Reduce Japanese Company Costs during the COVID-19 Pandemic

COVID-19 affects us all: for some the effects are horrific, losing a loved one or suffering debilitating illness for weeks. For some, the effects are not physical but financial, such as for smaller companies which might have an office in Japan which has seen its income decimated by the coronavirus pandemic’s economic effects. Many companies are asking how to reduce their Japanese office costs during the coronavirus pandemic, and the best advice we can give is as follows:

1. Reduce representative director costs. According to the Ministry of Justice’s interpretation of Japan’s Companies Act, a kabushiki kaiska KK company does not need a resident representative director, yet some foreign companies still pay a small fortune each month for a nominee resident representative director service. Similarly, a godo kaisha GK company does not need a resident representative (aka executive manager or functional manager). There are cases when a KK company or GK company does need a resident director, such as maintaining a financial services license, a telecoms license, for commercial office leases (although not always), or sometimes for maintaining a domestic bank account (although banks generally accept a switch from resident to non-resident representative after an account is opened for a reasonable time). If your Japanese office doesn’t need a resident representative director or manager, replace him or her with a head-office person, otherwise, this might be a good time to search for a lower cost service provider. While fees for nominee director services tend to be high in Japan (because nominee directors cannot use a “I was only a nominee and had no responsibility for day to business” defense in the event of legal action or debt collection), fees have reduced substantially in the past five years. Sadly a branch-office must have a resident representative in Japan, so fees for nominee representatives for branch-offices are generally unchanged. The costs of registering a change of representative are about JPY100,000 plus tax for the legal procedure, then there will need to be notifications made to the National Tax Agency, Japan Pension Service (if the office has employees), the Labour Bureau (again if the office has employees), and finally the bank (if the company has a bank account).
2. Reduce office costs. If your Japanese employees started to telework during the pandemic, and productivity seems much the same as before, you might want to consider vacating a large office and leasing a smaller month to month serviced office from Compass Office, Regus, Servcorp, or one of the numerous other serviced office providers in Japan. While I wouldn’t generally recommend a serviced office for a larger teams, if transitioning to a small core office team with the majority of employees teleworking, a serviced office could result in a reduced expense. If you do decide on such a move, remember that registering a change of address within the same ward or city is much less expensive than a change which results in the registered address being in a different ward or city.
3. Furloughing employees. Even in the midst of the coronavirus pandemic, Japanese companies that layoff employees without due consideration are frowned upon, even though Japan’s Labour Standards Act provides for dismissal in such situations: Article 20 (1) “In the event that an employer wishes to dismiss a worker, the employer shall provide at least 30 days advance notice. An employer who does not give 30 days advance notice shall pay the average wages for a period of not less than 30 days; provided, however, that this shall not apply in the event that the continuance of the enterprise has been made impossible by a natural disaster or other unavoidable reason nor when the worker is dismissed for reasons attributable to the worker.” While Article 20 (1) implies that a Japanese company faced with immediate and substantial loss of income does not need to provide advance notice or wages in lieu of such notice, if the loss of income is moderate, Japanese companies are expected to apply more moderate solutions. The recommended way to proceed with reducing a Japanese office’s workforce costs during the pandemic is as follows:
   • Decide what needs to be done to ensure the business’s survival.
   • Explain to the employees what needs to be done, ensuring they understand the company’s true financial situation.
   • Implement the solution taking into account as far as reasonably possible, the employees’ feedback.
   Using such a process, many companies have reduced employee salaries with employee agreement for the duration of the pandemic (in which case the employees continue to work albeit at possibly reduced hours), or to furlough employees (in which case the employees don’t work, but the employer must pay 60% of each employee’s salary and can claw back up to JPY8,330 a day subsidy for each employee from the Japanese government. There is talk of increasing the maximum daily subsidy to JPY10,000 or much higher, but for now the JPY8,330 daily COVID-19 subsidy limit remains.

The above are just three of the things smaller companies can do to reduce the cost of maintaining a Japanese office until such time as life reverts to the ‘old’ normal. The secret, as with most things in Japanese business, is to involve employees in the process as far as possible. Legally, you must anyway do so, morally you absolutely should do so.