of unfair competition behaviors, including confusing behaviors (such as imitating the appearance of well-known products), misidentification behaviors (such as false advertising), and infringement of trade secrets.

Enterprises should establish a sound intellectual property protection system, including the management of trademarks, patents and trade secrets. For the commercial information obtained, enterprises should carefully judge whether it belongs to the trade secrets of others and avoid illegal use. In product design and marketing promotion, they should be careful not to imitate or copy competitors, so as not to be regarded as unfair competition.

In addition, companies need to be vigilant against emerging forms of unfair competition, such as deep fake content generated by AI technology and fake online reviews, which may constitute violations of the law. Regular legal risk assessment and employee training are essential to prevent unfair competition.

3. Advertising and marketing compliance

Japan has strict regulations on advertising and marketing activities, mainly involving the representation of prizes and specific advertising standards for each industry. When conducting advertising, companies must ensure the authenticity and accuracy of information and avoid exaggeration or misleading statements.

It is particularly important to note that when conducting comparative advertising, it must be based on objective facts and supported by clear data. Promotional activities must also strictly comply with the provisions of the prize representation law and must not exceed the legal limit. For emerging online marketing methods, such as social media influencer marketing, companies must ensure that the nature of the advertising is clearly disclosed to avoid covert advertising.

In special industries such as healthcare, finance, and food, advertising content must also comply with industry-specific regulations. For example, medical advertisements must not include efficacy guarantees or patient testimonials. Companies should establish an advertising review mechanism to ensure that all external publicity content undergoes compliance review before release.

Complying with antitrust and fair competition laws and regulations is not only a legal obligation, but also an important means for companies to maintain a good reputation and win the trust of consumers. Companies should integrate compliance awareness into all aspects of daily operations, cultivate employees’ legal awareness, and seek assistance from professional legal advisors in a timely manner to cope with the increasingly complex market competition environment.

Industry-specific regulations

Japan’s regulatory environment has specific regulatory requirements for different industries, and companies must strictly comply with relevant regulations to ensure compliance. This section will focus on the main regulatory laws and regulations in the financial services industry, healthcare industry, food safety and telecommunications industry.

The financial services industry is an important pillar of the Japanese economy and is subject to strict supervision. The Financial Instruments and Exchange Act is the core regulation of the industry, which aims to protect the rights and interests of investors and maintain the fairness and transparency of the financial market. The law requires financial institutions to provide accurate information disclosure and prohibits insider trading and market manipulation. In addition, financial institutions must comply with industry-specific regulations such as the Banking Act and the Insurance Industry Act, establish a sound internal control system, and regularly report their operating conditions to the Financial Services Agency.

The healthcare industry in Japan is strictly regulated by the Pharmaceutical Affairs Law (now renamed the Law on Quality, Effectiveness and Safety of Pharmaceuticals, Medical Devices, etc.). This regulation covers the entire process from drug development to post-marketing supervision. Companies must comply with strict clinical trial procedures and obtain approval from the Ministry of Health, Labor and Welfare before they can produce and sell pharmaceuticals. At the same time, the Medical Law stipulates the establishment and operation standards of medical institutions to ensure the quality and safety of medical services.

Food safety is an area of ​​great concern to the Japanese government and consumers. The Food Sanitation Law is the basic law for food safety management, which stipulates the hygiene standards for food production, processing and sales. Companies need to establish a sound food safety management system, such as HACCP (Hazard Analysis and Critical Control Points). In addition, the Food Labeling Law requires food companies to provide accurate product information, including key information such as origin and allergens. Violation of these regulations may result in serious legal consequences and loss of reputation.

As an infrastructure industry, the telecommunications industry is regulated by the Telecommunications Business Law. This law aims to promote fair competition, protect user rights, and ensure the universality and reliability of communication services. Telecommunications operators need to apply for a license or registration with the Ministry of Internal Affairs and Communications, abide by the principle of network neutrality, and protect user privacy. With the development of 5G technology, network security and data protection have become new compliance priorities for the industry.

