Economic overview
The Japanese economy in 2021 followed a path determined by pandemic waves, with an alternation of expansions and contractions.
2021 was another extraordinarily volatile year for the Japanese economy, with less extreme variations compared to 2020, but with a persistent alternation of expansion and contraction, dictated by the trend of the pandemic and the restrictions imposed to combat it. A determining factor was the timing of the vaccination campaign, which began with great delay and little conviction, but then took off efficiently, bringing the percentage of vaccinated from 3.5% in June to 76.7% at the end of November.
The forecasts for 2022 are positive, thanks to the improvement of the domestic pandemic framework and the additional fiscal support provided by the additional budget presented by the new government.
Inflation has been on the rise since mid-2021, largely due to the upward trend of the energy component.
Monetary policy remains marginal for the economic scenario, with the forecast of firm rates over the entire forecast horizon and stabilization of the share of JGB held by the BoJ.
Inflation is up modestly in the wake of the energy component, but 2% remains a mirage, and freezes the action of the Bank of Japan.
The labor market has been affected to a limited extent by the effects of the pandemic, in part thanks to the support of the fiscal policy for the protection of employment.
Main sectors of industry
Japan has one of the most important economies in the world, making it one of the best positioned as importers and exporters in the world.
Japan has always distinguished itself for having a great variety of industrial sectors in which it has managed to find success, building quality products and equipped with the latest technologies, conquering a place in the world ranking of consumers around the world. Mainly the Japanese industry follows, in terms of physical location, the largest cities in the country, while as regards the individual sectors it sees a rather broad overview as it ranges from the electronics sector (in which Japan has demonstrated over the years a considerable capacity) to the various industrial and chemical sectors more developed, among which the automotive sector stands out: the country is in fact characterized by some of the most important world industries in the electronics, automotive sector, biochemist, optician.
The Japanese industry is famous in the West for its quality production in the field of electronics, especially as regards the world of consumer electronics, a sector that Japan shares with other “tigers” of the Asian market such as South Korea.
Some of the main names in the Japanese electronics industry are Citizen, Yamaha, Toshiba, TDK, Sony, Nintendo, Nikon, Fujitsu, Mitsubishi Electric.
The Japanese electronic industry market continues to attract investments and capital, in fact there are many Western investors who, for example, choose to buy Sony shares, or to participate in investment operations involving other companies in the Asian electronic sector of great fame.
Japan has a small agricultural sector due to the scarce possibility of cultivation of its lands, as only about 12% of the Japanese territory is estimated as suitable for cultivation. Despite this difficulty linked to the geography of the territory, the Japanese have adopted an effective system of terracing and a yield capacity of crops among the highest in the world; one of Japan’s most prized agricultural commodities is the apple, recognized as a prized product by many.
Due to the scarcity of land, Japan remains a country in need of importing a large part of agricultural products, meats and cheeses from foreign markets.
As far as the services sector is concerned, Japan has a high rate of development, with the presence in the country of insurance companies, banks, telecommunications and transport among the most important in the world.
The Japanese tourism sector has also seen a high “boom”, driven by the most popular Japanese artistic and cultural productions in the West, such as manga and anime, but also by more classic artistic forms, such as music, painting and sculpture. traditional, as well as sports disciplines, traditional Japanese cuisine and the widespread presence of Japanese writers and films.
The beauty of the Japanese territory, the numerous historical monuments, such as Himeji Castle, the Meiji Temple, the Imperial Palace, the vast number of maritime and mountain naturalistic areas, contribute to making this country a tourist center among the most coveted.
Finally, it is important to remember the presence, last in the list, but not in importance, of an extremely developed Japanese financial sector, which constitutes one of the most important sources of income in the country, which through the exchanges of the Tokyo stock exchange (which contrary to what one might think it is not the only stock market in the country, but only the largest) it represents one of the most important business centers in the world.
Taxation for businesses in Japan
The Japanese tax system provides for a fiscal year that coincides with the statutory one, which ends on December 31 of each year. In particular, the Japanese tax system is based on two key articles of the Constitution. I refer to the following:
Article 30 – Establishes the duty of citizens to pay taxes imposed by law;
Article 92 – Establishes the taxing power of the State to issue tax laws to finance the management of local administrations. Administrations made up of 47 prefectures and 1,800 municipalities.
