An official website of the United States Government Here's how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you’ve safely connected to the .gov website. Share sensitive information only on official, secure websites.

Jamaica

Executive Summary

The Government of Jamaica (GOJ) considers foreign direct investment (FDI) a key driver for economic growth and in recent years has undertaken macroeconomic reforms that have improved its investment climate.  According to foreign investors, after suffering from a stagnant economy for more than two decades and accumulating one of the highest debt-to-GDP ratios in the world, the GOJ has successfully implemented International Monetary Fund (IMF) programs since 2013.  Under consecutive IMF programs, the GOJ replaced its discretionary investment incentives with legislation that simplified the income tax regime and codified tax benefits for all investors. These efforts have contributed to Jamaica’s improvement in the World Bank’s Doing Business Report (DBR), from a ranking of 90 in 2013 to 75, out of 190 countries, in 2019.  Jamaica recently reduced or removed a number of distortionary taxes across a wide range of economic sectors. Jamaica’s improved creditworthiness, record-setting stock market growth, and proposed financial sector reforms may stimulate local investments in productive sectors.

Jamaica received USD 888 million in FDI in 2017 (latest data available), a significant improvement from the USD 593 million registered in 2013.  This made Jamaica a leading recipient of FDI in the Caribbean and among Small Island Developing States (SIDS). The United States, Canada, Spain, Mexico, and China continued to drive FDI in 2017.  The tourism, mining, energy, and construction sectors led investment inflows in 2017. Tourism remained fast growing with consistent increases in room stock, stopover arrivals, and revenues. Business process outsourcing (BPO), including customer service and back office support, continued to attract local and overseas investment.  Investments in improved air, sea, and land transportation have reduced time and costs for transporting goods and have created opportunities in logistics.

Companies have reported that Jamaica’s high crime rate, corruption, and comparatively high taxes inhibit its investment prospects.  In 2018, the country’s corruption perception ranking, by Transparency International, worsened from 68 in 2017 to 70 out of 180 countries.  Despite laws that provide for criminal penalties for corrupt acts by officials, there were numerous reports of government corruption during the year and officials appeared to engage in corrupt practices with impunity.  Jamaica implemented critical initiatives to reduce crime in 2018, including the declaration of three States of Emergency in violence-ridden area of the island. These efforts contributed to a 20 percent decrease in the murder rate in 2018, though Jamaica still remains among the most violent countries in the hemisphere.

The high cost of energy – about three times higher than in the United States – primarily due to a dependence on allegedly inefficient petroleum-based power plants and outdated electricity infrastructure, has been identified as a significant impediment to Jamaica’s competitiveness.  With that said, Jamaica’s ongoing energy sector transformation has become increasingly attractive to U.S. investors. Additional challenges that businesses complain of include an inefficient government bureaucracy, slow growth, a price-sensitive economy, and low labor productivity.

Table 1: Key Metrics and Rankings

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 70 of 180 http://www.transparency.org/research/cpi/overview 
World Bank’s Doing Business Report 2019 75 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2018 84 of 126 https://www.globalinnovationindex.org/analysis-indicator 
U.S. FDI in partner country ($M USD, stock positions) 2018 $167 http://www.bea.gov/international/factsheet/ 
World Bank GNI per capita 2018 $4,760 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD 

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

The Government of Jamaica (GOJ) is open to foreign investment in all sectors of its economy, and is currently in the process of developing a National Investment Policy to guide future foreign direct investment (FDI) reform.  The GOJ has also made significant structural changes to its economy, under International Monetary Fund (IMF) guidance over the past six years, resulting in an improved investment environment. Since 2013, Jamaica’s Parliament passed numerous pieces of legislation to improve the business environment and support economic growth through a simplified tax system and broadened tax base.  The establishment of credit bureaus and a Collateral Registry under the Secured Interest in Personal Property (SIPP) legislation are improving access to credit. Jamaica made starting a business easier by consolidating forms and made electricity less expensive by reducing the cost of external connection works. The GOJ implemented an electronic platform for tax payments and established a 90-day window for development approvals.

The GOJ’s public procurement regime was amended, with effect from April 2019, to include provisions for domestic margins of preference, affording preferential treatment to Jamaican suppliers in public contracts in some circumstances, and setting aside a portion of the government’s procurement budget for local micro, small, and medium enterprises.  Notwithstanding, U.S. businesses are encouraged to participate in GOJ open procurements, many of which are published in media and via the government’s electronic procurement website: https://www.gojep.gov.jm/  .

With Jamaica’s debt to GDP ratio having decreased to approximately 96 percent, the government used the attendant fiscal space to reduce and/or abolish a number of distortionary taxes effective April 2019.

Jamaica’s commitment to regulatory reform is an intentional effort to become a more attractive destination for foreign investment.  According to the World Bank’s “Doing Business 2019” report, Jamaica ranked 75 out of 190 economies, above average compared to Latin American and Caribbean countries.  The country made significant improvement in resolving insolvency, following the passage of new bankruptcy legislation and now ranks 6th in starting a business and a much improved 12th in getting credit.  Jamaica ranked 79 out of 140 countries in the World Economic Forum’s 2018 Global Competitiveness Index.  Some report that bureaucracy remains a major impediment, with the country continuing to underperform in the areas of trading across borders, registering property, paying taxes, and enforcing contracts.

Jamaica’s trade and investment promotion agency (JAMPRO) is the GOJ agency responsible for promoting business opportunities to local and foreign investors.  While JAMPRO does not institute general criteria for FDI, the institution targets specific sectors for investment and promotes Jamaican exports (see http://www.jamaicatradeandinvest.org/  ).

JAMPRO and the Jamaica Business Development Corporation assist micro, small, and medium-sized enterprises (MSME) primarily through business facilitation and capacity building.  MSMEs tend to consist of less than 10 employees. Such fee-based services are made available to foreign-owned MSMEs (see https://www.jbdc.net/  ).

Limits on Foreign Control and Right to Private Ownership and Establishment

All private entities, foreign and domestic, are entitled to establish and own business enterprises, as well as to engage in all forms of remunerative activity subject to inter alia, labor, registration, and environmental requirements.  Jamaica does not impose limits on foreign ownership or control and local laws do not distinguish between local and foreign investors. There are no sector-specific restrictions that impede market access. An amendment to the Companies Act, passed in 2017, requires companies to disclose beneficial owners to the Companies Office of Jamaica (ORC).  The law mandates that the company retain records of legal and beneficial owners for seven years.  The GOJ has proposed new legislation on the incorporation and operation of International Business Companies (IBC), which is designed to attract and facilitate a wide variety of international business activities to include: (1) holding companies providing asset protection for intellectual property rights, real property, and the shares of other companies; (2) serving as vehicles for licensing and franchising; (3) conducting international trade, and investment activities; (4) acting as special purpose vehicles in international financial transactions; and, (5) serving as the international headquarters for global companies.

The U.S. government is not aware of any discrimination against foreign investors at the time of initial investment or after the investment is made.  However, under the Companies Act, investors are required to either establish a local company or register a branch office of a foreign-owned enterprise.  Branches of companies incorporated abroad must register with the Registrar of Companies if they intend to operate in Jamaica. There are no laws or regulations requiring firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control.  Incentives are available to local and foreign investors alike, including various levels of tax relief.

Other Investment Policy Reviews

Jamaica concluded a third party trade policy review through the WTO in September 2017.  The WTO Secretariat’s recommendations are listed here: https://www.wto.org/english/tratop_e/tpr_e/tp459_e.htm  

Jamaica has not undertaken any investment policy reviews within the last three years in conjunction with the Organization for Economic Cooperation and Development (OECD) or United Nations Conference on Trade and Development (UNCTAD).  The GOJ’s previous WTO review took place in 2011 and an OECD review took place in 2004.

Business Facilitation

Businesses can register using the “Super Form,” a single Business Registration Form for New Companies and Business Names.  The ORC acts as a “one-stop-shop,” effectively reducing the registration time to between one and three days.  Foreign companies can register using these forms, with or without the assistance of an attorney or notary. The “Super Form” is available under Forms at the ORC’s website (https://www.orcjamaica.com  ).

Outward Investment

While the GOJ does not actively promote an outward investment program, it does not restrict domestic investors from investing abroad.

2. Bilateral Investment Agreements and Taxation Treaties

Jamaica has bilateral investment treaties (BIT) in force with Argentina, China, France, Germany, Italy, Republic of Korea, Netherlands, Spain, Switzerland, United Kingdom, and the United States.  Jamaica has signed, but not yet put into force, BITs with Cuba, Egypt, Indonesia, Kuwait, Nigeria, and Zimbabwe.

Jamaica is a member of the Caribbean Community (CARICOM) and benefits from preferential trading arrangements under the CARICOM Single Market and Economy (CSME).  CARICOM countries also have preferential trading arrangements with the European Union, Canada, the United States, Colombia, the Dominican Republic, and Venezuela.  Jamaica has not signed a free trade agreement with the United States but in 2013 the United States and CARICOM signed a Trade and Investment Framework Agreement (TIFA).

Jamaica signed a bilateral Income Tax Treaty with the United States in 1980, which seeks to avoid double taxation while preventing income tax evasion.  Jamaica also has double taxation agreements with Canada, CARICOM, China, Denmark, France, Germany, Norway, Sweden, Switzerland, and the United Kingdom. In 2014, Jamaica and the United States signed an inter-government agreement for reciprocal information sharing as part of the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA).

3. Legal Regime

Transparency of the Regulatory System

Jamaica’s regulatory systems are transparent and consistent with international norms.  Proposed legislation is available for public review at http://japarliament.gov.jm , and members of the public are invited to provide submissions through public meetings or targeted outreach to stakeholders for when there is a distinct policy shift or for sensitive changes.  There is no law that requires the rulemaking body to solicit comments on proposed regulation and no timeframe for the length of a consultation period when it happens. Furthermore, the law does not require reporting on public consultations but the government presents the consultations directly to interested stakeholders in one unified report.  Laws in effect are available at japarliament.gov.jm  or moj.gov.jm .  Companies interested in doing business in a particular sector should seek guidance from the relevant regulator(s).

Jamaica is compliant with established benchmarks for public disclosure of its budget, the establishment and functioning of an independent and supreme audit body, and the award of contracts for natural resource extraction.  Additionally, Jamaica’s Public Debt Management Act (PDMA) of 2012 has codified a gradual reduction in its contingent liability or Government Guaranteed Loans (GGL), which were 7.4 percent of GDP in 2017. The PDMA targets a three percent GGL-to-GDP ratio by 2027.

International Regulatory Considerations

The GOJ tends to adopt Commonwealth standards for its regulatory system, especially from Canada and the United Kingdom.  In 2001, CARICOM member states established the Regional Organization for Standards and Quality (CROSQ) under Article 67 of the Revised Treaty of Chaguaramas.  CROSQ is intended to harmonize regional standards to facilitate the smooth movement of goods in the common market. Jamaica is also a full member of the WTO and is required to notify all draft technical regulations to the WTO Committee of Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Jamaica has a common law legal system and court decisions are generally based on past judicial declarations.  The Jamaican Constitution provides for an independent judiciary with a three-tier court structure. A party seeking to enforce ownership or contractual rights can file a claim in the Resident Magistrate or Supreme Court.  Appeals on decisions made in these courts can be taken before the Court of Appeal and then to the Judicial Committee of the Privy Council in the United Kingdom. The Caribbean Court of Justice (CCJ), in its original jurisdiction, is the court of the 15-member Caribbean Community (CARICOM), but Jamaica has not signed on to its appellate jurisdiction.

