Major amendment to Japanese rules for dependent family member health care coverage and spousal pension eligibility

Jackson Sogo (Japanese Gyoseishoshi Law Office) – Client Alert

Area: Family Law

The Japanese Health Insurance Law, which has until now allowed dependent family members outside of Japan to receive health insurance benefits, has been amended to limit benefits to those dependents residing in Japan. Spouses wishing to draw pension as a “Category 3 Insured Person” will also have to reside in Japan to be eligible to receive pension.

The amendment takes effect in April 2020 and is meant to curb potential abuse of the health care and pension systems by the growing number of foreigners in Japan, although the changes apply to foreigners and Japanese alike. Certain exceptions are made for students studying abroad and accompanying family members living abroad on a temporary overseas assignment.

Japanese residents with dependent family members residing outside of Japan will want to carefully consider how these changes may impact them and plan accordingly.

* Jackson Sogo (www.jacksonsogo.com) is a Japanese gyoseishoshi law office offering a wide range of Japanese corporate, immigration and family law services to clients in native English. The information provided within this client alert is provided for informational purposes only and does not constitute legal advice. Copyright Jackson Sogo. All rights reserved.

Warning regarding fraudulent brokers and consultants

Jackson Sogo (Japanese Gyoseishoshi Law Office) – Client Alert

There has recently been an uptick in brokers and consultants purporting to provide Japanese legal advice and support to foreigners and foreign businesses, particularly in the areas of immigration and corporate law. Many of these “advisors” are not licensed to provide these services and are not bound by a duty of confidentiality.

Only locally-qualified legal professionals can practice Japanese law, so please be cautious when seeking assistance on Japanese law issues from companies and individuals advertising these services.

Understanding what Japanese LLCs and Japanese LLPs are and aren’t

In 2006, the Japanese Commercial Code underwent the most significant set of changes since its inception. Up until that point, the basic corporate forms available to businesses in Japan were the (i) corporation (kabushiki kaisha, or “KK”), (ii) limited liability company (yugen kaisha, or “YK”), (iii) limited partnership company (goshi kaisha) and the (iv) general partnership company (gomei kaisha). The 2006 amendments, which codified the “Japanese Companies Act” to deal specifically with company formation, organizational, management and administrative issues, essentially folded the existing limited liability company (YK) into the corporation (KK) and established a new limited liability company (the godo kaisha, or “GK”) in its place, while a related law that went into effect just before those amendments in 2005 introduced a new limited liability partnership (yugen sekinin jigyo kumiai) to the non-corporate forms already available under Japanese law.

The GK was based loosely on the limited liability company under U.S. law and was heralded, and continues to be referred to, as the “Japanese LLC”. From the beginning, it was meant to offer the most significant features of its American counterpart – namely, (i) limited liability (limited to the amount of the member’s investment) and (ii) pass-through tax treatment for members. The intent was to bring Japanese company law more in line with popular modern-day corporate forms and open up additional options for structuring and investment in Japan.

Unfortunately, this proposal was met with serious resistance, in particular with respect to the proposed tax status for the new Japanese LLC. Historically in Japan, entities that enjoy a separate legal existence have always been subject to a corporate tax at the corporate level, and the support for the Japanese LLC was not strong enough to overcome the presumption that pass-through tax treatment should only be available for non-corporate associations / partnerships. The result is that Japanese LLCs do not benefit from pass-through tax treatment under Japanese law as the LLC name would suggest.* This is a major source of misunderstanding for foreign investors, who assume, as one would expect, that a Japanese LLC would naturally possess the salient features of its similarly-named American counterpart.

The compromise for the somewhat handicapped Japanese LLC was the introduction of a limited liability partnership (the yugen sekinin jigyo kumiai, or simply, the “Japanese LLP”). The Japanese LLP provides limited liability (limited to the amount of the member’s investment) and pass-through tax treatment for members but, importantly, is not recognized as a corporate form. In other words, unlike its American counterpart, it is not treated as a distinct entity with a separate legal existence and therefore cannot be a party to agreements, cannot acquire rights or be subject to liabilities in its own name, and cannot, except in certain circumstances, be a named plaintiff or defendant in lawsuits.** At its core, it is treated as an association – a group of individuals acting together for a common purpose. Here again, the naming is a major source of misunderstanding for foreign investors, who understandably assume that the characteristics of the Japanese LLP would generally map to those of its similarly-named American counterpart.

Anyone considering establishing a company or partnership in Japan will want to take the time to due diligence the various options to select the most appropriate form in light of their particular business and tax circumstances. Please contact us at Jackson Sogo so that we can assist you in that process.

* Note, however, that a taxpayer may “check-the-box” to treat a Japanese LLC as a pass-through entity for U.S. federal tax purposes.

