April 9, 2020
【COVID-19】What does State of Emergency mean for business in Japan?
Here we cover COVID-19 and its legal and business implications. During these uncertain times, we hope you and your loved ones are keeping safe and healthy.
As our clients and international partners grapple with and seek to adapt to a rapidly shifting business and legal landscape caused by the COVID-19 outbreak, we are here to provide timely and periodic insights and updates that affect doing business in Japan.
Prime Minister Shinzo Abe declares state of emergency amid rising COVID-19 cases.
What does it mean for business in Japan?
After weeks of anticipation and speculation as countries worldwide declared emergencies and imposed varying degrees of lockdowns on citizens, Prime Minister Shinzo Abe finally declared a state of emergency in 7 prefectures in response to the COVID-19 outbreak.
On March 10, 2020, the Japanese Cabinet passed an act amending the Special Measures for Pandemic Influenza and New Infectious Diseases Act (the “Act”) to include coronavirus in the scope of application. Thus, allowing it to declare a state of emergency and impose various mandatory and voluntary measures on businesses and citizens.
Governments across the world have exerted varying degrees of authority in their responses. Many are forcing businesses and public facilities to close, with penalties for those who fail to comply. In Japan, the Act confers on the government only limited coercive powers. The reluctance to enforce stringent measures is partially attributable to post-war reforms led by the USA enshrining individual rights.
1. The declaration’s effect on business
A declaration by the central government would confer authority on local governments. Thus, the intensity of stay-at-home directives and business closure requests will vary among prefectures. The most notable effects on business countrywide are as follows:
Distribution of necessities: The government can demand the sale and distribution of food and medical supplies from businesses manufacturing, selling, storing or otherwise dealing with specific goods deemed as necessities.
Expropriation of property: In badly affected regions, the government can, if necessary, expropriate private property and facilities to be made available for medical purposes.
Business and school closure orders: While not mandatory, the government may request certain businesses and education institutions, such as department stores, museums, theatres and schools, to shut down in prefectures affected heavily by the outbreak. The government can also publish the names of the companies/entities who have received such requests.
2. What other measures are being taken by the government to cushion the impact of COVID-19?
(a) Emergency Economic Package
On April 6, the Japanese government announced an emergency economic package of appr. 108 trillion yen (appr. 1 trillion USD: equivalent to 20% of the country’s GDP). The proposed measures included: (i) securing sufficient quantities of the potential COVID-19 treatment drug Avigan; (ii) payments of 300K yen (2800 USD) to households that have their incomes fall below a certain level; (iii) financial support for small-and-medium enterprises (SMEs) in the form of credit guarantees, emergency loans and infrastructure investment; and (iv) post-epidemic coupon campaigns to boost the tourism and event industries post-epidemic.
Even before the emergency economic package, the government announced a mixture of fiscal and financial measures summarized below to contain the economic fallout: with appr. 400 billion yen (appr. 3.6 billion USD) in fiscal measures, and appr. 1.6 trillion yen (appr. 14.7 billion USD) in financial measures.
(b) Employment Support
Employment Adjustment Subsidies: Subsidies to encourage businesses to ask employees to take partial paid leave instead of laying them off. Presently, subsidy amounts are 4/5 for SMEs, 2/3 for large entities – but in case no lay-offs are made, 9/10 for SMEs and 3/4 for large entities.
Adjustable Working Hours System: Subject to existing agreements with labor unions, flexibility is given to employers to demand overtime or a reduced amount of work.
(c) Other matters affecting businesses and employees
Shareholders’ meetings: In general, shareholders’ meetings must be held within 3 months after the fiscal year end. However, the Ministry of Justice clarified that under extreme circumstances, even for companies that mandate a deadline in their articles of association, not holding shareholders’ meetings before the specified deadline will not breach the articles of association or company laws. The government is also encouraging virtual shareholders’ meetings, or ‘hybrid’ half physical and half virtual meetings.
Tax and social security: Tax return deadlines have been extended. As well, tax and social security payments can be deferred for one year, if certain requirements are met.
Accounting standards: The Minister of Finance stated that businesses and auditors can flexibly deal with impairment accounting so as to soften the blow from COVID-19.
Travel Restrictions: Travel restrictions instituted for 73 countries (U.S, most of Europe, China, Australia, Korea, Australia, Singapore, Thailand, etc.), effective as of April 6. Includes foreigners with Japanese residency through parents or spouse. If they exit Japan, they will be denied re-entry.
Education: All of Japan's elementary, junior high and high schools have been closed from March 2 until the end of the school year (i.e., the end of March). While reopening timelines vary from region to region, schools in Tokyo will be closed until mid-May at least. Some schools are considering partial reopening with staggered classes.
Postponement of Tokyo 2020 Olympics: The International Olympic Committee announced the games will be postponed until July 2021. While more details need fleshing out, such as what to do with retaining staff and volunteers, as well as how to allocate additional spending, the same logo and same facilities will be used. Ticket-holders may elect a refund or to hold on to tickets until 2021.
Import tax exemption and expedited processes: For businesses importing certain goods deemed as emergency necessities, customs will be expedited, and tax exemptions will be made.
*This Newsletter is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.
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