Jamaica does not have a single written commercial or contractual law and case law is therefore supplemented by the following pieces of legislation: (1) Arbitration (Recognition and Enforcement of Foreign Awards) Act; (2) Companies Act; (3) Consumer Protection Act; (4) Fair Competition Act; (5) Investment Disputes Awards (Enforcement) Act; (6) Judgment (Foreign) (Reciprocal Enforcement) Act; (7) Law Reform (Frustrated Contracts) Act; (8) Loans (Equity Investment Bonds) Act; (9) Partnership (Limited) Act; (10) Registration of Business Names Act; (11) Sale of Goods Act; (12) Standards Act; and, (13) Trade Act.  The commercial and civil divisions of the Supreme Court have jurisdiction to hear intellectual property claims.

Jamaica enforces the judgments of foreign courts through: (1) The Judgment and Awards (Reciprocal Enforcement) Act; (2) The Judgment (Foreign) (Reciprocal Enforcement) Act; and, (3) The Maintenance Orders (Facilities for Enforcement) Act.  Under these acts, judgments of foreign courts are accepted where there is a reciprocal enforcement of judgment treaty with the relevant foreign state. International arbitration is also accepted as a means for settling investment disputes between private parties.

The Jamaican judicial system has a long tradition of being fair but court cases can take years or even decades to resolve.  The new Chief Justice, appointed in 2018, has articulated plans to streamline the delivery of judgments, by bringing greater levels of efficiency to court administration and targeting throughput rates in line with international best practice.  Efforts are currently underway to clear the backlog of court cases by the end of 2019 and provide hearing date certainty and disposition of cases within 24 months, barring exceptional circumstances. The deployment of new courtrooms and the appointment of additional High Court Judges are indicators of Jamaica’s commitment to justice reform.

Challenges with dispute resolution usually reflect broader problems within the court system including long delays and resource constraints, according to many companies.  Subsequent enforcement of court decisions or arbitration awards is usually adequate, and the local court will recognize the enforcement of an international arbitration award.

A specialized Commercial Court was established in 2001 to expedite the resolution of commercial cases.  The rules do not make it mandatory for commercial cases to be filed in the Commercial Court and the Court is largely underutilized by litigants.

Jamaica ranked 127 in the 2019 Doing Business Report for the length of time taken for the enforcement of contracts in the courts.

Laws and Regulations on Foreign Direct Investment

There are no specific laws or regulations directly targeted to foreign investment.  Since foreign companies are treated similar to Jamaican companies when investing, the relevant sections of the applicable laws are applied equally.

Competition and Anti-Trust Laws

The Fair Trading Commission (FTC), an agency of the Ministry of Industry, Commerce, Agriculture and Fisheries (MICAF), administers Jamaica’s Fair Competition Act (FCA).  The major objective of the FCA is to foster competitive behavior and provide consumer protection. The Act proscribes the following anti-competitive practices: resale price maintenance; tied selling; price fixing; collusion and cartels; and bid rigging.  The Act does not specifically prohibit mergers or acquisitions that could lead to the creation of a monopoly. The FTC is empowered to investigate breaches of the Act and businesses or individuals in breach can be taken to court if they fail to implement the corrective measures outlined by the FTC. 

Expropriation and Compensation

Expropriation is generally not an issue in Jamaica, although land may be expropriated for national development under the Land Acquisition Act, which provides for compensation on the basis of market value.  The U.S. government is not aware of any current expropriation-related litigation between the Jamaican government and any private individual or company. However, the U.S. government assisted investors who had property expropriated during the 1970’s socialist regime, with a payment in one such case received as recently as 2010.

Dispute Settlement

ICSID Convention and New York Convention

Jamaica became a signatory to the International Center for Settlement of Disputes (ICSID) in 1965.  The country is a signatory to the New York Convention (the Convention on the Recognition and Enforcement of Foreign Arbitral Awards), which governs the recognition and enforcement of foreign arbitration awards.  The Jamaican Arbitration (Recognition and Enforcement of Foreign Awards) Act enables foreign arbitral awards under the New York Convention to be enforced in Jamaica.

Investor-State Dispute Settlement

International arbitration is also accepted as a means for settling investment disputes between private parties.  Jamaica enforces the judgments of foreign courts through: (1) The Judgment and Awards (Reciprocal Enforcement) Act; (2) The Judgment (Foreign) (Reciprocal Enforcement) Act; and, (3) The Maintenance Orders (Facilities for Enforcement) Act.  Under these acts, judgments of foreign courts are accepted where there is a reciprocal enforcement of judgment treaty with the relevant foreign state. Jamaica does not have a history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Jamaica accepts international arbitration of investment disputes between foreign investors, the Jamaican government, and private parties.  Local courts recognize and enforce foreign arbitral awards. The Caribbean Court of Justice (CCJ) serves as the region’s international tribunal for disputes within the Caribbean Community (CARICOM) Single Market and Economy.  The Dispute Resolution Foundation and the Caribbean Branch of the Chartered Institute of Arbitrators both facilitate arbitration and rules of the Bilateral Investment Treaty (BIT) with Jamaica apply to qualifying investors. Other foreign investors are given national treatment and civil procedures apply.  Disputes between enterprises are handled in the local courts but foreign investors can refer cases to ICSID. There were cases of trademark infringements in which U.S. firms took action and were granted restitution in the local courts. While restitution is slow, it tends to be fair and transparent. The U.S. government is not aware of any cases in which State-Owned Enterprises (SOEs) have been involved in investment disputes.

Bankruptcy Regulations

Jamaica enacted new insolvency legislation in 2014 that replaced the Bankruptcy Act of 1880 and seeks to make the insolvency process more efficient.  The Act prescribes the circumstances under which bankruptcy is committed; the procedure for filing a bankruptcy petition; and the procedures to be followed in the administration of the estates of bankrupts.  The reform addresses bankruptcy; insolvency, receiverships; provisional supervision; and winding up proceedings. The law addresses corporate and individual insolvency and facilitates the rehabilitation of insolvent debtors, while removing the stigma formerly associated with either form of insolvency.  Both insolvents and “looming insolvents” (persons who will become insolvent within twelve months of the filing of the proposal if corrective or preventative action is not taken) are addressed in the reforms.

The Act contains a provision for debtors to make a proposal to their creditors for the restructuring of debts, subject to acceptance by the creditor.  Creditors can also invoke bankruptcy proceedings against the debtor if the amount owed is not less than the prescribed threshold or if the debtor has committed an act of bankruptcy.  The filing of a proposal or notice of intention to file a proposal creates a temporary stay of proceedings. During this period, the creditor is precluded from enforcing claims against the debtor.  The stay does not apply to secured creditors who take possession of secured assets before the proposal is filed; gives notice of intention to enforce against a security at least 10 days before the notice of intention or actual proposal is filed; or, rejects the proposal.  The 2014 legislation makes it a criminal offence if a bankrupt entity defaults on certain obligations set out in the legislation.

Jamaica ranked 33 on Resolving Insolvency in the 2019 World Bank’s Doing Business Report.  Bankruptcy proceedings take about a year to resolve, costing 18 percent of the estate value with an average recovery rate of 65 percent.

The text of the Bankruptcy and Insolvency Act can be found at: http://www.japarliament.gov.jm/attachments/341_Thepercent 20Insolvencypercent 20Actpercent 202014percent 20No.14percent 20rotated.pdf 

4. Industrial Policies

Investment Incentives

The Fiscal Incentives (Miscellaneous Provisions) Act 2013 repeals most of the legacy incentive legislation and provides flexibility for new tax incentives only to be granted in relation to the bauxite sector, special economic zone activities, the relocation of corporate headquarters, and Junior Stock Exchange listings.  The Act also outlines the arrangement for transitioning to the new regime. Continuing beneficiaries may elect to keep old incentives such as relief from income tax and customs duty as well as zero-rated General Consumption Tax (GCT) status for imports.

Below are short descriptions of notable, recently enacted investment incentives.

Omnibus legislation – Provides tax relief on customs duties, additional stamp duties, and corporate income tax.  These benefits are granted under the following four areas:

(1) The Fiscal Incentives Act: Targets small and medium size businesses and reduces the effective corporate income tax rate by applying: (a) an Employment Tax Credit (ETC) at a maximum value of 30 percent; and (b) a capital allowance applicable to a broadened definition of industrial buildings.

(2) The Income Tax Relief (Large-Scale Projects and Pioneer Industries) Act: Targets large-scale projects and/or pioneering projects and provides for an improved and more attractive rate for the ETC.  Projects will be designated either as large-scale or pioneer based on a decision by Parliament and subject to an Economic Impact Assessment.

(3) Revised Customs Tariff: Provides for the duty free importation of capital equipment and raw material for the productive sectors.

(4) Revised Stamp Duty Act: Provides exemption from additional stamp duty on raw materials and non-consumer goods for the manufacturing sector.

Urban Renewal Act: Companies that undertake development within Special Development Areas can benefit from Urban Renewal Bonds, a 33.3 percent investment tax credit, tax-free rental income, and the exemption from transfer tax and stamp duties on the ‘improved’ value of the property.

Bauxite and Alumina Act: Under this Act, bauxite/alumina producers are allowed to import all productive inputs free of duties, Value Added Tax (VAT), and other port related taxes and charges.

The Foreign Sales Corporation Act: This Act exempts income tax for five years for qualified income arising from foreign trade.  U.S. law through the Tax Information Exchange Agreement (TIEA) reinforces this incentive.

Jamaica’s EX-IM Bank provides concessionary interest rate loans for trade financing, while the Development Bank of Jamaica offers reduced lending rates to the productive sectors.  Special tax incentives exist for companies that register on the Junior Stock Exchange.

Income Tax Act (Junior Stock Exchange): As of January 1, 2014, companies listed on the Junior Stock Exchange are not required to pay income tax during the first five years.

Special Economic Zone Act: In 2015, Jamaica passed legislation establishing Special Economic Zones (SEZs).  The SEZ Act repeals the Jamaica Free Zone Act, making way for: (1) the designation; promotion; development; operation; and, management of Special Economic Zones; (2) the establishment of a SEZ Authority; and, (3) the granting of benefits and other measures in order to attract domestic and foreign investments.

Research and Development

Foreign firms are allowed to participate in GOJ-financed or subsidized research and development programs, however, few opportunities exist for such programs.

Government Guarantee and Private-Public Partnership

The GOJ, through the PDMA of 2012, reduced the tendency of government to provide sovereign guarantees on loans, which often had to be converted into public debt.  The debt reduction imperatives built into successive IMF programs further stymied this propensity.

The GOJ, however, continues to actively encourage FDI utilizing the Public-Private Partnership (PPP or P3) model, to attract private financing.  Jamaica has successfully implemented a number of PPP projects to include the divestiture of the Kingston Freeport Terminal, the Sangster International Airport in Montego Bay, and Norman Manley International Airport in Kingston.  Jamaica seeks to expedite the divestment of government assets through PPPs and public listings in order to drive private capital to otherwise stagnant government assets.

Foreign Trade Zones/Free Ports/Trade Facilitation

Jamaica had approximately 200 companies in 190 free zone locations involved in business process outsourcing (BPO); warehousing and distribution; manufacturing; logistics; and merchandising.  However, following the passage of a new Special Economic Zone Act in 2015, existing free zone entities had until December 31, 2019 to transition to the new regime. The GOJ transitioned from free zone operations to special economic zones (SEZs) to comply with World Trade Organization (WTO) rules for middle-income countries under the WTO Agreement on Export Subsidies and Countervailing Measures.  The Jamaica Special Economic Zone Authority (www.jseza.com  ) regulates, supervises, and promotes the Special Economic Zone (SEZ).