The specific regulations of each industry are unique. Enterprises need to have a deep understanding of relevant regulations, establish a dedicated compliance team, and conduct regular internal audits. At the same time, paying close attention to changes in regulations, actively participating in industry association activities, and maintaining good communication with regulators are the keys to ensuring long-term compliance. Enterprises doing business in Japan, especially multinational companies, also need to pay attention to the differences between Japanese regulations and international standards and develop localized compliance strategies.

Corporate Governance and Internal Control

Corporate governance and internal control play a vital role in the operation of Japanese companies. Japan’s corporate culture emphasizes integrity, transparency and responsibility, and these values ​​are deeply rooted in its corporate governance system. In recent years, with the trend of globalization and changes in investor requirements, Japanese companies are actively reforming their governance structures to improve operating efficiency and attract international investment.

The implementation of the Corporate Governance Code is a top priority for Japanese companies. In 2015, Japan introduced the Corporate Governance Code, which aims to improve transparency and accountability of listed companies. The code is based on the “comply or explain” principle, requiring companies to either comply with regulations or explain the reasons for non-compliance. Implementing this code requires companies to re-evaluate their board structure, increase the proportion of independent directors, and improve the quality of information disclosure. Many Japanese companies are adopting a committee system, establishing nomination committees, compensation committees, and audit committees to strengthen the independence and objectivity of decision-making.

The establishment of an internal whistleblower system is another important aspect of the Japanese corporate compliance system. The Whistleblower Protection Act provides a legal basis for the establishment of this system. An effective internal whistleblower system not only enables early detection and resolution of problems, but also fosters a culture of integrity in the company. Japanese companies are working hard to create safe and anonymous reporting channels and to develop clear procedures for investigating and protecting whistleblowers. Some advanced companies have even introduced whistleblower hotlines managed by third parties to further ensure the independence and confidentiality of reports.

Conflict of interest management is particularly important in Japanese companies, especially given the close-knit network of Japanese society. Companies need to have clear policies in place on how potential conflicts of interest are identified, disclosed, and managed. This includes requirements for directors, senior executives, and employees, such as regularly declaring personal interests and refraining from participating in decisions that could affect the interests of the company. Japanese companies are also exploring how to balance traditional “series” relationships with modern corporate governance requirements to ensure fairness and transparency in decision-making.

Anti-bribery and corruption prevention are global challenges faced by Japanese companies. Although corruption is relatively rare in Japan, as companies internationalize, compliance with international anti-corruption regulations such as the U.S. Foreign Corrupt Practices Act (FCPA) becomes increasingly important. Japanese companies are strengthening their compliance programs, including developing detailed anti-bribery policies, conducting employee training, implementing due diligence procedures, and establishing effective financial control systems. Some large Japanese companies have even established dedicated compliance departments to monitor and enforce these anti-corruption measures.

In general, Japanese companies are undergoing a significant transformation in corporate governance and internal control. This is not only to meet regulatory requirements, but also to improve corporate competitiveness and sustainable development. By implementing strict governance guidelines, establishing a sound internal reporting system, effectively managing conflicts of interest, and strengthening anti-bribery measures, Japanese companies are working to create a more transparent, responsible and resilient business environment. Although this transformation is challenging, in the long run, it will help Japanese companies win more trust and opportunities in the global market.

Intellectual Property Protection

Intellectual property protection plays an important role in the Japanese business environment and is crucial to the long-term development and market competitiveness of enterprises. As a major country in technological innovation, Japan has a complete intellectual property legal system. Enterprises need to fully understand and comply with relevant regulations to protect their own interests and avoid infringing on the rights of others.

In terms of trademark registration, Japan adopts the first-to-file principle. Enterprises should submit trademark applications to the Japan Patent Office (JPO) as early as possible to ensure the exclusive use rights of the brand in the Japanese market. It is worth noting that Japan’s trademark classification adopts the Nice Classification, but has its own unique sub-categories. Enterprises need to carefully select the appropriate category when applying. In addition, Japan also allows the registration of non-traditional trademarks such as sound and motion trademarks, providing a wider range of options for brand protection.

Patent protection is an important line of defense for innovative Japanese companies. Japanese patent law stipulates that inventions must be novel, progressive and practical. Companies should apply for patents for their research and development results in a timely manner, while paying attention to confidentiality and avoiding disclosing the details of the invention before applying. Japan’s patent examination process is relatively strict, and companies can use the accelerated examination system (PPH) to shorten the examination time. In addition, Japan also provides utility model and design patent protection, and companies can choose the appropriate protection method according to their own needs.

