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Construction Market And Construction Business Licenses In Japan – Real Estate and Construction – Japan



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1. Overview

The Japanese construction market these days has been quite
active due to, among other items, the upcoming 2020 Tokyo Summer
Olympics (which are actually now to be held in 2021), integrated
resorts (“IRs”) including casinos to
be developed in Japan1 and 2025 World Exposition which
will be held in Osaka. They attract not just Japanese construction
companies but also overseas construction companies looking to
develop projects in Japan.

Overseas construction companies may be able to make use of their
existing relationship with property owners who conduct developments
and/or constructions in Japan, and overseas construction companies
with knowledge, experience and/or special construction methods
relevant to the Japanese construction market may be able to make
use of such knowledge, experience and/or special construction
methods to enter into the Japanese construction market. However, in
order to engage in construction activities in Japan, your company
will need to obtain a Japanese construction business license -
something that is not that easy to obtain without knowing the
necessary steps to get one and engaging professional support.

We discuss below the basic requirements for obtaining a Japanese
construction business license.

2. Entities eligible to apply for construction business
licenses

Both Japanese subsidiaries and Japanese branches of foreign
companies may apply for a Japanese construction business license.
However, unless there is a specific reason to use a Japanese branch
for the application process, foreign companies tend to choose to
incorporate their Japanese subsidiary in order to have a separation
of liabilities between the foreign company and its Japanese arm and
also in order to avoid disclosure of certain information belonging
to the foreign company (e.g., financial information) to the
Japanese authorities in charge of Japanese construction business
licenses.

Even if a Japanese branch is used as a foreign company’s
arm in Japan, registration of such Japanese branch is required
– which is essentially the same as in the case of using a
Japanese subsidiary.

3. Construction business license categories

There are 29 different categories of Japanese construction
business licenses, of which there are two (2) general ones and 27
more specific ones (please see below for more details). An
applicant needs to apply for at least category or categories of
licenses depending on the nature of the construction work to be
done.































1.

“General” civil engineering work

2.

“General” architectural and construction work

3.

Carpentry work

4.

Plastering work

5.

Scaffolding, excavation and concreting work

6.

Masonry work

7.

Roofing work

8.

Electrical contracting work

9.

Plumbing work

10.

Tiling, roof tiling and block work

11.

Steel structure work

12.

Steel reinforcement work

13.

Paving work

14.

Dredging work

15.

Sheet metal work

16.

Glazing work

17.

Painting work

18.

Waterproofing work

19.

Interior finishing work

20.

Machinery, equipment and facility work

21.

Heat insulation work

22

Telecommunications engineering

23.

Landscaping work

24.

Drilling work

25.

Cabinetmaking work

26.

Water supply facilities work

27.

Firefighting facilities work

28.

Sanitation facilities work

29.

Demolition work

Broadly speaking, there are two (2) different categories of
licenses – one is the “ordinary construction business
license” and the other is the “special construction
business license”. Applicants that are prime contractors that
subcontract at least JPY 40 million (in the case of either of the
two (2) “general” construction business licenses, at
least JPY 60 million) of a project to subcontractor(s) will need to
apply for a special construction business license. Otherwise, an
ordinary construction business license would suffice.

If an applicant has office(s) in only one (1) prefecture, an
application for a construction business license needs to be filed
with the local government in that prefecture. Applicants with
offices in multiple prefectures need to apply with the Ministry of
Land, Infrastructure, Transport and Tourism (the
MLIT”). Please note that even if an
applicant has an office in only one (1) prefecture, that does not
mean that such applicant may not engage in construction work in
another prefecture. Therefore, applicants often choose to apply for
prefectural construction business licenses in order to avoid long
lead-times associated with MLIT construction business license
applications (please see Section 5 below).

Construction business licenses are valid for five (5) years upon
being granted.

4. Requirements

There are several requirements to obtain an ordinary or a
special construction business license, and the procedures and
required documents are slightly different depending on the
prefecture with which you apply. We explain the general
requirements below.

4.1 PRMO and FTE

An applicant for an ordinary or a special construction business
license needs to have the following full time staff members:

(i) a person responsible for management and operations
(“PRMO”) of the company as a director;
and

(ii) a full-time engineer
(“FTE”).

There is no requirement that the above two (2) jobs should be
staffed by different people, however, and a single person can act
in both positions if they are duly qualified.

PRMO (The requirements are the same for an ordinary and
a special construction business license.)

An applicant needs to have a full-time director who:

  • has at least five (5) years’
    experience in chief management2 of a project/development
    in the construction category in which the applicant applies for a
    construction business license;

  • has at least six (6) years’
    experience in chief management of a project/development in a
    construction category different from the one in which the applicant
    applies for a construction business license;

  • was in a position equivalent to a
    chief management person of a project/development in the
    construction category in which the applicant applies for a
    construction business license and with (i) at least five (5)
    years’ experience as an executive officer conducting overall
    management of a project/development in the construction category or
    (ii) at least six (6) years’ experience assisting management of
    the same;

  • was in a position equivalent to a
    chief management person of a project/development in a construction
    category different from the one in which the applicant applies for
    a construction business license and with at least six (6)
    years’ experience as an executive officer conducting overall
    management of a project/development; or

  • was individually approved by the MLIT
    as a person having experience equivalent to any of the above
    requirements (e.g., experience as a director of a foreign
    construction company)3.