SEZ operators benefit from a 12.5 percent corporate income tax rate (effective rate may be as low as 7.5 percent with the approval of additional tax credits); customs duty relief, General Consumption Tax (GCT) relief; employment tax credit; promotional tax credit on research and development; capital allowance; and a stamp duty payable of 50 percent.  Developers receive these benefits plus relief from income tax on rental income and relief from transfer tax. There is a non-refundable one-time registration fee and renewable annual fee to enter the regime.

Duty-free zones are primarily found in airports, hotels, and tourist centers and, as with special economic zone activities, do not discriminate on the basis of nationality.  Amendments have also been made to the Export Free Zones Act to allow for the establishment of Single Entity Free Zones, with individual companies now designated as free zones.

Performance and Data Localization Requirements

No performance requirements are generally imposed as a condition for investing in Jamaica, and government of Jamaica (GOJ) imposed conditions are not overly burdensome according to foreign investors.  The GOJ does not mandate local employment, although the use of foreign workers to fill semi-skilled and unskilled jobs is generally frowned upon, especially by trade unions. When requesting work permits for foreign workers, both local and foreign employers must describe efforts to recruit locally.  The GOJ requires a description of efforts to recruit locally. Some report of delays in obtaining work permits for foreign workers as the GOJ does not readily have data available to determine if the requisite skills exist in Jamaica.

The GOJ does not follow “forced localization,” requiring domestic content in goods or technology.  There are no requirements to provide the GOJ access to surveillance of data and there are no restrictions on maintaining certain amounts of data storage within the country.

5. Protection of Property Rights

Private entities, whether foreign or domestic, generally have the right to freely establish, own, acquire, and dispose of business enterprises and may engage in all forms of remunerative activity.

Real Property

Property rights are guaranteed by the Constitution.  Jamaica’s Registration of Titles Act recognizes and provides for the enforcement of secured interests in property by way of mortgage.  It also facilitates and protects the acquisition and disposition of all property rights, though working through Jamaica’s bureaucracy can result in significant delays.  In particular, it sometimes takes a long time for landowners to secure titles.

Approximately 55 percent of the land in Jamaica is registered, although a large percentage of those properties do not have current titles, as many families who pass land ownership from parent to child often do not go through the proper legal channels due to the cost and time involved.

Many businesses have reported that squatting is also a major challenge in Jamaica, with nearly 20 percent of the population living as squatters.  Three-quarters of squatters reside on government lands. Under the Registration of Titles Act, a squatter can claim a property by adverse possession (without compensating the owner for the land) if a person can demonstrate that he or she has lived on government land for more than 60 years, or on private property for more than 12 years undisturbed (including without any payment to the land owner).  There are no specific regulations regarding land lease or acquisition by foreign and/or non-resident investors.

The country’s World Bank Doing Business Report ranking for ease of “registering property” was 131 in 2019 due largely to the number of procedures and high costs involved.  Jamaica continues to outperform other Latin America and Caribbean countries in the time required to close a property transaction.

Registration of Titles Act: http://moj.gov.jm/sites/default/files/laws/Registrationpercent 20ofpercent 20Titles.pdf 

Intellectual Property Rights

Jamaica has one of the stronger intellectual property (IP) protection regimes in Latin America and the Caribbean, according to the International Property Rights Index, although legislative and enforcement gaps still exist.  Jamaica is a member of the World Intellectual Property Organization (WIPO) and is a signatory of the Berne Convention. Jamaica and the United States have an Intellectual Property Rights Agreement and a Bilateral Investment Treaty, which provide assurances to protect intellectual property.  It is relatively easy to register IP, and the Jamaica Intellectual Property Office (JIPO) assists parties interested in registering IP and supports investors’ efforts to enforce their rights. Overall, protections across all types of IP are improving.

Law enforcement efforts to combat counterfeit and pirated goods are improving on the ground but border enforcement remains a challenge.  IP violations tend to be more in relation to physical goods, while electronic IP theft is less common.

The country’s trademark and copyright regimes satisfy the World Trade Organization’s (WTO) Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), although the patent and design law is not TRIPS compliant.  A new Patent & Designs Bill, including new rules and fee structures, has been in drafting for a number of years but has not passed in Parliament. However, JIPO instituted administrative procedures to register U.S. patents for a nominal fee in order to protect U.S. rights holders.  The Geographical Indications Act (GI) of 2004 is now fully in force and TRIPS compliant, protecting products whose particular quality or reputation is attributable to its geographical origin. General law provides protection for trade secrets and protection against unfair competition is guaranteed under the Fair Competition Act.

In the area of copyright protection, amendments to the Copyright Act passed in June 2015 fulfilled Jamaica’s obligations under the WIPO Internet Treaties and extended copyright protection term from 50 to 95 years.  The Copyright Act complies with the TRIPS Agreement and adheres to the principles of the Berne Convention, and covers works ranging from books and music to computer programs. Amendments in June 1999 explicitly provide copyright protection on compilations of works such as databases and make it an offense for a person to manufacture or trade in decoders of encrypted transmissions.  It also gives persons in encrypted transmissions or in broadcasting or cable program services a right of action against persons who infringe upon their rights.

Jamaica, along with some other Caribbean countries, have been cited in the last several years’ Special 301 Report for the absence of compensation to performance rights organizations as well as due to concerns regarding unlicensed broadcasting of copyrighted television programming.

Enforcement

The Jamaica Constabulary Force (JCF) reported seizures of over USD 11 million of counterfeit goods in 2018.  The most commonly counterfeited goods include shoes, alcohol, cigarettes, clothing, handbags, and pharmaceuticals.  Jamaica’s border enforcement efforts are hampered by customs officers not having ex officio authority to seize and destroy counterfeit goods. Rights holders must first be provided with visual samples of suspect merchandise to verify the item as counterfeit, submit a declaration indicating the differences between the fake and actual brands, and provide an authorization to seize the merchandise.  The JCF established a specialized intellectual property unit within its counter terrorism and organized crime branch (C-TOC) in 2015 to boost IP enforcement.

Rights holders are responsible for paying the costs associated with storage and destruction of counterfeit goods.  Presently the Commissioner of Customs may grant up to 10 days for a rights holder to produce the required evidence and commitments before releasing suspected counterfeit goods that are in transit.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  .

6. Financial Sector

Capital Markets and Portfolio Investment

Credit is available on market terms, and foreigners are allowed to borrow freely on the local market at market-determined rates of interest.  A relatively effective regulatory system was established to encourage and facilitate portfolio investment. Jamaica has had its own stock exchange, the Jamaica Stock Exchange (JSE), since 1969.  The JSE was rated the best performing stock exchange in the world, by Bloomberg, in 2015 and again in 2018. The Financial Services Commission and the Bank of Jamaica (BOJ), the central bank, regulate these activities.  Jamaica respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions.

Money and Banking System

At the end of 2018 there were 11 supervised deposit-taking institutions consisting of eight commercial banks, one merchant bank (Licensed under the Financial Institutions Act) and two building societies.  The number of credit unions shrank from 47 at the end of 2009 to 26 at the end of 2018. In the BOJ’s January 2019 report, commercial banks held assets of almost USD 11 billion at the end of September 2018.  Non-performing loans (NPL) of USD 155 million at end December 2018, were 2.5 percent of total loans. Three of the country’s eight commercial banks are foreign-owned. After a financial sector crisis in the mid-1990s led to consolidations, the sector has remained largely stable.

In October 2018, the GOJ took legislative steps to modernize and make the central bank operationally independent through the tabling of amendments to the Bank of Jamaica (BOJ) Act. The modernization program includes, inter alia, the institutionalization of the central bank independence, improved governance, and the transitioning of monetary policy towards inflation targeting.  These developments follow previous strengthening of the BOJ, in 2015, when it undertook independent responsibility for banking supervision. Jamaica’s financial governance framework is in line with international standards and legislative amendments continue to enhance the BOJ’s regulatory powers.

Foreign Exchange and Remittances

Foreign Exchange

There are no restrictions on holding funds or on converting, transferring, or repatriating funds associated with an investment.  In 2017, the BOJ implemented a new system called the BOJ Foreign Exchange Intervention & Trading Tool (B-FXITT) for the sale and purchase of foreign exchange (FX) to market players.  The new system is a more efficient and transparent way of intervening in the FX market to smooth out demand and supply conditions.

Investment-related funds are freely convertible to regularly traded currencies, particularly into United States and Canadian dollars and British pounds.  However, foreign exchange transactions must be conducted through authorized foreign exchange dealers, “cambios,” and bureau de change. Foreign exchange is generally available and investors are free to remit their investment returns.

Remittance Policies

The country’s financial system is fully liberalized and subject to market conditions.  There is no required waiting period for the remittance of investment returns. Any person or company can purchase instruments denominated in foreign currency.  There are no restrictions or limitations on the inflow or outflow of funds for the remittance of profits or revenue. The country does not possess the financial muscle to engage in currency manipulation.     

Jamaica was listed among the Major Money Laundering Jurisdictions in the U.S. Department of State’s 2018 International Narcotics Control Strategy Report (INCSR).

The Caribbean Financial Action Task Force made public Jamaica’s fourth round Mutual Evaluation Report (MER) in January 2017 (https://www.cfatf-gafic.org/index.php/documents/4th-round-meval-reports  ).  Jamaica entered into an Observation Period until October 2019 to address deficiencies addressed in the MER.  Should Jamaica not address deficiencies listed in the MER, it will enter a formal monitoring period by the Financial Action Task Force.

Sovereign Wealth Funds

Jamaica does not have a sovereign wealth fund or an asset management bureau.

7. State-Owned Enterprises

As a condition of Jamaica’s Stand-By Agreement with the IMF, the GOJ is reforming the public sector to include State-Owned Enterprises (SOEs).  Jamaican SOEs are most active in the agriculture, mining, energy, and transport sectors of the economy. Of 162 public bodies, 56 are self-financing and are therefore considered SOEs as either limited liability entities established under the Companies Act of Jamaica or statutory bodies created by individual enabling legislation.  SOEs generally do not receive preferential access to government contracts. SOEs must adhere to the provisions of the GOJ (Revised) Handbook of Public Sector Procurement Procedures and are expected to participate in a bidding process to provide goods and services to the government. SOEs also provide services to private sector firms.  SOEs must report quarterly on all contracts above a prescribed limit to the Integrity Commission. Since 2002, SOEs have been subject to the same tax requirements as private enterprises and are required to purchase government-owned land and raw material and execute these transactions on similar terms as private entities.

Jamaica’s Public Bodies Management and Accountability Act (PBMA) requires SOEs to prepare annual corporate plans and budgets, which must be debated and approved by Parliament.  As part of the GOJ’s economic reform agenda, SOE performance is monitored against agreed targets and goals, with oversight provided by stakeholders including representatives of civil society.  The GOJ prioritized divestment of SOEs, particularly the most inefficient, as part of its IMF reform commitments. Private firms compete with SOEs on fair terms and SOEs generally lack the same profitability motives as private enterprises, leading to the GOJ’s absorbing the debt of loss-making public sector enterprises.

In 2012, the GOJ approved a Corporate Governance Framework (CGF) to promote improved performance by SOEs.  While Jamaican SOEs are not required to adhere to Organization of Economic Co-operation and Development (OECD) Guidelines on Corporate Governance, the CGF is based on international best practices and principles of corporate governance.