Under the Constitution, the Japanese tax system is based on certain legal provisions. In particular, it is possible to refer to the following:
- Inheritance Tax Law No. 73/1950;
- General National Tax Law n 66/1962;
- Income Tax Law n 33/1965;
- Corporation Tax Law n 34/1965;
- Consumption Tax Law No. 108/1988.
Only Japanese companies are considered resident legal entities for tax purposes and taxed according to the worldwide principle. Non-resident legal persons are taxed on income produced in the territory of the State. Local companies are taxable on income from all sources, while foreign companies with branches on Japanese soil are subject only to Japanese income.
The domestic tax system, if certain conditions are met, provides for the recognition of a credit for taxes paid abroad. This is a credit that can be used to offset the Corporation Tax debt.
National And Foreign Society
A company based in Japan is a company under national law. The nationality of its shareholders or the seat of the central management is not relevant. Conversely, a company other than a domestic company is considered a foreign company.
Taxes In Japan: Calculation of Corporate Tax
Corporate tax is determined by multiplying the tax base by the relative rate. The system distinguishes the following cases according to the share capital and annual income:
- Capital greater than ¥ 100,000,000: rate of 23.2%;
- Capital less than ¥ 100,000,000:
- Rate of 15% for the first 8 million yen of income e
- Rate of 23.2% over ¥ 8 million of income.
In addition to this tax, the Local Corporate Tax must also be taken into consideration. Tax that is determined by applying a rate of 10.3% to the Corporate Tax.
Taxation of capital and financial income
The capital gains, in principle, contribute to the formation of the overall income of the recipient. Interest received is subject to a withholding tax of 20%, while dividends received from a Japanese company are subject to the following tax, as appropriate:
Holder with at least 25% of the shares. Dividends received are excluded from taxation;
Holder with participation of less than 25%. 50% of the dividends received contributes to the formation of the Corporation Tax.
The withholding tax can be 15% or 20% according to certain criteria prescribed by law and a corresponding tax credit will be recognized. No withholding tax is imposed on royalties. Interest, royalties and dividends received by non-resident legal entities are subject to a withholding tax according to the conventionally provided agreements. However, in the absence of the Treaty, a withholding tax of 20% or 15% will be applied. A 2.1% surcharge on income from interest and dividends is envisaged. This surcharge will remain in effect until December 31, 2037.
Investing in Japan
In the Planet Earth of the markets there is a happy island that does not know the nervous crises that afflict American and European investors in the latter part of the year, caused by inflation that has been running at its highest for decades and by central banks, starting with the Fed, which are preparing to pull the interest rate brake, no one knows how abruptly and how long in 2023. It is called Japan, where consumer prices are at zero point despite burning gas, oil and commodities such as the other major economies, and where a monetary tightening is the least of the thoughts that go through the head of the central banker Haruhiko Kuroda. Meanwhile, corporate profits are aiming for 40% growth this year while the dividend policy is generous with a yield of over 2%, almost double that of the US. Yet 2021 was not that great in terms of the performance of the Japanese stock market. The Nikkei index of the Tokyo Stock Exchange is above the January 1 level by a modest 5%, which for an American or European investor is worth even less, given that the yen in 2021 lost about 10% against the dollar and slightly less. against the euro.
In the Planet Earth of the markets there is a happy island that does not know the nervous crises that afflict American and European investors in the latter part of the year, caused by inflation that has been running at its highest for decades and by central banks, starting with the Fed, which are preparing to pull the interest rate brake, no one knows how abruptly and how long in 2022 and 2023. It is called Japan, where consumer prices are at zero point despite burning gas, oil and commodities such as the other major economies, and where a monetary tightening is the least of the thoughts that go through the head of the central banker Haruhiko Kuroda. Meanwhile, corporate profits are aiming for 40% growth this year while the dividend policy is generous with a yield of over 2%, almost double that of the US. Yet 2021 was not that great in terms of the performance of the Japanese stock market. The Nikkei index of the Tokyo Stock Exchange is above the January 1 level by a modest 5%, which for an American or European investor is worth even less, given that the yen in 2021 lost about 10% against the dollar and slightly less. against the euro.