Copyright protection in Japan automatically takes effect without registration, but companies are advised to register their works to provide preliminary evidence in case of disputes. Japan’s copyright law protects a wide range of works, including literature, music, fine arts, photography, film, computer programs, etc. Companies should pay special attention to the ownership of employees’ creative works, and it is recommended that the ownership of copyrights of work created by employees be clearly stipulated in the labor contract.

The protection of trade secrets in Japan is mainly regulated by the Unfair Competition Prevention Law. Enterprises should establish a sound confidentiality system, including signing confidentiality agreements with employees and partners, implementing information classification management, and limiting the scope of access to core technical information. At the same time, Japanese law requires companies to take “reasonable confidentiality measures”, which may include technical means such as physical isolation, encrypted storage, and access control. Companies should also regularly provide confidentiality education to employees to enhance confidentiality awareness among all employees.

In the practice of intellectual property protection, enterprises should not only pay attention to the protection of their own rights and interests, but also respect the intellectual property rights of others. It is recommended to conduct intellectual property due diligence regularly to ensure that products and services do not infringe on the rights of third parties. At the same time, enterprises should establish an intellectual property infringement monitoring mechanism to promptly discover and respond to infringements in the market.

Finally, given the complexity of Japan’s intellectual property legal system, it is recommended that companies hire professional intellectual property agents or legal advisors to assist in developing a comprehensive intellectual property strategy, including rights acquisition, maintenance and application. Through systematic intellectual property management, companies can build solid competitive barriers in the Japanese market and lay the foundation for long-term development.

Foreign Exchange and Trade Management

As the world’s third largest economy, Japan plays an important role in international trade. For companies operating in Japan, especially those involved in cross-border business, it is crucial to understand and comply with Japan’s foreign exchange and trade management regulations. This section will detail three key aspects: foreign exchange and international balance of payments declaration, import and export control compliance, and economic sanctions compliance.

1. Declaration of foreign exchange and international balance of payments

Japan’s foreign exchange management is mainly based on the Foreign Exchange and Foreign Trade Law (Foreign Exchange and Foreign Trade Law). Under this law, most cross-border transactions need to be reported to the Bank of Japan (Japan’s central bank). For cross-border transactions exceeding 30 million yen or the equivalent in foreign currency, companies must make ex post declarations. Certain specific transactions may require prior declaration or approval.

Companies should establish robust internal systems to ensure accurate recording of all cross-border transactions. Submitting balance of payments reports to the Bank of Japan on a regular basis (usually monthly) is a legal obligation for most companies. Failure to file timely and accurate reports may result in serious legal consequences, including fines and even criminal penalties.

2. Compliance with import and export controls

Japan implements a strict import and export control system to safeguard national security and fulfill international obligations. The Foreign Trade Law and the Export Trade Control Order are the main legal basis for controlling the import and export of goods and technologies.

Exporters must pay special attention to “dual-use items” that may be used for military purposes. Such items require export permission from the Ministry of Economy, Trade and Industry. Even ordinary goods may be restricted from export if their final use involves the development of weapons of mass destruction.

On the import side, certain goods such as weapons and narcotics are strictly controlled. Companies should ensure that they are familiar with the relevant import restrictions and obtain the corresponding licenses when necessary. Establishing a sound internal compliance program, including due diligence on customers and end-uses, is key to ensuring compliance with import and export controls.

3. Economic Sanctions Compliance

As an important member of the international community, Japan actively participates in and implements various economic sanctions, which are usually based on UN Security Council resolutions or Japan’s own foreign policy considerations.

Companies must pay close attention to the sanctions list issued by the Japanese government to ensure that they do not trade with sanctioned countries, entities or individuals. This includes direct transactions and indirect transactions, the latter of which may be conducted through third-party countries or entities.

It is particularly important to note that Japan’s sanctions may be stricter than international standards. For example, in certain cases, Japan may impose unilateral sanctions. Therefore, companies cannot rely solely on international sanctions lists, but also need to pay special attention to Japan’s specific requirements.