Jamaica’s public bodies report to their respective Board of Directors appointed by the responsible portfolio minister and while no general rules guide the allocation of SOE board positions, some entities allocate seats to specific stakeholders.  Under the CGF, persons appointed to boards should possess the skills and competencies required for the effective functioning of the entity. However, some board members are selected on the basis of their political affiliation. The Jamaican court system, while allegedly slow, is respected for being fair and balanced and in many cases has ruled against the GOJ and its agents.

Privatization Program

As a condition of Jamaica’s Stand-By Agreement with the IMF, the GOJ identified a number of public assets to be privatized from various sectors.  Jamaica actively courts foreign investors as part of its divestment strategy. In certain instances, the government encourages local participation.  Restrictions may be placed on certain assets due to national security considerations. Privatization can occur through sale, lease, or concession. Transactions are generally executed through public tenders but the GOJ reserves the right to accept unsolicited proposals for projects deemed to be strategic.  The Development Bank of Jamaica, which oversees the privatization program, is mandated to ensure that the process is fair and transparent. When some entities are being privatized, advertisements are placed locally and through international publications, such as the Financial Times, New York Times, and Wall Street Journal, to attract foreign investors.  Foreign investors won most of the privatization bids in the last decade.

While the time taken to divest assets depends on state of readiness and complexity, on average transactions take between 18 and 24 months.  The process involves pre-feasibility and due diligence assessments; feasibility studies; pre-qualification of bidders; and a public tender. In 2018, the GOJ signed a 25-year concession for the management and development of the Norman Manley International Airport in Kingston.  Other large privatizations include the 2003 privatization of Sangster International Airport in Montego Bay and the 2015 privatization of the Kingston Container Terminal port facility. The GOJ is in process of privatizing the Wigton Wind Farm, a 62-megawatt wind farm, through a public offering, and is developing a pipeline of additional privatization projects.  The GOJ also seeks to divest stagnant assets owned by large government entities such as the Urban Development Corporation and Factories Corporation of Jamaica.

List of current privatization transactions can be found at http://dbankjm.com/current-transactions/  

8. Responsible Business Conduct

Responsible Business Conduct (RBC) among many Jamaican companies remains a nascent concept.  In 2013, the government provided additional financial incentives for corporations to support charity work through the Charities Act, under which corporations and individuals can claim a tax deduction on contributions made to registered charitable organizations.  Some large publicly listed companies and multinational corporations in Jamaica maintain their own foundations that carry out social and community projects to support education, youth employment, and entrepreneurship.

In 2018, the GOJ became party to the OECD’s Base Erosion and Profit Shifting Multilateral Convention, which updates the network of bilateral tax treaties and reduces opportunities for tax avoidance by multinational enterprises.  GOJ also became signatory to the Convention on Mutual Administrative Assistance in Tax Matters, effective March 1, 2019, having deposited instruments of ratification in November 2018.

9. Corruption

The law provides criminal penalties for corruption by officials but the government generally does not implement the law effectively.  Officials appeared to engage in corrupt practices at times with impunity. There have been numerous reports of government corruption in recent years and it remains a significant problem of public concern.  Media and civil society organizations continued to criticize the government for being slow and at times reluctant to prosecute corruption cases.

Under the Corruption Prevention Act, public servants can be imprisoned for up to 10 years and fined as much as USD 100,000 if found guilty of engaging in acts of bribery, including bribes to foreign public officials.

In 2017, Jamaica passed an Integrity Commission Act that consolidated three agencies with anti-corruption mandates into a single entity, the Integrity Commission, which now has limited prosecutorial powers.  The three agencies are the precursor Integrity Commission, which received and monitored statutory declarations from parliamentarians; the Office of the Contractor General (OCG), which monitored government contracts; and the Commission for the Prevention of Corruption, which received the financial filings of specified public servants.  A key area of concern for corruption is in government procurement. However, some investors have reported that successful prosecutions – particularly for high-level corruption – are rare.

Two Ministers of government demitted office between 2018 and March 2019, in the wake of corruption allegations.

Corruption, and its apparent linkages with organized crime, appear to be one of the root causes of Jamaica’s high crime rate and economic stagnation.  In 2018, Transparency International gave Jamaica a score of 44 out of a possible 100 on the Corruption Perception Index (CPI), demoting the island two spots from its ranking of 68th in 2017 to 70th globally.  U.S. firms operating in Jamaica express concern about corruption generally.  The apparent willingness of GOJ officials to engage in corrupt practices with foreign companies, according to some U.S. firms, places U.S. firms at a competitive disadvantage.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Jamaica ratified major international corruption instruments, including the Inter-American Convention Against Corruption and the United Nations Convention Against Corruption.  Jamaica is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Major Organised Crime and Anti-Corruption Agency (MOCA)

24hr Hotline: 1-800-CORRUPT (1-800-267-7878)
Email: info@moca.gov.jm

National Integrity Action

2 Holborn Road
Kingston 10, Jamaica
Telephone: 1 876 906 4371
Fax: 876-754-7951
Email: info@niajamaica.org

10. Political and Security Environment

U.S. businesses have identified crime as greater threat to foreign investment in Jamaica than political violence, as the country has not experienced political violence since the early 1980s.  Violent crime, rooted in poverty, unemployment, and transnational criminal organizations, is reportedly a serious problem in Jamaica. Sporadic gang violence and shootings are concentrated in specific inner city neighborhoods but can occur elsewhere.  Jamaica’s murder rate decreased by 21.9 percent in 2018 to 47 per 100,000, the third highest in Latin America and the Caribbean, according to InSight Crime.

This significant reduction is attributed largely to States of Emergency enacted over three violent-ridden areas of the island for the better part of 2018, all of which expired in January 2019.  Declaration of States of Emergency give police and military personnel the authority to search, seize, and arrest without being in possession of a warrant.

Some report that Jamaica also faces a significant problem with extortion in certain urban commercial areas and on large construction project sites.  Investors claim that the security challenges increase the cost of doing business as companies spend on additional security measures.

The U.S. Department of State assessed Kingston as a critical threat location for crime directed at or affecting official U.S. government interests.  U.S. companies with personnel assigned to Jamaica are strongly advised to conduct security and cultural awareness training.

Please refer to the Jamaica 2018 Crime and Safety Report from the Department of State’s Overseas Security Advisory Council (OSAC) for additional information (https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=23208  ).

11. Labor Policies and Practices

Jamaica had an estimated labor force of 1.3 million as of October 2018 with 8.6 percent unemployment.  Women make up 46 percent of the labor force and have an unemployment rate of 11.2 percent. Unemployment is highest within the 20-24 age cohort.  Most Jamaicans are employed in services including the retail and tourism sectors, followed by construction, transportation, and communications. Since 1999, more Jamaicans have become trained in information technology and the business process outsourcing (BPO) industry currently employs more than 30,000 people.  No law requires hiring locals but foreign investors are expected to hire locals, especially for unskilled and lower skilled jobs. The security guard industry adopted the practice of employing workers on extended contracts to avoid some of the cost, including severance, associated with direct employment. Jamaica does not have a history of waiving labor laws to retain or attract investment and these laws tend to be uniform across the economy.

There are no restrictions on employers adjusting employment to respond to market conditions, but there are severance payment requirements if a position is made redundant.  Under the law, there is a distinction between a layoff and a redundancy. A layoff allows a temporary period without employment for up to four months. The Employment (Termination and Redundancy Payments) Act provides redundancy pay to employees who are let go with at least two years of continuous employment.  Workers with up to 10 years of employment are entitled to two weeks payment for every year worked, while workers with over 10 years employment are entitled to three weeks payment except in cases such as firing for cause. There are no unemployment benefits in Jamaica but low income Jamaicans have the option of applying for social benefits under a conditional cash transfer program referred to as the Program for Advancement though Health and Education (PATH).

The law provides for the rights of workers to form or join unions, to bargain collectively, and the freedom to strike.  Trade union membership accounts for about 20 percent of the labor force, although the movement weakened in recent years.  The law prohibits anti-union discrimination, although it is not uncommon for private sector employers to lay off union workers and rehire them as contractors.  Labor law entitles protections to all persons categorized as workers, although it denies contract workers coverage under certain statutory provisions, such as redundancy benefits.

Jamaica has an Industrial Disputes Tribunal (IDT) to which the Minister of Labor and Social Security may refer disputes that cannot otherwise be settled.  Arbitrators’ decisions are final. The law denies collective bargaining if no single union represents at least 40 percent of the workers in the unit.

Jamaica ratified most International Labor Organization (ILO) Conventions and international labor rights are recognized within domestic law.  Jamaica has ratified all key international conventions concerning child labor and established laws and regulations related to child labor, including in its worst forms.  However, gaps still exist in Jamaica’s legal framework to adequately protect children from child labor. The GOJ is under-resourced for investigations on worker abuse as well as on occupational safety and health checks.

Jamaica’s workplace policy incorporates all of the recommended practices of the ILO code of practice on HIV/AIDS but the legislation to regulate enforcement is not yet ratified.  In conjunction with the ILO and local stakeholders, the GOJ passed legislation guiding flexible working arrangements. Under the Work Permit Act, a foreign national who wishes to work in Jamaica must first apply for a permit issued by the Ministry of Labor and Social Security.  The law, which seeks to give first preference to Jamaicans, requires organizations planning to employ foreign nationals to prove that attempts were made to employ a Jamaican national.

12. OPIC and Other Investment Insurance Programs

The U.S. government’s Overseas Private Investment Corporation (OPIC) targeted infrastructure, telecommunications, construction, tourism, and energy as priority sectors in Jamaica.  OPIC has financed many projects in Jamaica and recently provided financing and political risk insurance for two large renewable energy projects, as well as a grid upgrade project for the monopoly power utility.  Jamaica is a member of the Multilateral Investment Guarantee Agency (MIGA).

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2017 $14,781* 2017 $14,781 www.worldbank.org/en/country   
Foreign Direct Investment Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2017 $258.6** 2017 $167 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A 2017 $2 BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data  
Total inbound stock of FDI as % host GDP N/A N/A 2017 112% UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx    

Source for Host Country Data: *Statistical Institute of Jamaica
http://statinja.gov.jm/NationalAccounting/Annual/NewAnnualGDP.aspx  

**Jamaica Promotions Corporation (JAMPRO)

 

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data (2017)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
USA 258.60 29 Data unavailable
Mexico 254.80 18
Canada 204.90 29
Spain 156.50 23
Other 13.30 1

Source: Jamaica Promotions Corporation (JAMPRO)


Table 4: Sources of Portfolio Investment

Data not available.

14. Contact for More Information

Economic and Commercial Section
142 Old Hope Road
Kingston 6, Jamaica
Telephone: +1 876-702-6000
Email: kingstoncommercial@state.gov

Japan

Executive Summary

Japan is the world’s third largest economy, the United States’ fourth largest trading partner, and was the second largest contributor to U.S. foreign direct investment (FDI) in 2017.  The Japanese government actively welcomes and solicits foreign investment, and has set ambitious goals for increasing inbound FDI. Despite Japan’s wealth, high level of development, and general acceptance of foreign investment, inbound FDI stocks as a share of gross domestic product (GDP) are the lowest in the Organization for Economic Co-operation and Development (OECD).

Japan’s legal and regulatory climate is highly supportive of investors in many respects.  Courts are independent, sophisticated, and ostensibly provide equal treatment to foreign investors.  The country’s regulatory system is improving transparency and developing new regulations in line with international norms.  Capital markets are deep and broadly available to foreign investors. Japan maintains strong protections for intellectual property rights with generally robust enforcement.  The country remains a large, wealthy, and sophisticated market with world-class corporations, research facilities, and technologies. Nearly all foreign exchange transactions, including transfers of profits, dividends, royalties, repatriation of capital, and repayment of principal, are freely permitted.  As such, the sectors that have historically attracted the largest foreign direct investment in Japan are electrical machinery, finance, and insurance.