** These issues are not insurmountable. For example, members of an LLP may enter into contractual arrangements on behalf of the LLP. Property registered in the name of a member on behalf of the LLP is also considered to be jointly held by the members of the LLP. However, the lack of corporate form can complicate the process, and some banks and creditors may be unwilling to do business with an LLP due to their unfamiliarity with the form.

**** Jackson Sogo (www.jacksonsogo.com) is a Japanese gyoseishoshi law office offering a wide range of Japanese corporate, immigration and family law services to clients in native English. The information provided within this client alert is provided for informational purposes only and does not constitute legal advice. Copyright Jackson Sogo. All rights reserved.

Procedural pitfall can lead to visa overstay and deportation of individuals seeking permanent residence in Japan

Jackson Sogo (Japanese Gyoseishoshi Law Office) – Client Alert

Area: Immigration

As Japan continues to attract more and more foreign talent, the option of settling in Japan as a permanent resident has received increasing attention. Although the base requirement for application continues to be 10 years of continuous residence, special rules have been enacted that lessen this requirement for spouses of Japanese citizens, spouses of permanent residents and certain highly-skilled workers, allowing some foreign residents to obtain permanent residence in as little as one to three years.

Individuals seriously considering permanent residence should be aware, however, that Japanese law does not treat applications for permanent residency the same as applications for change of status and visa renewal in all respects.

The most critical difference relates to the so-called “grace period” granted to most foreign residents applying for a change of status or visa renewal. Under the applicable special provisions of the law establishing the grace period, an individual who has submitted an application for change of status or visa renewal by the expiration date of his or her visa is permitted to remain in Japan legally until the earlier of (i) the time a decision is made on the application by the Immigration Bureau or (ii) 2 months after the expiration date of the applicant’s visa.*

Foreign residents should understand that while this grace period is available in many cases, it expressly does not apply to applications for permanent residence.** Individuals applying for permanent residence must therefore maintain another valid residence status in Japan throughout the application process. Failure to do so may result in deportation and prevent the individual from re-entering Japan for 5 or more years (this period may be reduced in certain circumstances).

The consequences for visa overstayers are serious and long-lasting, so foreign residents seeking permanent residence in Japan should take special care to ensure that they do not jeopardize their ability to remain in Japan long-term in the process of applying for permanent residency.

* In the event the Immigration Bureau intends to deny an application, it will typically reach out to the applicant, inform the applicant of its intention and permit the applicant to amend his or her application to apply for a temporary “special activities” visa that will allow the applicant time to prepare to leave the country.

** Please note that there are other cases in which the grace period may not apply. Please contact us for more information.

*** Jackson Sogo (www.jacksonsogo.com) is a Japanese gyoseishoshi law office offering a wide range of Japanese corporate, immigration and family law services to clients in native English. This client alert is provided for informational purposes only and does not constitute legal advice. Copyright Jackson Sogo. All rights reserved.

New system in Japan to allow for the filing of hand-written wills

Jackson Sogo (Japanese Gyoseishoshi Law Office) – Client Alert

Area: Family Law

Effective July 10, 2020, Japanese law will permit individuals who have executed a hand-written (or “holographic”) will to file that will with the Legal Affairs Bureau for safekeeping until their death. The system, which is also available to foreigners and is set forth in the Act concerning the Storage of Wills at the Legal Affairs Bureau, will allow heirs and beneficiaries to (i) confirm whether a will has been filed with the Legal Affairs Bureau, (ii) request a copy of a filed will, and (iii) view a copy of a filed will at an office of the Legal Affairs Bureau following the death of the decedent. An individual who has filed a will may revoke or replace the will freely at any time prior to death.

The new system is meant to help prevent the loss, destruction or tampering with of wills and minimize disputes related to the same. Under the new system, heirs and beneficiaries to a filed will will be notified when another heir or beneficiary requests or views a copy of the filed will. Wills filed under the system will also not need to go through probate, which should speed the process of distributing assets.

One point of concern with the new system is that wills filed with the Legal Affairs Bureau will not receive the close review they would receive if filed with a notary public as a notarized will. There are currently three types of wills permitted under Japanese law, and a will must conform with the strict rules of at least one of those types to be valid. The acceptance of a will by the Legal Affairs Bureau is not an acknowledgement that the will is valid, and therefore if a will is challenged, found invalid and no other valid will exists, the deceased will be deemed to have died intestate and the intestate laws of Japan may determine the division of assets, not the provisions set forth in the will.

Also, although the new system is intended to provide safekeeping for the final binding will of the filing individual, the filing of a will will not invalidate a newer, valid non-filed will under Japanese law. Individuals making use of the system should therefore be aware that any new will created after filing may supersede the will they have filed with the Legal Affairs Bureau.

Jackson Sogo (www.jacksonsogo.com) is a Japanese gyoseishoshi law office offering a wide range of Japanese corporate, immigration and family law services to clients in native English. This client alert is provided for informational purposes only and does not constitute legal advice. Copyright Jackson Sogo. All rights reserved.