Despite the complexities of conducting business in Japan, the Japan External Trade Organisation (JETRO) reported that 83% of foreign-invested firms are experiencing ‘fair’ to ‘booming’ business. Some foreign investors who set up a company in Japan look to raise corporate finance to support their ambitions. The following is an overview of the financing options available to entrepreneurs.

International business people who set up a company in Japan and seek capital find a ready pool of funding support. In the 2007 Global Financial Centres Index (GFCI), Tokyo ranks the world’s 9th-largest global financial centre. As such, a wide variety of finance products and services are available to foreign investors.

Japan currently boasts the highest level of individually-held financial wealth in the world, with US$12.5 trillion held by private individuals. Consequently, there is great potential for this money to shift from bank deposits to stock-orientated securities investments. 

The Tokyo Stock Exchange (TSE) is the world’s 2nd-largest stock exchange, with a total market capitalisation of US$5 trillion (compared to US$1.7 trillion in Hong Kong) and an average trading volume of 1.5 billion shares. However, although this is a popular route for businesspeople who set up a company in Japan, in practice it is not popular among foreign companies. By the end of 2007 only 25 foreign companies had listed listed on the TSE, out of a total of 2,300 companies. 

Listing on the TSE takes 4 months on average, from initial application to actual listing. Shares are listed on either the First Section (for large blue chip companies), the Second Section (ideal for medium-sized companies) or the ‘Mothers’ Section (for emerging industries). The majority of new listings are initially placed on the Second Section.

Fees to list on the TSE range from US$155,000 for the Second Section and US$218,000 for the First Section, in addition to which a public offering fee is payable which depends on the number and price of offered shares.

Japan benefits from high standards of corporate governance. For example, companies listed on the TSE are required to disclose information on their financial status and business performance to their local Finance Bureau.

Having set up a company in Japan, an investor is eligible to list the company on the Second Section of the TSE if it i) has at least 800 international shareholders ii) has been in operation for at least 3 years and iii) total shareholders’ equity amounts to 1 billion Yen (US$9.2 million). Furthermore, the company must fulfill one of the following criteria:

i) Profit in the most recent 2 years were at least a) 100 million Yen in year 1 and b) 400 million yen in year 2;

ii) Profit in the most recent 3 years were at least a) 100 million yen in year 1 b) 400 million in year 3 and c) 600 million in total for the 3 years;

iii) The company reported total market capitalisation of at least 100 billion yen and sales of at least 10 billion yen for the most recent year.

A company is eligible to list on the ‘Mothers’ Section if it i) has at least 300 international shareholders ii) has been in operation for at least one year and iii) has a market capitalisation of at least 1 billion yen (US$9.2 million).

The Japanese government offers few specific financial incentives to investors who set up a company in Japan. Examples of incentives offered to international entrepreneurs include tax credits for:

i) small and medium-sized manufacturing companies, which receive tax credits of up to 20% for the purchase of machinery and equipment; and

ii) Research and Development (R&D) expenses – companies with high R&D expenses compared to the previous 3 years average are entitled to claim a tax credit of up to 20% of the corporation tax.