On the other hand, foreign investors in the Japanese market continue to face numerous challenges.  A traditional aversion towards mergers and acquisitions within corporate Japan has inhibited foreign investment, and weak corporate governance has led to low returns on equity and cash hoarding among Japanese firms, although business practices may be improving in both areas, particularly in corporate governance.  Investors and business owners must also grapple with inflexible labor laws and a highly regimented labor recruitment system that can significantly increase the cost and difficulty of managing human resources. The Japanese government has recognized many of these challenges and is pursuing initiatives to improve investment conditions.

Levels of corruption in Japan are low, but deep relationships between firms and suppliers may limit competition in certain sectors and inhibit the entry of foreign firms into local markets.

Future changes in Japan’s investment climate are largely contingent on the success of structural reforms to the Japanese economy.  Recent changes have strengthened corporate governance and increased female labor force participation. Nevertheless, further reforms are necessary to improve economic performance.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 18 of 180 http://www.transparency.org/research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2018 39 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 13 of 126 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country (M USD, stock positions) 2017 $129,064 https://www.bea.gov/international/factsheet/
World Bank GNI per capita 2017 $38,550 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Direct inward investment into Japan by foreign investors has been open and free since the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended in 1998.  In general, the only requirement for foreign investors making investments in Japan is to submit an ex post facto report to the relevant ministries.

The Japanese Government explicitly promotes inward FDI and has established formal programs to attract it.  In 2013, the government of Prime Minister Shinzo Abe announced its intention to double Japan’s inward FDI stock to JPY 35 trillion (USD 318 billion) by 2020 and reiterated that commitment in its revised Japan Revitalization Strategy issued in August 2016.  At the end of June 2018, Japan’s inward FDI stock was JPY 29.9 trillion (USD 270 billion), a small increase over the previous year. The Abe Administration’s interest in attracting FDI is one component of the government’s strategy to reform and revitalize the Japanese economy, which continues to face the long-term challenges of low growth, an aging population, and a shrinking workforce.

In April 2014, the government established an “FDI Promotion Council” comprised of government ministers and private sector advisors.  The Council remains active and continues to release recommendations on improving Japan’s FDI environment. The Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO) are the lead agencies responsible for assisting foreign firms wishing to invest in Japan.  METI and JETRO have together created a “one-stop shop” for foreign investors, providing a single Tokyo location—with language assistance—where those seeking to establish a company in Japan can process the necessary paperwork (details are available at http://www.jetro.go.jp/en/invest/ibsc/  ).  Prefectural and city governments also have active programs to attract foreign investors, but they lack many of the financial tools U.S. states and municipalities use to attract investment.

Foreign investors seeking a presence in the Japanese market or seeking to acquire a Japanese firm through corporate takeovers may face additional challenges, many of which relate more to prevailing business practices rather than to government regulations, though it depends on the sector.  These include an insular and consensual business culture that has traditionally been resistant to unsolicited mergers and acquisitions (M&A), especially when initiated by non-Japanese entities; exclusive supplier networks and alliances between business groups that can restrict competition from foreign firms and domestic newcomers; cultural and linguistic challenges; and labor practices that tend to inhibit labor mobility.  Business leaders have communicated to the Embassy that regulatory and governmental barriers are more likely to exist in mature, heavily regulated sectors than in new industries.

The Japanese Government established an “Investment Advisor Assignment System” in April 2016 in which a State Minister acts as an advisor to select foreign companies with “important” investments in Japan.  The system aims to facilitate consultation between the Japanese Government and foreign firms. Of the nine companies selected to participate in this initiative to date, seven are from the United States.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private enterprises have the right to establish and own business enterprises and engage in all forms of remunerative activity.  Japan has gradually eliminated most formal restrictions governing FDI. One remaining restriction limits foreign ownership in Japan’s former land-line monopoly telephone operator, Nippon Telegraph and Telephone (NTT), to 33 percent.  Japan’s Radio Law and separate Broadcasting Law also limit foreign investment in broadcasters to 20 percent, or 33 percent for broadcasters categorized as “facility-supplying.” Foreign ownership of Japanese companies invested in terrestrial broadcasters will be counted against these limits.  These limits do not apply to communication satellite facility owners, program suppliers or cable television operators.

The Foreign Exchange and Foreign Trade Act governs investment in sectors deemed to have national security or economic stability implications.  If a foreign investor wants to acquire over 10 percent of the shares of a listed company in certain designated sectors, it must provide prior notification and obtain approval from the Ministry of Finance and the ministry that regulates the specific industry.  Designated sectors include agriculture, aerospace, forestry, petroleum, electric/gas/water utilities, telecommunications, and leather manufacturing.

U.S. investors, relative to other foreign investors, are not disadvantaged or singled out by any ownership or control mechanisms, sector restrictions, or investment screening mechanisms.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted its most recent review of Japan’s trade policies in March 2017 (available at https://www.wto.org/english/tratop_e/tpr_e/tp451_e.htm  ).

The OECD released its biennial Japan economic survey results on April 15, 2019 (available at http://www.oecd.org/economy/surveys/japan-economic-snapshot/  ).

Business Facilitation

The Japan External Trade Organization (JETRO) is Japan’s investment promotion and facilitation agency.  JETRO operates six Invest Japan Business Support Centers (IBSCs) across Japan that provide consultation services on Japanese incorporation types, business registration, human resources, office establishment, and visa/residency issues.  Through its website (https://www.jetro.go.jp/en/invest/setting_up  /), the organization provides English-language information on Japanese business registration, visas, taxes, recruiting, labor regulations, and trademark/design systems and procedures in Japan.  While registration of corporate names and addresses can be completed through the internet, most business registration procedures must be completed in person. In addition, corporate seals and articles of incorporation of newly established companies must be verified by a notary.

According to the 2018 World Bank “Doing Business” Report, it takes 12 days to establish a local limited liability company in Japan.  JETRO reports that establishing a branch office of a foreign company requires one month, while setting up a subsidiary company takes two months.  While requirements vary according to the type of incorporation, a typical business must register with the Legal Affairs Bureau (Ministry of Justice), the Labor Standards Inspection Office (Ministry of Health, Labor, and Welfare), the Japan Pension Service, the district Public Employment Security Office, and the district tax bureau.  In April 2015, JETRO opened a one-stop business support center in Tokyo so that foreign companies can complete all necessary legal and administrative procedures in one location; however, this arrangement is not common throughout Japan. JETRO has announced its intent to develop a full online business registration system, but it was not operational as of March 2019.

No laws exist to explicitly prevent discrimination against women and minorities regarding registering and establishing a business. Neither special assistance nor mechanisms exist to aid women or underrepresented minorities.

Outward Investment

The Japan Bank for International Cooperation (JBIC) provides a variety of support to Japanese foreign direct investment.  Most support comes in the form of “overseas investment loans,” which can be provided to Japanese companies (investors), overseas Japanese affiliates (including joint ventures), and foreign governments in support of projects with Japanese content, typically infrastructure projects.  JBIC often seeks to support outward FDI projects that aim to develop or secure overseas resources that are of strategic importance to Japan, for example, construction of liquefied natural gas (LNG) export terminals to facilitate sales to Japan. More information is available at https://www.jbic.go.jp/en/index.html  .

There are no restrictions on outbound investment; however, not all countries have a treaty with Japan regarding foreign direct investment (e.g., Iran).

2. Bilateral Investment Agreements and Taxation Treaties

The 1953 U.S.-Japan Treaty of Friendship, Commerce, and Navigation gives national treatment and most favored nation treatment to U.S. investments in Japan.

As of March 2019, Japan had concluded 33 bilateral investment treaties (BITs):  Argentina, Armenia, Bangladesh, Cambodia, China, Colombia, Egypt, Hong Kong SAR, Iran, Iraq, Israel, Jordan, Kazakhstan, Kenya, South Korea, Kuwait, Laos,  Mongolia, Mozambique, Myanmar, Oman, Pakistan, Papua New Guinea, Peru, Russia, Saudi Arabia, Sri Lanka, Turkey, Ukraine, UAE, Uruguay, Uzbekistan, and Vietnam.  In addition, Japan has a trilateral investment agreement with China and South Korea. Japan also has 17 EPAs that include investment chapters (Association of Southeast Asian Nations, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), European Union (EU), Singapore, Mexico, Malaysia, Philippines, Chile, Thailand, Brunei, Indonesia, Switzerland, Vietnam, India, Peru, Australia, and Mongolia)

On  December 30, 2018, Japan and ten other countries: Australia, Brunei, Canada, Chile, Malaysia, Mexico, Peru, New Zealand, Singapore, and Vietnam signed the CPTPP.  Australia, Canada, Japan, Mexico, New Zealand, Singapore, and Vietnam have already ratified the agreement. This agreement includes an investment chapter. The United States is not a signatory of this agreement.   The text of the agreement is available online (https://www.cas.go.jp/jp/tpp/naiyou/tpp_text_en.html#TPP11  

On February 1, 2019, the Japan – EU economic partnership agreement went into force.  This agreement includes a chapter on investment liberalization. The text of the agreement is available online (http://trade.ec.europa.eu/doclib/press/index.cfm?id=1684  ).

The United States and Japan have a double taxation treaty.  The current treaty allows Japan to tax the business profits of a U.S. resident only to the extent those profits are attributable to a permanent establishment in Japan.  It also provides measures to mitigate double taxation. This permanent establishment provision, combined with Japan’s high corporate tax rate that nears 30 percent, serves to encourage foreign and investment funds to keep their trading and investment operations off-shore.

In January 2013, the United States and Japan signed a revision to the bilateral income tax treaty, to bring it into closer conformity with the current tax treaty policies of the United States and Japan.  The revision is awaiting ratification by the U.S. Congress.

Japan has concluded 61 double taxation treaties that cover 71 countries and jurisdictions.  More information is available from the Ministry of Finance: http://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm  

3. Legal Regime

Transparency of the Regulatory System

Japan operates a highly centralized regulatory system in which national-level ministries and government organs play a dominant role.  Regulators are generally sophisticated and there is little evidence of explicit discrimination against foreign firms. Most draft regulations and impact assessments are released for public comment before implementation and are accessible through a unified portal (http://www.e-gov.go.jp/  ).  Law, regulations, and administrative procedures are generally available online in Japanese along with regular publication in an official gazette.  The Japanese government also actively maintains a body of unofficial English translations of some Japanese laws (http://www.japaneselawtranslation.go.jp/  ).

Some members of the foreign business community in Japan continue to express concern that Japanese regulators do not seek sufficient formal input from industry stakeholders, instead relying on informal connections between regulators and domestic firms to arrive at regulatory decisions.  This may have the effect of disadvantaging foreign firms which lack the benefit of deep relationships with local regulators. The United States has encouraged the Japanese government to improve public notice and comment procedures, to ensure consistency and transparency in rule-making, and to give fair consideration to comments received.  The National Trade Estimate Report on Foreign Trade Barriers, issued by the Office of the U.S. Trade Representative (USTR), contains a description of Japan’s regulatory regime as it affects foreign exporters and investors.

International Regulatory Considerations

The Japanese Industrial Standards Committee (JISC), administered by the Ministry of Economy, Trade, and Industry (METI), plays a central role in maintaining the Japan Industrial Standard (JIS), the country’s main body of standards.  JISC aims to align JIS with international standards: in 2016, the organization estimated that 58 percent of Japan’s standards were harmonized with their international counterparts. Nonetheless, Japan maintains a large number of Japan-specific standards that can complicate efforts to introduce new products to the country.  Japan is a member of the WTO and notifies the WTO Committee on Technical Barriers to Trade (TBT) of proposed regulations.

