To bolster Tokyo’s dwindling profile in Asia, the metropolitan government has launched the Special Zone for Asian Headquarters project to persuade more than 500 foreign companies to set up shop here by 2016.
Here are some questions and answers regarding the project.
What does Tokyo hope to accomplish with the special zone?
The metro government wants foreign companies doing business abroad to establish their Asian headquarters in Tokyo, rather than Hong Kong or Singapore, for example, by offering such benefits as preferential tax treatment and financial aid.
Five areas make up the special zone: the northern portion of Tokyo Bay stretching from Roppongi to Odaiba, Shinjuku, Shibuya, the district shared by Shinagawa and Tamachi stations, and a vacant site formerly used by Haneda airport.
Why and how did Tokyo start the project?
The goal was to shore up Tokyo’s status in Asia, according to Noriko Adachi, the metro government’s director for the project.
“Tokyo’s high status in Asia is threatened as we face a situation where foreign companies increasingly move to other Asian cities,” Adachi explained.
From 2005 to 2010, the number of foreign companies in the capital slumped from 2,645 to 2,330, according to statistics from Toyo Keizai Inc.
Adachi attributed the decline to the rise of other Asian business centers, including Singapore and Seoul, which provide subsidies and other incentives to lure foreign firms.
Tokyo launched the Special Zone for Asian Headquarters project by taking advantage of the central government’s Comprehensive Special Zones for International Competitiveness system.
In 2010, the central government created two special zone systems as part of an economic growth strategy. One of the zones is aimed at increasing Japan’s international competitiveness, and the other at revitalizing local economies.
Tokyo applied to be designated as part of the international competitiveness zone in September 2011 and got approved that December.
Other regions so designated include the Chubu region, which is trying to become the center of Asia’s aerospace industry.
What are the benefits?
Foreign firms that set up regional headquarters or research and development centers within the zone will see their effective corporate tax rate drop from 38.0 percent to 28.9 percent.
The rate will decline further, to 26.9 percent, from April 2015, when extraordinary taxes to finance the reconstruction of the Tohoku region expire.
Such companies are also eligible to receive up to ¥5 million in subsidies to cover fees, including costs related to hiring and obtaining residency status for their employees.
Furthermore, any of the foreign companies can take advantage of Business Development Center Tokyo, a special organization set up just for the zone participants that offers assistance in English to make the transition to working in Japan easier.
What are the industries being targeted?
All industries are welcome, but the metro government is placing priority on information technology, chemicals, precision instruments and aviation, Adachi said.
“The medical field has potential, as Japan is the second-largest market after the United States,” Adachi added. “The field of content creation, such as animation and game software, is another possibility,” given the government’s “Cool Japan” campaign, she said.
In July, Ikaros Solar NV, a Belgian firm specializing in photovoltaic technology, became the first foreign company to join the program. It plans to set up a joint R&D venture with a Japanese company in Tokyo’s waterfront area in October. Adachi said the firm apparently is interested in Japan’s solar energy market, which is expected to expand with help from the feed-in tariff system, which was introduced to foster the use of renewable energy.
What are the criteria for the project’s success?
By fiscal 2016, Tokyo wants to bring in over 500 foreign firms, including at least 50 that establish Asian headquarters or R&D centers in the designated areas.
Adachi said the target reflects the 2005 peak when about 100 foreign firms set up in the capital.
Tokyo is shooting for ¥14.6 trillion in economic effects and some 930,000 jobs.
Is such an ambitious goal feasible?
Adachi admits it won’t be easy to reach such an extremely high target.
The goal is so high that the consulting firm Accenture has been hired to spread the word on Tokyo’s project, she said.
“We have to talk to thousands of companies if we wish to bring in 50 firms. We asked the consulting firm to reach out to thousands of companies’ top managements,” Adachi said.
Takaumi Tamura, senior manager of the real estate and transportation group at Deloitte Tohmatsu Consulting Co., said that while the bar is high, Tokyo is being left behind by such powerhouses as Singapore and Hong Kong in terms of taxes, financial aid and amenities.
For example, the corporate tax rates of Hong Kong and Singapore are only 16.5 and 17 percent, respectively. Tamura said Tokyo needs to offer more tax breaks and subsidies to lure foreign firms.
Will the 2020 Tokyo Olympics and Paralympics help?
“I think various kinds of demand will be generated from the Olympics, so I assume the number of foreign firms coming to Tokyo will rise to take advantage of the opportunities,” Tamura said.
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