Having a strong compliance system in place, including regularly updated sanctions screening procedures, employee training and transaction monitoring, is critical to avoiding sanctions violations, which can result in serious legal and reputational risks, including significant fines, loss of business opportunities, and even criminal prosecution.

In short, companies operating in Japan, regardless of size, must attach great importance to foreign exchange and trade management compliance. Establishing a sound internal control system, conducting regular risk assessments, continuously updating compliance knowledge, and seeking professional legal advice when necessary are key measures to ensure that companies operate in compliance in the complex international trade environment.

Emergency Response

As a country prone to natural disasters, Japan is also facing global public health challenges. Enterprises must establish a sound emergency response mechanism. This is not only a legal requirement, but also the key to ensuring the continued operation of enterprises. This section will discuss in detail the three aspects of natural disaster response plans, new infectious disease prevention and control measures, and business continuity management.

1. Natural Disaster Response Plan

Japan is frequently hit by natural disasters such as earthquakes, typhoons, and floods. Companies must develop a comprehensive disaster response plan to minimize casualties and property losses. First, companies should establish a disaster warning system and pay real-time attention to warning information issued by the Meteorological Agency and local governments. Second, conduct disaster prevention drills regularly to ensure that all employees are familiar with escape routes and shelters. Third, prepare emergency supplies such as food, drinking water, and first aid supplies. Finally, develop a detailed post-disaster resumption plan, including measures such as building safety inspections, equipment repairs, and employee placement.

2. Prevention and control measures for new infectious diseases

The outbreak of the COVID-19 pandemic highlights the importance of companies responding to public health events. The Japanese government requires companies to actively cooperate with epidemic prevention and implement strict hygiene management. Companies should formulate guidelines for responding to infectious diseases, including remote work policies, office disinfection procedures, employee health monitoring mechanisms, etc. At the same time, establish communication channels with local health centers and report suspected cases in a timely manner. In addition, companies should also pay attention to the mental health of employees and provide necessary consultation and support services.

3. Business Continuity Management

Business Continuity Management (BCM) is the key to ensure that companies can maintain core business operations in emergency situations. The Ministry of Economy, Trade and Industry of Japan strongly recommends that companies develop BCM plans. First, companies should identify key business processes and resources and assess the potential impact of various risks on the business. Second, develop detailed emergency plans, including alternative office locations, data backup strategies, supply chain management, etc. Third, clarify the decision-making mechanism and communication process in emergency situations to ensure the timeliness and accuracy of information transmission. Finally, regularly update and test the BCM plan to ensure its effectiveness.

When implementing the above measures, companies should pay special attention to Japan’s cultural characteristics and legal requirements. For example, in disaster response, it is necessary to take into account the collectivism emphasized by Japanese society and encourage employees to help each other. When formulating infectious disease prevention and control measures, it is necessary to respect the Japanese tradition of valuing personal privacy and adopt appropriate methods to collect health information. In business continuity management, it is necessary to take into account Japan’s unique business habits, such as the emphasis on face-to-face communication, and make corresponding adjustments in remote working arrangements.

In short, effective emergency response can not only protect enterprises from major losses, but also enhance the trust of customers and partners and improve the social image of enterprises. In a society like Japan that attaches great importance to risk management, a sound emergency response mechanism has become an important part of corporate competitiveness.

ESG (Environmental, Social, and Governance) Compliance

In Japan, ESG has become an important indicator of corporate sustainable development and social responsibility. As investors and consumers pay more attention to the social impact of companies, Japanese companies are paying more and more attention to ESG compliance. This is not only related to the long-term development of the company, but also directly affects its competitiveness and reputation in the market.

Sustainability reports are becoming increasingly popular among Japanese companies. In accordance with the guidelines of the Ministry of Economy, Trade and Industry of Japan, many listed companies have begun to publish sustainability reports on a regular basis. These reports usually include specific measures and achievements of the company in environmental protection, social contribution and corporate governance. For example, environmental issues such as goals and progress in reducing carbon emissions, energy efficiency improvement plans, and waste management strategies are all key contents of the report. Companies are also required to disclose their positions and actions on social issues, such as human rights protection, labor rights, and community participation.