Legal System and Judicial Independence

Japan is primarily a civil law country based on codified law.  The Constitution and the five major legal codes (Civil, Civil Procedure, Commercial, Criminal, and Criminal Procedure) form the legal base of the system.  Japan has a fully independent judiciary and a consistently applied body of commercial law. However, if you are arrested in Japan, even for a minor offense, you may be held in detention without bail for several months or more during the investigation and legal proceedings.  An Intellectual Property High Court was established in 2005 to expedite trial proceedings in intellectual property (IP) cases.  Foreign judgments are recognized and enforced by Japanese courts under certain conditions.

Laws and Regulations on Foreign Direct Investment

Major laws affecting foreign direct investment (FDI) into Japan include the Foreign Exchange and Foreign Trade Act, the Companies Act, and the Financial Instruments and Exchange Act.  The Japanese government actively encourages FDI into Japan and has sought over the past decades to ease legal and administrative burdens on foreign investors, including with major reforms to the Companies Act in 2005 and the Financial Instruments and Exchange Act in 2008.  The Japanese government has not promulgated any significant new laws or regulations related to FDI in the past year.

Competition and Anti-Trust Laws

The Japan Fair Trade Commission (JFTC) holds sole responsibility for enforcing Japanese competition and anti-trust law, although public prosecutors may file criminal charges related to a JFTC accusation.  The JFTC also reviews proposed “business combinations” (i.e. mergers, acquisitions, increased shareholdings, etc.) to ensure that transactions do not “substantially […] restrain competition in any particular field of trade.”   On March 12, 2019, a bill to revise the Anti-Monopoly Law for the first time in six years was submitted to the Diet, after obtaining Cabinet approval. The revisions include: (i) more flexible implementation of the leniency program; (ii) extension of maximum calculation period for penalty charges, from three to ten years; and (iii) increasing the cap for penal charges for obstruction of investigations, etc. If approved by the Diet, the law will take effect no later than 18 months after its promulgation. JFTC also plans to change its Commission rulesto introduce the Attorney-Client privilege, only in the limited scope of “unreasonable restraint of trade,” such as cartels. This revision would not require Diet approval.  The Government of Japan expects both changes to take effect by the end of 2020.

Expropriation and Compensation

In the post-war period since 1945, the Japanese government has not expropriated any enterprises, and the expropriation or nationalization of foreign investments in Japan is highly unlikely.

Dispute Settlement

ICSID Convention and New York Convention

Japan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID Convention) since 1967 and is also a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).

Enforcement of arbitral awards in Japan are provided for in Japan’s Arbitration Law.  Enforcement in other contracting states is also possible. The Supreme Court of Japan has denied the enforceability of awards for punitive damages, however.  The Arbitration Law provides that an arbitral award (irrespective of whether or not the seat of arbitration is in Japan) has the same effect as a final and binding judgment.  The Arbitration Law does not distinguish awards rendered in contracting states of the New York Convention and in non-contracting states.

Investor-State Dispute Settlement

There have been no major bilateral investment disputes in the past ten years.

International Commercial Arbitration and Foreign Courts

The Japan Commercial Arbitration Association (JCAA) is the sole permanent commercial arbitral institution in Japan.  Japan’s Arbitration Law is based on the United Nations Commission on International Trade Law “Model Law on International Commercial Arbitration” (UNCITRAL Model Law).  Local courts recognize and enforce foreign arbitral awards.

A wide range of Alternate Dispute Resolution (ADR) organizations also exist in Japan.  The Ministry of Justice (MOJ) has responsibility for regulating and accrediting ADR groups.  A Japanese-language list of accredited organizations is available on the MOJ website: http://www.moj.go.jp/KANBOU/ADR/index.html  .

Bankruptcy Regulations

The World Bank 2018 “Doing Business” Report ranked Japan first worldwide for resolving insolvency.  An insolvent company in Japan can face liquidation under the Bankruptcy Act or take one of four roads to reorganization: the Civil Rehabilitation Law; the Corporate Reorganization Law; corporate reorganization under the Commercial Code; or an out-of-court creditor agreement.  The Civil Rehabilitation Law focuses on corporate restructuring in contrast to liquidation, provides stronger protection of debtor assets prior to the start of restructuring procedures, eases requirements for initiating restructuring procedures, simplifies and rationalizes procedures for the examination and determination of liabilities, and improves procedures for approval of rehabilitation plans.

Out-of-court settlements in Japan tend to save time and expense but can lack transparency.  In practice, because 100 percent creditor consensus is required for out-of-court settlements and courts can sanction a reorganization plan with only a majority of creditors’ approval, the last stage of an out-of-court settlement is often a request for a judicial seal of approval.

There are three domestic credit reporting/credit monitoring agencies in Japan. They are not government-run.  They are: Japan Credit Information Reference Center Corp. (JICC; https://www.jicc.co.jp/english/index.html  ; member companies deal in consumer loans, finance, and credit); Credit Information Center (CIC; https://www.cic.co.jp/en/index.html  ; member companies deal in credit cards and credit); and Japan Bankers Association (JBA; https://www.zenginkyo.or.jp/pcic/  ; member companies deal in banking and bank-issued credit cards).  Credit card companies, such as Japan Credit Bureau (JCB), and large banks, such as Mitsubishi UFJ Financial Group (MUFG), also maintain independent databases to monitor and assess credit.

Per Japan’s Banking Act, data and scores from credit reports and credit monitoring databases must be used solely by financial institutions for financial lending purposes.  They are not provided to consumers themselves or to those performing background checks, such as landlords.  Increasingly, however, to get around the law real estate companies partner with a “credit guarantee association” and encourage or effectively require tenants to use its services.  According to a 2017 report from the Japan Property Management Association (JPMA), roughly 80 percent of renters in Japan used such a service. While financial institutions can share data to the databases and receive credit reports by joining the membership of a credit monitoring agency, the agencies themselves, as well as credit card companies and large banks, generally do not necessarily share data between each other.  As such, consumer credit information is generally underutilized and vertically siloed.

A government-run database, the Juminhyo or the “citizen documentation database,” is used for voter registration; confirmation of eligibility for national health insurance, national social security, and child allowances; and checks and registrations related to scholarships, welfare protection, stamp seals (signatures), and immunizations.  The database is strictly confidential, government-controlled, and not shared with third parties or private companies.

For the credit rating of businesses, there are at least seven credit rating agencies (CRAs) in Japan that perform such services, including Moody’s Japan, Standard & Poor’s Ratings Japan, Tokyo Shoko Research, and Teikoku Databank.  See Section 9 for more information on business vetting in Japan.

4. Industrial Policies

Investment Incentives

The Japan External Trade Organization (JETRO) maintains an English-language list of national and local investment incentives available to foreign investors on their website: https://www.jetro.go.jp/en/invest/incentive_programs/  .

Foreign Trade Zones/Free Ports/Trade Facilitation

Japan no longer has free-trade zones or free ports.  Customs authorities allow the bonding of warehousing and processing facilities adjacent to ports on a case-by-case basis.

The National Strategic Special Zones Advisory Council chaired by the Prime Minister has established a total of twelve National Strategic Special Zones (NSSZ) to implement selected deregulation measures intended to attract new investment and boost regional growth.  Under the NSSZ framework, designated regions request regulatory exceptions from the central government in support of specific strategic goals defined in each zone’s “master plan,” which focuses on a potential growth area such as labor, education, technology, agriculture, or healthcare.  Any exceptions approved by the central government can be implemented by other NSSZs in addition to the requesting zone. Foreign-owned businesses receive equal treatment in the NSSZs; some measures aim specifically to ease customs and immigration restrictions for foreign investors, such as the “Startup Visa” adopted by the Fukuoka NSSZ.

The Japanese government has also sought to encourage investment in the Tohoku (northeast) region which was devastated by the earthquake, tsunami, and nuclear “triple disaster” of March 11, 2011.  Areas affected by the disaster have been included in a “Special Zone for Reconstruction” that features eased regulatory burdens, tax incentives, and financial support to encourage heightened participation in the region’s economic recovery.

Performance and Data Localization Requirements

Japan does not maintain performance requirements or requirements for local management participation or local control in joint ventures.

Japan has no general restrictions on data storage.  Previously, separate and inconsistent privacy guidelines among Japanese ministries created a burdensome regulatory environment with regard to the storage and general treatment of personally identifiable information.  However, amendments to Japan’s Personal Information Protection Act, which came into full effect on May 30, 2017, transferred all enforcement powers from the individual ministries to an independent third party authority.  This Personal Information Protection Commission (PPC) issued guidelines for businesses on the protection of personal data and oversees implementation of the Personal Information Protection Act amendments, including new rules for the protection and electronic transmission of personal data.

5. Protection of Property Rights

Real Property

Secured interests in real property are recognized and enforced.  Mortgages are a standard lien on real property and must be recorded to be enforceable.  Japan has a reliable recording system. Property can be rented or leased but no sub-lease is legal without the owner’s consent.  In the World Bank’s 2018 “Doing Business” Report, Japan ranks 52 out of 190 economies in the category of Ease of Registering Property.  This is a result of the bureaucratic steps and fees associated with purchasing improved real property in Japan, even when it is already registered and has a clear title.  The required documentation for property purchases can be burdensome. Additionally, it is common practice in Japan for property appraisal values to be lower than the actual sale value, increasing the deposit required of the purchaser as the bank will provide financing only up to the appraisal value.

The Japanese Government is unsure of the titleholders to 4.1 million hectares of land in Japan, roughly 20 percent of all land and an area equivalent in size to the island of Kyushu, a government-sponsored study group noted in 2017.  According to a think tank expert on land use, 25 percent of all the land in Japan is registered to people who are no longer alive or otherwise unreachable. In 2015, the Ministry of Land, Infrastructure, Transportation and Tourism (MLIT) found that, of 400 randomly selected tracts of land, 46 percent was registered more than 30 years ago and 20 percent was registered more than 50 years ago.  A similar survey by the Ministry of Agriculture, Forestry and Fisheries (MAFF) found that 20 percent of farmland had a deceased owner and had not been re-registered. The government appointed a group of experts to study the matter, and the Unknown Land Owners Problem Study Group announced the results in a midterm report on June 26, 2017 and in a final report on December 13, 2017 (http://www.kok.or.jp/project/fumei.html  ).  It estimated that by 2040 the amount of land without titleholders will increase to 7.2 million hectares.  The primary reasons that land in Japan lacks a titleholder are: Japan’s population is declining; Japanese are increasingly moving from rural areas to urban areas; heirs are difficult to locate and there may be multiple heirs, especially if the deceased did not have children; and heirs do not re-register the land under their own names due to the cost of the initial and continuing taxes and the time and difficulty to change the title.  On June 6, 2018, the Japanese Diet enacted a special law to promote the use of unclaimed land in the public interest, as more and more properties are expected to become available amid the decreasing population.  The act goes into effect on June 1, 2019, and will enable the heads of local governments to authorize use of the unattended land for up to 10 years for public purposes such as community halls, parks, and health clinics. If the landowner appears and reclaims the land, the property will be returned after the term of the land-use contract ends.  If no one reclaims the land, the land-use period can be extended.

Virtually all the large banks, as well as some other private companies, offer loans to purchase property in Japan.

Intellectual Property Rights

Japan maintains a robust legal framework for intellectual property (IP) and provides reasonably strong enforcement to rights holders.  The U.S. Chamber of Commerce International IP Index ranked Japan’s intellectual property framework eighth worldwide in its 2019 report7.  While IP piracy remains a problem, its prevalence in Japan is similar to other developed markets.

