Japan


Unique in the Asian landscape from a customs and trade perspective

In many ways Japan is somewhat unique in the Asian landscape from a customs and trade perspective. It has been a large, well developed and open economy for a long time. It has adopted many of the standards, practices and approaches of the most developed trading nations in the world. It is a significant donor of aid and development, including training and assistance for other Asian countries in the development and modernisation of their customs and international trade rules and facilities.

On the other hand, Japan was somewhat isolated from the rest of the world for a very long time, trading only with China, Korea and the Netherlands until the late 19th century. Politically and economically this relative isolation manifests itself to this date, with many protectionist measures remaining in Japan’s approach to international trade, and a strong reluctance by the general population to open Japan to more international competition.

Consequently, importing into and exporting from Japan is at times very modern and facilitative, and at times highly regulated and protective. Customs duties vary tremendously, while duty exemptions and preferential duties are available for a large section of imported goods. Until recently and under certain conditions, Japan allowed sales between two non-resident entities to be used for customs valuation purposes (similar to the concept of “First Sale for Export” in the EU and US), but changes in administrative instructions and the wording of the Japan Customs Tariff Law in 2013 have made this all but impossible, or at least unattractive, forcing many multinationals to change they way the import into Japan.

Japan imposes import quotas and/or import licenses for specific items such as firearms, chemical weapons, silk, grains and products originating from certain countries. In addition, it requires locally registered companies to act as importer for certain goods, requiring title to such goods to change at the appropriate time in the supply chain. Other goods, although not requiring an import license, are subject to prior approval by a relevant authority before they can be imported into Japan. Proper tariff classification is critical not only to ensure compliance but to even make importing possible.

Japan Consumption Tax, applicable on imports as well as sales, bears resemblance to VAT , GST or Sales Tax systems in other countries but is implemented in a unique way, leading to much confusion and non-compliance risks for multinational companies.

From an export perspective, Japan has an advanced Export Controls regime governed by the Ministry of Economy, Trade and Industry (METI). Compliance is required both for exports from Japan and for overseas entities.

Japan is an increasingly active negotiator of bi- and multi-lateral Free Trade Agreements (FTAs). Notable FTAs are those with ASEAN and Australia, and its accession to the Trans-Pacific Partnership negotiations.

The Customs and Tariff Bureau is responsible for enforcing customs and related laws, and for collecting customs duties and other taxes on imported goods. In the past year, customs audit activity has increased markedly. Detailed documentary support is expected when responding to queries and challenges from Customs. This necessitates advanced control processes and procedures to manage both imports and exports.
 

Our services

The WMS Japan team offers access to the largest team of dedicated professionals in the areas of customs and trade advisory in Japan. Although operational support is usually offered by licensed customs brokers, we differentiate ourselves through a focus on tactical and strategic customs and trade advice, in Japan and for Japanese companies overseas. We help foreign multinationals to navigate the very specific rules and regulations for imports into Japan. We also help them and local companies deal with export control requirements, as well as management of the import and re-export activities of their overseas affiliates.

Our professional services focus on both savings and strategic opportunities as well as risk management. Among other things, we provide assistance in the following areas:

Customs planning advice

  • Structuring supply chains to take advantage of non-resident importer opportunities, while safeguarding duty and consumption tax costs.
  • Securing customs duty exemptions through various duty concession mechanisms
  • Reducing customs duty costs by unbundling non-dutiable components from dutiable value
  • Efficient and optimised import/export processing
  • Warehouse and Foreign Trade Zone Strategies
  • Duty refunds and recovery
  • Optimise use of Free Trade Agreements

Risk management and compliance advice

  • Compliance “health checks” in order to mitigate the risks that can accrue as a result of non-compliance
  • Assistance and strategic advice in managing audits
  • Design and implementation of processes and procedures for efficient trade management
  • Advance rulings on customs valuation and tariff classifications to lower duty rates
  • In-house customs and trade training and awareness workshops
  • Supply Chain Security Validation
  • Export Controls and Special Licensing Requirements

Specifically for Japanese companies operating or expanding overseas

  • Market access studies and analysis
  • Design and implementation of processes and procedures to manage and control overseas customs and trade compliance
  • Strategic advice and practical assistance in managing overseas customs authorities.

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Case studies

Securing customs duty benefits for a new business model

Our multinational client was importing using a centralised Singapore purchasing entity for Japan import purposes. The 2013 Customs Tariff Law change resulted in declaration of customs values that were no longer supportable. The client came to WMS for advice on how best to amend their import business model.

How we helped

We analysed the client’s old business model in detail and explored two different options going forward: changing the business model to using an importer that was resident in Japan, or using a different method of customs valuation. We determined that the latter was the preferred option. We helped design and quantify a new deductive based customs valuation methodology. We then helped present this methodology to Japan Customs for their approval. Upon approval, we helped obtain a “season ticket” for customs valuation declarations.

Benefit for the client

  • Buy-in from Japan Customs for the new customs valuation methodology, using a simplified calculation methodology;
  • Protection of a significant part of the onward sales price in Japan from customs duty and consumption tax, leading to a significantly lower duty bill than would have been the case under a resident importer model;
  • Increased trust and understanding between Japan Customs and the company, leading to fewer queries and expected less audit activity.

Identification of new business opportunities

A company trading chemical products was selling product to third party customers in Japan from overseas. Because of significant business growth, the company was interested in exploring whether it could set up its own business operations to grow its market share more quickly and further.

How we helped

First of all we helped classify the client’s products for Japan import and domestic tax purposes. Based on this classification, we reviewed and identified relevant license and operational requirements, including options for using bonded storage and processing schemes, as well as documentary compliance requirements. We also had meetings with the Japanese authorities to clarify some of the regulatory requirements that were ambiguously phrased, to align expectations for our client.

We proceeded by holding a half-day workshop with the client discussing the various options and their business implications. Based on our research, analysis and presentation, the client decided not to setup its own business in Japan. We did however identify some opportunities to use Free Trade Agreement benefits, which made some of our client’s products more competitive in the Japan market.

Benefit for the client

  • Better understanding of the customs and trade compliance requirements of operating its own business in Japan. The client avoided a potentially costly mistake by not proceeding with its plans to take more direct control of operations in Japan.
  • The FTA benefits that were identified have led to increased competitiveness and further business growth (although not easily quantifiable).

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Contact us

Howard Osawa
Director, PwC Japan
Tel: +81 (0)3 5251 6737
Email