Diversity and inclusion policies are a major challenge and opportunity for Japanese companies. In recent years, the Japanese government has vigorously promoted the “women’s active participation” policy, requiring large companies to set and publicize promotion goals for female employees. In addition to gender equality, Japanese society has also begun to pay attention to other forms of diversity, such as the integration of foreign employees and the protection of the rights and interests of the LGBTQ+ group. Advanced Japanese companies have begun to implement comprehensive diversity management strategies, including establishing diversified recruitment channels, providing cross-cultural training, and setting up employee resource groups. These measures not only help create an inclusive work environment, but also promote innovation and improve corporate competitiveness.

Corporate social responsibility (CSR) practices have their own unique development path in Japan. Traditionally, Japanese companies have a strong sense of social responsibility, which is reflected in the lifetime employment system and corporate welfare. Modern CSR practices are more systematic and strategic. Many Japanese companies combine CSR with their core business. For example, automakers invest in the development of clean energy technologies and food companies support sustainable agriculture. Community participation is also an important aspect of CSR for Japanese companies, such as supporting local education and participating in post-disaster reconstruction. In addition, more and more Japanese companies are beginning to pay attention to global issues, such as participating in projects related to the United Nations Sustainable Development Goals (SDGs).

It is worth noting that Japan’s ESG practices are shifting from passive compliance to active innovation. Leading companies are no longer satisfied with simply meeting regulatory requirements, but see ESG as an opportunity to promote business innovation and open up new markets. For example, some companies are developing innovative products and services for an aging society, which not only solves social problems but also creates new business value.

However, Japanese companies also face challenges in ESG practice. For example, how to promote change in traditional corporate culture, how to balance short-term interests and long-term sustainable development, and how to accurately measure and report ESG results. Therefore, it is crucial for Japanese companies to establish a sound ESG management system and regularly evaluate and improve ESG strategies.

In general, ESG compliance is not only a legal and ethical responsibility that Japanese companies need to take seriously, but also a strategic tool to enhance corporate value and win the trust of stakeholders. As the global trend of sustainable development deepens, companies that successfully operate in the Japanese market must deeply integrate ESG principles into their business philosophy and daily operations.