FTE (for ordinary construction business
licenses):

An applicant needs to have an FTE who:

  • has a certain national qualification
    relevant to the construction category in which the applicant
    applies for a construction business license4;

  • has (i) at least three (3)
    years’ work experience relevant to the construction category
    in which the applicant applies for a construction business license
    after graduating from a certain course at a university or (ii) five
    (5) years’ work experience relevant to the construction
    category in which the applicant applies for a construction business
    license after graduating from a certain course at a high school;
    or

  • has ten (10) years’ work
    experience relevant to the construction category in which the
    applicant applies for a construction business license.

FTE (for special construction business
licenses):

An applicant needs to have an FTE who:

  • has a certain national qualification
    relevant to the construction category in which the applicant
    applies for a construction business license5;

  • depending on the construction
    category in which it applies for a construction business license,
    has a certain national qualification relevant to the construction
    category and two (2) years’ supervisory work experience of
    prime contractor work for projects worth an amount of JPY 45
    million or more;

  • depending on the construction
    category in which it applies for a construction business license,
    has ten (10) years’ relevant work experience and two (2)
    years’ supervisory work experience of prime contractor work
    for projects worth an amount of JPY 45 million or more;

  • depending on the construction
    category in which it applies for a construction business license,
    has certain relevant educational career (and certain relevant work
    experience) and two (2) years’ supervisory work experience of
    prime contractor work for projects worth an amount of JPY 45
    million or more; or

  • has a construction qualification
    and/or experience overseas and was individually approved by the
    MLIT as a person having the relevant qualifications and/or
    experience equivalent to any of the above
    requirements6.

4.2 Sincerity

In order to obtain a construction business license, an
applicant, its directors, and the like may not be “persons
who most probably will commit an unfair act or act in bad
faith”. If an applicant’s (i) architect license, real
estate brokerage license, or the like was revoked because of an
unfair act or an act in bad faith and (ii) five (5) years have not
yet passed after such revocation, a construction business license
is not granted for such applicant.

4.3 Financial Background, etc.

Ordinary construction business license:

Any of the following financial requirements needs to be
satisfied to obtain an ordinary construction business license:

  • have a stated capital amount of JPY 5
    million or more (for a new company) or net assets equal to JPY 5
    million or more (for an existing company);

  • have deposit amounts equal to JPY 5
    million or more; or

  • (for an existing company) have been
    operating for at least five (5) years after having been granted a
    construction business license.

Special construction business license:

All of the following financial requirements need to be satisfied
to obtain a special construction business license:

  • have a capital deficit (if any) ratio
    of 20% or less;

  • have a current ratio of 75% or more;
    and

  • have a stated capital amount of JPY
    20 million or more and net assets equal to JPY 40 million or
    more.

4.4 Grounds for Disqualification

If an applicant, its directors, or the like fall under any of
the grounds for disqualification (e.g., an adult ward, person under
curatorship, bankrupt whose rights have not been restored, an
anti-social force (e.g., a gangster)), a construction business
license is not granted.

In addition to Sections 4.1 to 4.4 above, bank account openings,
physical office set up (leased offices are fine) and enrollment of
employees in the health insurance plan are, among other practical
steps, also required.

5. Steps

It usually takes one (1) to one and a half (1.5) months to
incorporate a Japanese subsidiary of a foreign company and to
obtain a corporate registry of such Japanese subsidiary.

A bank account opening usually takes two (2) to four (4)
weeks.

The most important and often difficult part of this entire
process is hiring of personnel who have the necessary
qualifications to obtain a construction business license for a
certain category for which there is no standard time period. If an
applicant already has a specific construction project under
consideration for which a Japanese construction business license is
required, the hiring work needs to be started well in advance of
the commencement of such construction project. We can also assist
with this process communicating with recruitment (headhunting)
companies and/or construction industry contacts.

After this entire process and an application to the relevant
prefectural government, a license is usually granted within 30 to
45 days (depending on the prefecture). MLIT construction business
licenses usually take around 120 days to be granted.

Footnotes

1 It is planned that around or starting Winter 2021 the
Japanese national government will select three (3) locations
(prefectures) for the development of integrated resorts, which will
make gambling legal in such selected locations only.

2 If he/she was a director (torishimariyaku), it
is easy to prove to the authority that he/she has the necessary
qualifications since they can be found in a corporate registry.
Otherwise, it needs to be considered what documents an applicant
can submit to the authority to prove this. Close communications
with the authority is important for this purpose.

3 The requirements for the MLIT approval is not very
clear and we need to prepare documents together with notarized
Japanese translations to prove that a person satisfies such
requirements.

4 For example, for the general architectural and
construction work category, (i) a first class building construction
management engineer, (ii) a second class building construction
management engineer (not relating to “structure” or
“finishing” but relating to
“architecture”), (iii) a first class architect or (iv)
a second class architect.

5 For example, for the general architectural and
construction work category, (i) a first class building construction
management engineer or (ii) a first class architect. The
qualification requirement for a special construction business
license is more strict than that for an ordinary construction
business license.

6The requirements for the MLIT approval are not
very clear and we need to prepare documents together with notarized
Japanese translation to prove that a person satisfies such
requirements.

Originally Published by DLA Piper, November 2020

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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