The multidisciplinary law firm FRANKUS Wirtschaftsprüfer Steuerberater Rechtsanwälte PartGmbB, based in Düsseldorf, is one of the most renowned medium-sized law firms for national and international tax law in Germany. In addition to numerous major international and German clients, FRANKUS has a strong Japan team to advise Japanese companies in Germany for over 40 years. J-BIG spoke to Toyo Nishimura, partner and Japan expert at FRANKUS, about how the firm came to specialise in Japanese mandates, what the service portfolio looks like and what role legal and cultural differences between Germany and Japan play in providing advice.
J-BIG: Mr Nishimura, how did FRANKUS come to be founded and later specialise in Japanese mandates?
Toyo Nishimura: This year we are celebrating our 45th anniversary: in 1979, public accountant and tax consultant Dr Hans Frankus set up his own business in Düsseldorf, initially with just one employee and a secretary. Previously he had worked in the international division of the former accounting firm Arthur Andersen, which also supported Japanese clients. From his time at Arthur Andersen, Dr Frankus knew Mr Fukamachi, the very first Japanese public accountant in Germany, who however initially returned to Japan.
From the very beginning, FRANKUS concentrated on advising international clients, and when many large Japanese companies settled in Düsseldorf in the 1980s, Dr Frankus asked his former colleague Mr Fukamachi if he would like to return to Germany and join him. That was the official start of the Japan business in the mid-1980s. Although still unknown, FRANKUS was quickly able to win over Japanese clients with the expertise that Mr Fukamachi brought with him, including well-known companies such as the soy sauce manufacturer Kikkoman, Shimano and Muji. At that time, it was still a rarity to have a professional consultant who spoke Japanese and was familiar with both German and Japanese law. Since then, we have continuously expanded our Japan Desk.
J-BIG: When did you join FRANKUS and what was your background?
Toyo Nishimura: I was born in Kobe, but came to Germany in 1967 at the age of one and a half when my family moved due to my father’s work. I started my professional career in accounting at KPMG in Frankfurt am Main and passed the public accounting exam in 2001. This made me the first Japanese citizen to become a German public accountant. In the meantime, I also worked in Japan for two years and then became a partner at KPMG company AZSA & Co. After returning to Germany, I was promoted to Partner at KPMG.
I started at FRANKUS in 2011 after I was asked if I would like to join as a partner. Mr Fukamachi was already 69 years old at the time and they were looking for someone who could continue to look after the Japanese mandates. I had heard a lot of good things about FRANKUS and decided to transfer, even though FRANKUS was a much smaller firm than KPMG. Since then, I have been working as a partner at FRANKUS and am responsible for the Japan business.
J-BIG: How has FRANKUS developed since you joined and how is your team organised today?
Toyo Nishimura: When I started at FRANKUS, we had around 60 Japanese mandates and I formed a team with two Japanese women for the Japan business. Almost 12 years have passed since then and we are currently 10 Japanese nationals looking after more than 200 Japanese companies. We have a total of 12 Japanese-speaking employees.
In total, we at FRANKUS are a team of over 85 specialised employees with six partners who advise our clients on all tax and legal issues. Many of our non-Japanese mandates also have an international background. Although international clients continue to be our strongest business field, our clients now also include large domestic companies, family offices and major local retailers. The industries from which our mandates come are diverse: we work with automotive manufacturers and suppliers, chemical, pharmaceutical and medical companies, transport and logistics companies, family businesses, IT and electronics companies as well as financial service providers, among others.
J-BIG: How big is the Japan business in relation to the overall business?
Toyo Nishimura: Our Japanese business accounts for more than 50 percent and of our more than 85 employees, around 50 are more or less involved with our Japanese clients.
We have a good reputation among the Japanese business community in Germany, and that brings us new clients. Japanese companies setting up a branch in Germany often don’t want a long list of twenty consultants – that’s just overwhelming – but want a recommendation for someone who really knows their way around.
J-BIG: What are the specific reasons for FRANKUS’ good reputation?