Japan established a dedicated IP High Court in 2005 to speed decisions in intellectual property cases.  In 2017, cases before the court required an average of 7.3 months from commencement to disposition.  The number of cross-border IP-related litigations is increasing due to the globalization of business activities.  IP High Court judges have access to neutral technical advisors to aid in interpreting complex cases, but a constrained discovery system can limit the evidence that can be used at trial.  Typical awarded damages are considerably lower than those seen in the United States.

On December 8, 2017, Japan and the European Union (EU) finalized negotiations on an Economic Partnership Agreement, which includes provisions related to IP including geographic indications.  The agreement entered into force on February 1, 2019.

The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) which entered into force on December 30, 2018 harmonizes intellectual property rights among the 11 member nations (including Japan).  However, the CPTPP suspended a number of provisions considered U.S. priorities in the original Trans-Pacific Partnership Agreement (TPP) chapter on IP in areas such as patents and pharmaceuticals, copyright, Internet service provider (ISP) liability, and IP rights enforcement.

Japan’s Customs and Tariff Bureau publishes a yearly report on good seizures, available online in English (http://www.customs.go.jp/mizugiwa/chiteki/pages/g_001_e.htm  ).  Japan seized USD 13.5 billion yen (USD 121.5 million) of goods in 2018, mostly due to intellectual property infringement.  China is by far the largest source of seized goods in Japan, accounting for 94 percent of all seizure cases and 89 percent of all seized goods by value.

U.S. stakeholders have recently expressed concern that Japan’s pharmaceutical reimbursement system does not adequately reward innovation and provide incentives for companies to invest in the research and development of advanced medical devices and innovative pharmaceuticals. Specifically, there are concerns that recent policy changes to the Price Maintenance Premium put Japanese companies at an advantage over U.S. companies.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/  

6. Financial Sector

Capital Markets and Portfolio Investment

Japan maintains no formal restrictions on inward portfolio investment.  Foreign capital plays an important role in Japan’s financial markets, with foreign investors responsible for the majority of trading volume in the country’s stock market.  Historically, many company managers and directors have resisted the actions of activist shareholders, especially foreign private equity funds, potentially limiting the attractiveness of Japan’s equity market to large-scale foreign portfolio investment, although there are signs of change.  Some firms have taken steps to facilitate the exercise of shareholder rights by foreign investors, including the use of electronic proxy voting. The Tokyo Stock Exchange (TSE) maintains an Electronic Voting Platform for Foreign and Institutional Investors. All holdings of TSE-listed stocks are required to transfer paper stock certificates into electronic form.

The Japan Exchange Group (JPX) operates Japan’s two largest stock exchanges – in Tokyo and Osaka – with cash equity trading consolidated on the TSE since July 2013 and derivatives trading consolidated on the Osaka Exchange since March 2014.

In January 2014, the TSE and Nikkei launched the JPX Nikkei 400 Index.  The Index puts a premium on company performance, particularly return on equity.  The inclusion in the Index is determined by such factors as three year average returns on equity, three year accumulated operating profits, and market capitalization, along with other metrics such as the number of external board members.  Inclusion in the index has become an unofficial “seal of approval” in corporate Japan, and many companies have taken steps, including undertaking share buybacks, to improve their return on equity. The Bank of Japan purchases JPX-Nikkei 400 ETFs as part of its monetary operations, and Japan’s massive Government Pension Investment Fund (GPIF) uses the JPX-Nikkei 400 index as an outside asset managers’ benchmark, putting an additional premium on membership in the index.

Japan does not restrict financial flows, and accepts obligations under International Monetary Fund (IMF) Article VIII.

Credit is available via multiple instruments, both public and private, although access by foreigners often depends upon visa status and the type of investment.

Money and Banking System

Banking services are easily accessible throughout Japan; it is home to three of the world’s largest private commercial banks as well as an extensive network of regional and local banks.  Most major international commercial banks are also present in Japan, and other quasi-governmental and non-governmental entities, such as the postal service and cooperative industry associations, also offer banking services (e.g., the Japan Agriculture Union offers services through its bank, Norinchukin Bank, to members of the organization).  Japan’s financial sector is generally acknowledged to be sound and resilient, with good capitalization and with a declining ratio of non-performing loans. While still healthy, most banks have experienced pressure on interest margins and profitability as a result of an extended period of low interest rates capped by the Bank of Japan’s introduction of a negative interest rate policy in 2016. 

The country’s three largest private commercial banks, often collectively referred to as the “megabanks,” are Mitsubishi UFJ Financial, Mizuho Financial, and Sumitomo Mitsui Financial.  Collectively, they hold assets approaching USD 7 trillion. Japan’s second largest bank by assets – with USD 2 trillion – is Japan Post Bank, a financial subsidiary of the Japan Post Group that is still majority state-owned.  Japan Post Bank offers services via 24,000 Japan Post office branches, at which Japan Post Bank services can be conducted, as well as Japan Post’s network of 29,100 ATMs nationwide.

A large number of foreign banks operate in Japan offering both banking and other financial services.  Like their domestic counterparts, foreign banks are regulated by the Japan Financial Services Agency. According to the IMF, there have been no observations of reduced or lost correspondent banking relationships in Japan.  There are 443 correspondent banking relationships available to the country’s central bank (main banks: 125; trust banks: 13; foreign banks: 50; credit unions: 251; other: 4).

Foreigners wishing to establish bank accounts must show a passport, visa, and foreigner residence card; temporary visitors may not open bank accounts in Japan.  Other requirements (e.g., evidence of utility registration and payment, Japanese-style signature seal, etc.) may vary according to institution. Language may be a barrier to obtaining services at some institutions; foreigners who do not speak Japanese should research in advance which banks are more likely to offer bilingual services.

Japan accounts for approximately half of the world’s trades of Bitcoin, the most prevalent blockchain currency (digital decentralized cryptographic currency).  Japanese regulators are encouraging “open banking” interactions between financial institutions and third-party developers of financial technology applications through application programming interfaces (“APIs”) when customers “opt-in” to share their information.  The government has set a target to have 80 banks adopt API standards by 2020.  Many of the largest banks are participating in various proofs of concept using blockchain technology.  While commercial banks have not yet formally adopted blockchain-powered systems for fund settlement, they are actively exploring options, and the largest banks have announced intentions to produce their own virtual currencies at some point.  The Bank of Japan is researching blockchain and its applications for national accounts, and established a “Fintech Center” to lead this effort.  The main banking regulator, the Japan Financial Services Agency (FSA) also encourages innovation with financial technologies, including sponsoring an annual conference on “fintech” in Japan.  In April 2017, amendments to the Act on Settlements of Funds went into effect, permitting the use of virtual currencies as a form of payment in Japan, but virtual currency is still not considered legal tender (e.g., commercial vendors may opt to accept virtual currencies for transactional payments, though virtual currency cannot be used as payment for taxes owed to the government).  The law also requires the registration of virtual currency exchange businesses.  There are currently 19 registered virtual currency exchanges; 1 other exchange operates while its registration is pending with FSA.

Foreign Exchange and Remittances

Foreign Exchange Policies

Generally, all foreign exchange transactions to and from Japan—including transfers of profits and dividends, interest, royalties and fees, repatriation of capital, and repayment of principal—are freely permitted.  Japan maintains an ex-post facto notification system for foreign exchange transactions that prohibits specified transactions, including certain foreign direct investments (e.g., from countries under international sanctions) or others that are listed in the appendix of the Foreign Exchange and Foreign Trade Act.

Japan has a floating exchange rate that fluctuates based on market principles.  Japan has not intervened in the foreign exchange markets since November 2011, and has joined statements of the G-7 and G-20 affirming that countries would not target exchange rates for competitive purposes.

Remittance Policies

Investment remittances are freely permitted.

Sovereign Wealth Funds

Japan does not operate a sovereign wealth fund.

7. State-Owned Enterprises

Japan has privatized most former state-owned enterprises (SOEs).  Under the Postal Privatization Law, privatization of Japan Post group started in October 2007 by turning the public corporation into stock companies.  The stock sale of the Japan Post Holdings Co. and its two financial subsidiaries, Japan Post Insurance (JPI) and Japan Post Bank (JPB), began in November 2015 with an initial public offering that sold 11 percent of available shares in each of the three entities.  The postal service subsidiary, Japan Post Co., will remain a wholly owned subsidiary of Japan Post Holdings (JPH). The Japanese government conducted an additional public offering of stock in September 2017, reducing the government ownership in the holding company to approximately 57 percent.  There were no additional offerings of the stock in the bank or insurance subsidiaries: JPH currently owns 88.99 percent of the banking subsidiary and 89.00 percent of the insurance subsidiary. Follow-on sales of shares in the three companies will take place over time, as the Postal Privatization Law requires the government to sell a majority share (up to two-thirds of all shares) in JPH, and JPH to sell all shares of JPB and JPI, as soon as possible.  The Ministry of Finance announced in April 2019 that the government will sell additional shares of JPH. Media reported that as a result of the third sale of the government JPH share holdings possibly to be implemented as early as this fall, its holdings would account for slightly above one-third of outstanding shares, the lower limit specified in the Postal Privatization Law.

These offerings mark the final stage of Japan Post privatization begun under former Prime Minister Junichiro Koizumi almost a decade ago, and respond to long-standing criticism from commercial banks and insurers—both foreign and Japanese—that their government-owned Japan Post rivals have an unfair advantage.

While there has been significant progress since 2013 with regard to private suppliers’ access to the postal insurance network, the U.S. government has continued to raise concerns about the preferential treatment given to Japan Post and some quasi-governmental entities compared to private sector competitors and the impact of these advantages on the ability of private companies to compete on a level playing field.  A full description of U.S. government concerns with regard to the insurance sector, and efforts to address these concerns, is available in the United States Trade Representative’s National Trade Estimate (NTE) report for Japan.

Privatization Program

In sectors that were once dominated by state-owned enterprises but have been privatized, such as transportation, telecommunications, and package delivery, U.S. businesses report that Japanese firms sometimes receive favorable treatment in the form of improved market access and government cooperation.

The liberalization of Japan’s power sector, now more than 25 years in the making, took a step forward in April 2016 with the full liberalization of the retail sector. This has led to an influx of new electricity retailers, though the generation and transmission of electricity remain in the hands of the legacy utility companies, which have been privatized.  The liberalization is expected to come to a head with the legal “unbundling” of the monopolies by 2020.

American energy companies have reported increased opportunities in this sector, but the former utility monopolies still have immense power over the regulatory regime, market, and infrastructure.  For example, there is a wholesale market on which new retailers can buy electricity to sell to their customers, but the legacy utilities, which control most of the generation, sell very little power into that market.  This leaves new retailers in a supply crunch. Also, new entrants in power generation are given limited access to the power grid because the system is already at capacity with baseload generation from the legacy firms.

More information on the power sector from the Japanese Government can be obtained at: http://www.enecho.meti.go.jp/en/category/electricity_and_gas/electric/electricity_liberalization/what/  

8. Responsible Business Conduct

Japanese corporate governance has been criticized for failing to sufficiently prioritize shareholder interests, due in part due to a lack of independent corporate directors and to cross-shareholding agreement among firms.  The Abe government has made corporate governance reform a core element of its economic agenda with the goal to reinvigorate Japan’s business sector by encouraging a stronger focus by management on earnings and shareholder value.