Compliance Self-Checklist

A. Detailed self-check list

1. Company establishment and operation

1.1 Does the company type meet the business requirements? (Yes/No)

1.2 Is the company registration information updated in a timely manner? (Yes/No)

1.3 Is the company seal properly kept? (Yes/No)

1.4 Are shareholders’ meetings and board meetings held regularly? (Yes/No)

2. Compliance with labor laws and regulations

2.1 Have written employment contracts been signed with all employees? (Yes/No)

2.2 Are employment rules formulated and made public? (Yes/No)

2.3 Do you strictly abide by the working hours and overtime regulations? (Yes/No)

2.4 Are employees’ vacation rights guaranteed? (Yes/No)

2.5 Is the principle of equal pay for equal work followed? (Yes/No)

3. Tax compliance

3.1 Have you declared and paid corporate tax on time? (Yes/No)

3.2 Is GST properly managed? (Yes/No)

3.3 Is personal income tax calculated and withheld accurately? (Yes/No)

3.4 Is transfer pricing documentation prepared? (Yes/No)

3.5 Do you comply with the Electronic Bookkeeping Law? (Yes/No)

4. Compliance with environmental regulations

4.1 Is waste disposal and recycling managed effectively? (Yes/No)

4.2 Have measures been taken to improve energy efficiency? (Yes/No)

4.3 Are greenhouse gas emissions monitored and reported? (Yes/No)

5. Personal Information Protection

5.1 Do you have a personal information protection policy? (Yes/No)

5.2 Are cross-border data transfers managed? (Yes/No)

5.3 Are adequate cybersecurity measures implemented? (Yes/No)

6. Antitrust and fair competition

6.1 Are anti-monopoly laws observed? (Yes/No)

6.2 Have you formulated internal regulations to prevent unfair competition? (Yes/No)

6.3 Are the advertising and marketing activities compliant? (Yes/No)

7. Industry-specific regulations

7.1 Are industry specific regulations followed? (yes/no)

7.2 Have you obtained the required industry licenses? (Yes/No)

8. Corporate governance and internal control

8.1 Is a corporate governance code implemented? (Yes/No)

8.2 Is there an internal reporting system in place? (Yes/No)

8.3 Are conflicts of interest managed effectively? (Yes/No)

8.4 Are anti-bribery and corruption prevention and control measures implemented? (Yes/No)

9. Intellectual Property Protection

9.1 Are trademarks and patents registered in a timely manner? (Yes/No)

9.2 Is copyright managed effectively? (Yes/No)

9.3 Have you taken measures to protect trade secrets? (Yes/No)

10. Foreign exchange and trade management

10.1 Have you reported foreign exchange and international payments in accordance with regulations? (Yes/No)

10.2 Are import and export control regulations complied with? (Yes/No)

10.3 Do you comply with economic sanctions? (Yes/No)

B. Scoring criteria and improvement suggestions

1. Scoring criteria:

90-100 points: Excellent, compliance management is at the leading level

80-89 points: Good, with a sound compliance management system, but still room for improvement

70-79 points: Average, basically compliant, but with obvious room for improvement

60-69 points: Pass, but there are many compliance risks and immediate improvement is required

Below 60 points: Failed, poor compliance, needs comprehensive rectification

Calculation method:

Each “yes” answer is worth 1 point, and each “no” answer is worth 0 point. Total score = (sum of scores / total number of questions) * 100

Improvement suggestions:

1. 90-100 points:

Regularly review and update compliance policies

Cultivate a compliance culture and integrate compliance awareness into corporate DNA

Consider a third-party compliance audit to identify areas for further improvement

2. 80-89 points:

Develop specific improvement plans for projects that do not meet standards

Strengthen employee compliance training, especially in high-risk areas

Improve internal control systems and increase automation levels

3. 70-79 points:

Address all the “no” items now

Appoint a full-time compliance officer or set up a compliance committee

Increase compliance budget and invest in compliance management systems

4. 60-69 points:

Conduct a comprehensive compliance risk assessment

Develop a detailed compliance improvement plan with clear timelines

Consider hiring external consultants to assist in building a compliance system

5. Below 60 points:

Immediately launch a comprehensive compliance rectification plan

Senior management needs to directly participate in and supervise the rectification process

Comprehensively review company operations to identify and eliminate compliance risks

Significantly increase compliance resource investment, including manpower and funds

Note:

This self-checklist should be updated regularly to reflect the latest legal and regulatory requirements.

The self-inspection results should be reported to the company’s senior management and corresponding improvement plans should be formulated.

For industry-specific issues, it is recommended to consult professionals in related fields.

Compliance is an ongoing process and even if you have a high score, you must remain vigilant and continue to improve.

When doing business in Japan, compliance management is not only a legal requirement, but also the cornerstone of sustainable development of enterprises. With the ever-changing business environment and frequent updates of regulations, compliance management is by no means a task that can be accomplished overnight, but a long-term process that requires continuous attention and continuous improvement by enterprises.

Compliance can not only help companies avoid legal risks and economic losses, but also enhance the company’s reputation and strengthen the trust of customers, investors and partners. In a society like Japan that values ​​integrity and rules, good compliance performance is a key factor in winning market recognition.

However, faced with Japan’s complex legal system and unique business culture, it is often difficult for companies to fully grasp all compliance requirements with their internal strength alone. Therefore, we strongly recommend that companies seek professional help in the compliance management process. Hiring lawyers, accountants and consultants who are familiar with Japanese laws and business practices can help companies understand regulatory requirements more accurately and develop effective compliance strategies.

Professional institutions can not only provide timely legal updates and compliance advice, but also assist enterprises in establishing a sound internal control system and conducting regular compliance reviews. This combination of external professional support and internal management can greatly improve the compliance level of enterprises and reduce operational risks.

Finally, we would like to emphasize that compliance should not be seen as a burden, but as an opportunity to enhance corporate competitiveness. Through strict compliance management, companies can optimize internal processes, improve operational efficiency, and establish a good brand image in the Japanese market. In the ever-changing business environment, the continuity and professionalism of compliance management will become the key guarantee for the long-term success of companies in the Japanese market.