Toyo Nishimura: One important factor in our success is certainly the fact that we utilise our Japanese employees not just for marketing purposes, but actually in day-to-day business. They are directly involved in accounting, tax and legal advice. For example, one of our Japanese employees is a German lawyer and can advise Japanese clients directly on German law in Japanese. Our Japanese auditor is involved in auditing Japanese companies. A German tax consultant can also communicate with our clients in Japanese. This direct support from native Japanese speakers, who do not just serve as interpreters, is a major strength of FRANKUS. Japanese native speakers who, like me, are German professionals are still a rarity. Apart from me, there are only two other Japanese nationals in history who have become German public accountants.
We hold Japanese clients in high esteem and offer excellent cost-benefit ratios. At FRANKUS, I can also look after our mandates personally as a partner. This is more difficult at larger law firms, where the roles of partner and manager are predetermined. However, I find this proximity to the companies very important: I get a deep insight into the company, which in turn enables me to provide successful advice. The more time I can devote to a mandate, the better my understanding and the more I can naturally do for the company.
J-BIG: What are typical activities that you carry out for your mandates as a multidisciplinary consulting firm?
Toyo Nishimura: We support our mandates throughout the entire life cycle of their company – from foundation to liquidation. Our work usually begins with the establishment and registration of a representative office or branch in Germany. In the next step, we help set up business processes from an accounting, tax and legal perspective. As soon as the companies have set themselves up, regular business operations begin and various contracts need to be concluded. We also provide support during the expansion and development phase or when crises and challenges arise.
This means that when Japanese companies come to Germany, it’s like the birth in the life cycle: we start by setting up the GmbH. We help the expats coming to Germany to obtain a residence permit with a work permit. German employees are then hired. We draw up the employment contract and advise on how remuneration can be optimally structured for tax purposes.. Other typical topics include choosing the optimal legal form for the company, coordinating the translation and notarisation of documents, the VATID and EORI registration for the start of import and export activities and obtaining the permits required for the business activity.
We advise companies on how to consistently digitise the organisation of their daily work processes. Day-to-day operations include importing goods, sales, marketing activities and financial matters such as monthly financial statements and tax returns. Enterprise Resource Planning (ERP) software is a good way to map much of the core work of a distribution company and to build the business. This approach is particularly efficient when the companies have just set up a new subsidiary.
J-BIG: Does every Japanese company that intends to set up a GmbH in Germany seek the support of tax advisors and public accountants as a first step, or do some companies initially try to manage on their own?
Toyo Nishimura: Going to a public accountant is not necessarily the first step, as lawyers are usually needed first to assist with the formation of the GmbH. However, if you only seek advice from lawyers, wrong decisions can lead to tax disadvantages later on. There are many things that can go wrong right at the beginning, for example problems with income tax because the visa application was not submitted incorrectly but suboptimally.
The Foreigners’ Registration Office generally requests the submission of the employment contract with the German company, although this is not necessary for expats who are only being sent to Germany for a limited period of time.
However, if you conclude an employment contract with the German company for an expat, you may lose the opportunity to save on income tax. These tax benefits can sometimes amount to high four-figure sums.
Experts in the field of residence law are not always aware of the tax saving options. This is where our strength lies as a multidisciplinary law firm that covers many areas of legal advice. We clarify such cases thoroughly in advance and always keep an eye on the big picture. When a branch has to be established, all of our departments are involved, including the tax experts, so that we can offer our mandates optimal solutions in the long term.
J-BIG: How do Japanese companies find their professional consultant?
Toyo Nishimura: In the case of large listed companies, it is common practice to conclude framework agreements with large, globally active accounting and law firms, so that their national subsidiaries then operate in the respective country. Of course, we only specialise in German law, but we can offer the best expertise for Germany. FRANKUS is frequently recommended in the German Japan business community and many interested parties approach us. When someone searches for a tax consultant in Japanese on the Internet, our firm appears high up. Around 80 to 90 percent of the companies that come and ask for a quote then also decide to work with us.
J-BIG: How familiar are your Japanese clients who come to Germany with German or Japanese law?
Toyo Nishimura: When companies come to Germany, they usually send sales or technical staff who are not familiar with Japanese or German law or taxes. However, it’s not necessary to have much knowledge of tax or law – that’s what we’re here for.