Progress has been made through efforts by the Financial Services Agency (FSA) and Tokyo Stock Exchange (TSE) to introduce non-binding reforms through changes to Japan’s Companies Act in 2014 and to adopt of a Corporate Governance Code (CSR) by in 2015.  Together with the Stewardship Code for institutional investors launched by the FSA in 2014, these initiatives encourage companies to put cash stockpiles to better use by increasing investment, raising dividends, and taking on more risk to boost Japan’s growth.  Positive results of these efforts are evidenced by rising shareholder returns, unwinding of cross-shareholdings, and increasing numbers of independent board members.  Moreover, more than 90 percent of listed firms now have two or more independent directors.

Awareness of corporate social responsibility among both producers and consumers in Japan is high, and foreign and local enterprises generally follow accepted CSR principles.  Business organizations also actively promote CSR. Japan encourages adherence to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas.

9. Corruption

Japan’s penal code covers crimes of official corruption, and an individual convicted under these statutes is, depending on the nature of the crime, subject to prison sentences and possible fines.  With respect to corporate officers who accept bribes, Japanese law also provides for company directors to be subject to fines and/or imprisonment, and some judgments have been rendered against company directors.

The direct exchange of cash for favors from government officials in Japan is extremely rare.  However, the web of close relationships between Japanese companies, politicians, government organizations, and universities has been criticized for fostering an inwardly “cooperative”—or insular—business climate that is conducive to the awarding of contracts, positions, etc. within a tight circle of local players.  This phenomenon manifests itself most frequently and seriously in Japan through the rigging of bids on government public works projects. However, instances of bid rigging appear to have decreased over the past decade. Alleged bid rigging between construction companies was discovered on the Tokyo-Nagoya-Osaka maglev high-speed rail project in 2017, and the case is currently being prosecuted.

Japan’s Act on Elimination and Prevention of Involvement in Bid-Rigging authorizes the Japan Fair Trade Commission (JFTC) to demand that central and local government commissioning agencies take corrective measures to prevent continued complicity of officials in bid rigging activities and to report such measures to the JFTC.  The Act also contains provisions concerning disciplinary action against officials participating in bid rigging and compensation for overcharges when the officials caused damage to the government due to willful or grave negligence. Nevertheless, questions remain as to whether the Act’s disciplinary provisions are strong enough to ensure officials involved in illegal bid rigging are held accountable.

Japan has ratified the OECD Anti-Bribery Convention, which bans bribing foreign government officials.  However, there are continuing concerns over the effectiveness of Japan’s anti-bribery enforcement efforts, particularly the very small number of cases prosecuted by Japanese authorities compared to other OECD members.

For vetting potential local investment partners, companies may review credit reports on foreign companies which are available from many private-sector sources, including, in the United States, Dun & Bradstreet and Graydon International.  Additionally, a company may inquire about the International Company Profile (ICP), which is a background report on a specific foreign company that is prepared by commercial officers of the U.S. Commercial Service at the U.S. Embassy, Tokyo.

Resources to Report Corruption

Businesses or individuals may contact the Japan Fair Trade Commission (JFTC), with contact details at:  http://www.jftc.go.jp/en/about_jftc/contact_us.html  

10. Political and Security Environment

Political violence is rare in Japan.  Acts of political violence involving U.S. business interests are virtually unknown.

11. Labor Policies and Practices

Japan currently faces one of the tightest labor markets in decades, in part due to demographic decline, with a shortage of workers in sectors such as information services, hospitality, construction, transportation, maintenance, and security.  Unemployment is near a 25 year low, at 2.3 percent in March 2019. Traditionally, Japanese workers have been classified as either regular or non-regular employees. Companies recruit regular employees directly from schools or universities and provide an employment contract with no fixed duration, effectively guaranteeing them lifetime employment.  Non-regular employees are hired for a fixed period. Companies have increasingly relied on non-regular workers to fill short-term labor requirements and to reduce labor costs.

Japan has a robust structure for collective bargaining in which roughly 17 percent of workers are represented by unions active in nearly every industry, including textiles.  The government provides benefits for workers laid off for economic reasons through a national employment insurance program. Some National Strategic Special Zones allow for special employment of foreign workers in certain fields, but those and all other foreign workers are  subject to the same national labor laws and standards as Japanese workers. Japan has comprehensive labor dispute resolution mechanisms, including labor tribunals, mediation, and civil lawsuits. A Labor Standards Bureau oversees the enforcement of labor standards through a national network of Labor Bureaus and Labor Standards Inspection Offices.

The number of foreign workers is rising, but at just over 1.46 million as of October 2018, they still represent a fraction of Japan’s nearly 68 million-worker labor force.  The Japanese government has made additional changes to labor and immigration laws to facilitate the entry of larger numbers of skilled foreign workers in selected sectors. For example, the Immigration Control and Refugee Recognition Law was revised in 2014 to improve the “Points System” for highly skilled foreign professionals, easing the requirements for residency.  Special economic zones may permit foreign workers in certain categories, such as domestic employees and agricultural workers.

The Japanese government has also taken steps to expand the Technical Intern Training Program (TITP).  Originally intended as a skills-transfer program for workers from developing countries, TITP is currently used to address immediate labor shortages in specific sectors, such as construction and agriculture.  In 2014, the Japanese government expanded TITP in the construction sector through FY2020, the year of the Tokyo summer Olympics, extending the period of stay for construction workers under TITP from three years to five, and permitting re-entry of former interns and trainees for another two to three years.  In November 2017, the legislation that passed the Diet in November 2016 went into effect, which extended the period of stay under TITP to five years for more categories of workers, and strengthened supervision of the program and companies to deter human rights abuses. At the same time, nursing care service was added to the list of work categories permitted for TITP, and the government expanded oversight to address abuses of the program.

To address Japan’s acute labor shortage in specific industries, the Japanese government revised the Immigration Control and Refugee Recognition Law again in December 2018, to create new visa categories for lower-skilled foreign workers.  This marks a major turning point in Japan’s policy on foreign workers, which encouraged the entry of highly-skilled professionals, but had no visa category specifically for low-skilled foreign workers.  Ministerial Ordinances, Cabinet Orders, and Operating Guidelines were released in March 2019, laying out details of the program. Fourteen industries have been identified to be suffering from acute labor shortage, in which lower-skilled foreigners will be permitted to work under the “Specific Skills” status of residence.   The new system began on April 1, 2019. The Japanese government estimates that approximately 47,550 foreign workers will be accepted within the first year, and 345,000 will be accepted within five years.

Also, to address the labor shortage resulting from population decline and a rapidly aging society, Japan’s government has pursued measures to increase participation and retention of older workers and women in the labor force.  A law that went into force in April 2013 requires companies to introduce employment systems allowing employees reaching retirement age (generally set at 60) to continue working until age 65. Since 2013, the government has committed to increasing women’s economic participation as well.  The Women’s Empowerment Law passed in 2015 requires large companies to disclose statistics about the hiring and promotion of women, and to adopt action plans to improve their numbers. In the six years under the second Abe Administration since he became Prime Minister in 2012, approximately 3 million women have joined the labor force.

On June 29, 2018, the Diet passed the Workstyle Reform package bills.  The legislation revised eight labor laws, including the Labor Standards Law and Labor Contract Law.  The package introduces a legal cap on overtime work at less than 100 hour per month and 720 hours per year with penalties for violators, such as imprisonment of up to six months or fines of up to 300,000 yen.  A key provision, however, is the so-called “White Collar Exemption,” originally submitted to the Diet in 2015, which would implement a merit-based wage system for certain highly-skilled professionals and exempt firms from paying such workers overtime or premium overtime pay for late night, weekend, or holiday work.  In addition, an “equal-pay-for-equal-work” provision seeks to reduce compensation gaps between regular and non-regular employees.  Most measures took effect in April 1, 2019, although equal-pay provisions would be implemented from 2020.  The package offers some flexibility on implementation for small and medium-sized enterprises (SMEs).

Although independent labor unions play a role in the annual determination of wage scales throughout the economy, that role has been declining along with union membership.  Union members today make up only 17 percent of the labor force, down from 25 percent in 1990.

Japan has ratified 48 International Labor Organization (ILO) Conventions (including six of the eight core Conventions).  As part of its agreement in principle on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with 10 other trading partners, Japan agreed to adopt the fundamental labor rights stated in the ILO Declaration including freedom of association and the recognition of the right to collective bargaining, the elimination of forced labor and employment discrimination, and the abolition of child labor.  CPTPP entered force in Japan on December 30, 2018.

12. OPIC and Other Investment Insurance Programs

Overseas Private Investment Corporation (OPIC) insurance and finance programs are not available in Japan. However, OPIC and its Japanese counterpart, Japan Bank for International Cooperation, are supporting opportunities for U.S. investors to partner with Japanese investors in third countries.

Japan is a member of the Multilateral Investment Guarantee Agency (MIGA).  Japan’s capital subscription to MIGA is the second largest, after the United States.

Other foreign governments have very limited involvement in Japan’s domestic infrastructure development, and most financing and insurance is managed domestically. 

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source* USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) (M USD) 2017 $4,858,484 2017 $4,872,137 World Bank
Foreign Direct Investment Host Country Statistical Source** USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country (M USD, stock positions) 2017 $59,447 2017 $129,064 BEA
Host country’s FDI in the United States (M USD, stock positions) 2017 $491,368 2017 $469,047 BEA
Total inbound stock of FDI as % host GDP 2017 5.2% 2017 4.3% OECD

*2017 Nominal GDP data (Calendar Year Data) from “Annual Report on National Accounts for 2017”, Economic and Social Research Institute, Cabinet Office, Japanese Government, released on December 25, 2018  . (Note: uses 2017 yearly average exchange rate of 112.2 Yen to 1 U.S. Dollar)

** 2017 FDI data from “JETRO Invest Japan Report 2018 (Summary) and FDI stock, Japan’s Outward and Inward Foreign Direct Investment,” Japan External Trade Organization (JETRO).

The discrepancy between Japan’s accounting of U.S. FDI into Japan and U.S. accounting of that FDI can be attributed to methodological differences, specifically with regard to indirect investors, profits generated from reinvested earnings, and differing standards for which companies must report FDI.

Table 3: Sources and Destination of FDI

Direct Investment From/in Counterpart Economy Data (IMF CDIS, 2017)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $200,193 100% Total Outward $1,494,648 100%
United States $49,398 24.7% United States $480,598 32.1%
France $30,096 15.0% United Kingdom $150,751 10.1%
Netherlands $25,847 12.91% China $116,970 7.8%
Singapore $18,528 9.3% Netherland  $113,392 7.6%
United Kingdom $13,697 6.8% Australia $68,682 4.6%
“0” reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (IMF CPIS, June 2018)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries $4,112,164 100% All Countries $1,718,836 100% All Countries $2,393,328 100%
United States $1,531,952 37.3% Cayman Islands $667,479 38.8% United States $1,002,753 41.9%
Cayman Islands $850,754 20.7% United States $529,298 30.8% France $230,963 9.7%
France $266,571 6.5% Luxembourg $92,715 5.4% Cayman Islands $183,275 7.7%
United Kingdom $171,918 4.2% United Kingdom $46,952 2.7%  United Kingdom $124,966 5.2%
Australia $144,876 3.5% Ireland $42,629 2.5% Australia $117,021 4.9%

14. Contact for More Information

Michael Cavanaugh
Economic Section
U.S. Embassy Tokyo
1-10-5 Akasaka, Minato-ku, Tokyo 107-8420
Japan
+81 03-3224-5000

Investment Climate Statements
Edit Your Custom Report

01 / Select A Year

02 / Select Sections

03 / Select Countries You can add more than one country or area.

U.S. Department of State

The Lessons of 1989: Freedom and Our Future