However, knowledge of German is required to check incoming letters. For this reason, an office worker with German language skills is often employed initially to provide support. When setting up a limited company, there are often targeted attempts to defraud through invoices sent by post that look deceptively authentic, such as invoices for an extract from the Commercial Register. One can usually only tell that something is not right by the foreign IBAN number. We warn our customers against such cases and recommend that all invoices be submitted to us for verification.
J-BIG: How does the cooperation with your mandates look like?
Toyo Nishimura: We work very closely with our mandates and take an organised approach. It is important to us that the Japanese companies know exactly what to expect. At the beginning, our mandates receive an overview of the entire settlement process. We have bundled our services into a package that covers all possible needs of our mandates. We can offer many of the services in our package at a fixed price, while some tasks that are difficult to budget for are charged on a time basis.
It is important for us to gain a good insight into the company in order to recognise where there are starting points for tax or legal issues. For example, when our mandates establish initial business contacts, a distribution or commercial agency agreement is required. In general, we first have our mandates write down everything they want to have covered in terms of content. We then take a German template or an English-language template in accordance with German law and reflect this information. The companies therefore do not need any legal expertise of their own.
When working together, we sometimes find that Japanese companies often do not realise that there are sometimes very different legal regulations within Europe. Some Japanese companies that already have branches in other countries ask whether they can simply adopt certain regulations. In addition, there are also stylistic differences in the legal documents: In the UK, for example, company handbooks are written in great detail, almost patronisingly. Germans don’t like checklists and want to work freely and independently. In this respect, many detailed rules tend to be counterproductive.
J-BIG: Are there any services that you offer at FRANKUS that differ from the usual services of a law and accountancy firm?
Toyo Nishimura: As a qualified professional, in other words as a public accountant, tax consultant or lawyer, the activities of these professional groups are clearly defined by law. You are not allowed to work outside of this area, for example in marketing or recruitment. We therefore have a catalogue of activities for our professional groups, which we use to look very closely at what a Japanese company setting up here needs.
The special thing about us is that we combine expertise in content and language and can therefore mediate very well. When we mediate in meetings and negotiations, we can at the same time explain tax implications and legal implications.
Japanese companies appreciate it when they are given advice on which option might be best for them when there is no clear solution to a legal issue. Large law firms often point out the various legal options, but strictly avoid recommending a particular option. Culturally, however, Japanese companies appreciate a recommendation, as decisions in Japan are usually not made by one person, but by the community. If a subsidiary is to be established in Germany, the head office cannot be consulted for everything, so the law firms are important advisors for the decision-makers in Germany. Our linguistic and cultural understanding of Japanese companies is therefore an important competitive advantage.
J-BIG: This means that you not only take into account legal differences in your work, but also cultural differences in particular?
Toyo Nishimura: When Japanese companies come to Germany, they are often confronted with completely new situations and cultural differences. Therefore, mediating between cultures is also an important part of our work.
To give an example: Japanese companies are often surprised at how long some processes take in Germany. For example, the deadline for submitting tax returns in Japan is two months after the end of the financial year. In Germany, you usually have 15 months and if the financial year is postponed, you may have almost two years. We have to explain to our mandates that such processes proceed more slowly in Germany.
Also, the manager usually comes from Japan and has different expectations in terms of work ethics. In addition, there is the language barrier. Due to the different work cultures in Germany and Japan, conflicts with employees arise from time to time. This is why we also advise on personnel and legal disputes. For cultural reasons, Japanese companies are very reluctant to go to court, whereas in Germany this is not uncommon. This type of conflict resolution is completely unfamiliar to our Japanese mandates. We advise on what is common practice in Germany and what you can do as an employer.
J-BIG: What are typical causes of conflict?
Toyo Nishimura: Very different intercultural issues can lead to conflicts in everyday working life. In Japan, there is traditionally a lot of consideration for the community and fewer claims for one’s own rights. One example: In Japan, employees are entitled to 20 days’ holiday per year. However, as the holiday days also have to be used in the event of illness, people usually only take 10 days in order to have a sufficient buffer for possible illnesses. In addition, you don’t want to be a burden on your colleagues in the event of illness and, if you can still work somehow, you don’t take any holiday. It is interesting to note that Japanese people who go abroad are rethinking their attitudes. They are reflecting on their own attitudes and some Japanese companies are questioning whether the Japanese work culture is not too strict in some respects.
J-BIG: What other challenges do Japanese companies face when they come to Germany?
Toyo Nishimura: Another challenge is the universal problem of skills shortages. With many Japanese companies requiring non-Japanese employees to speak at least English, and ideally Japanese, it is often difficult to find suitable staff.
Currency fluctuations are another problem. Some companies conduct all their business in euro to avoid being directly affected by fluctuations. However, if production is done in yen, this will affect prices. The current weak yen is good for an exporting nation because it benefits German subsidiaries that buy in Japan and can keep prices stable or even lower them in Europe to gain a competitive advantage.
J-BIG: What role do differences between the Japanese and German tax systems play when setting up a subsidiary in Germany?
Toyo Nishimura: When it comes to taxes, there are some significant differences that are important when establishing a branch in Germany. Corporate tax, which is the tax on company profits, is similar in both countries and stands at around 30 percent. However, there is a major difference in personal income tax: in Germany, taxation of the individual is much higher. This leaves significantly less of the net salary. International companies are often unaware of this and set a net salary for expatriates in advance. For example, if you want to pay an expat a net salary of 3,000 euro, you will end up with a gross salary of around 5,000 euro in Germany, whereas in Japan it would only be 4,000 euro. In addition, there is the exchange rate to the euro. This means that it is very expensive for Japanese companies to send expats to Germany. It can sometimes happen that the expat earns the same as the Japanese CEO, as the salaries of board members in Japan are generally not nearly as high as in Europe or even America.
J-BIG: Is cost one of the reasons why there have been fewer expatriate postings in recent years compared to the past?
Toyo Nishimura: Financial aspects certainly play a role, although tax considerations are less important, especially for new companies, as many Japanese companies are not aware of the high costs in advance and only find out about them through us.
Many Japanese companies report that it is difficult to find employees who are willing to work abroad for several years. In the past, it was quite normal in Japan for employees to move abroad, often without their families. Today, it seems to me that the generational shift has changed attitudes somewhat and younger people are more orientated towards family and private life.
Overall, a social change can be observed in Japan: It used to be a matter of course to dedicate your life to one company and work there until you retire. In the last 20 years, job changes have become more frequent due to the strained state of the Japanese economy, although not to the same extent as in the West.
Another change in thinking has certainly been brought about by the coronavirus. With the increased use of video conferencing, companies have realised that it is not absolutely necessary to have someone on site at all times. Since then, the exchange of information has increasingly taken place via video conferencing. Sales are also being conducted more and more digitally. All of this has led to a reduction in expensive expatriates.
J-BIG: Finally, despite the many challenges, what do you think makes Germany an attractive location compared to other European countries?
Toyo Nishimura: Besides Germany, Japanese companies often consider the UK, the Netherlands or France as potential locations for entering the EU market. Nevertheless, the Economic Partnership Agreement between the EU and Japan (EPA) makes Germany a strategically very advantageous location. Germany is located in the heart of the EU and has an extensive logistics network to Eastern and Southern Europe as well as the nearby port of Rotterdam. In addition to this geographical advantage, the benefits of the EU-Japan Economic Partnership Agreement have allowed Japanese companies to enjoy economic benefits such as lower tariffs and regulations when doing business in Germany. Another important incentive is Germany’s high purchasing power, its large number of trading partners as an industrialized country and its strong foothold in a wide range of industries. In addition, Germany and Japan have much in common in terms of spirituality and history, which prepares the ground for a smooth economic exchange between the two countries. Germany’s post-war economic miracle is synonymous with rapid economic recovery and growth, as is Japan’s strong post-war economic growth.
Trade relations between Germany and Japan have been further strengthened by the EU-Japan Economic Partnership Agreement, and I firmly believe in the importance of this partnership. Against the backdrop of the recent global crisis, the risk of dependence on unreliable trading partners has become clear. Strengthening economic ties between Japan and the EU, and Germany in particular, is an important strategy to promote the diversification of supply chains and reduce dependence on other major countries. We therefore continue to expect many new Japanese companies to set up operations in Germany. FRANKUS is well prepared to help these companies succeed by providing expert legal and tax support.
