Japan's Latest Film Tax Incentive Sets the Stage for Global Productions

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Joseph Chianese
Joseph Chianese Member Posts: 45
edited April 9 in Producers

From Miyazaki to Godzilla, Japan is entering a cinematic renaissance and poised to attract international filmmakers with new 50% tax credit. 

Since the 1950’s Japanese cinema has influenced filmmakers and audiences alike through poignant storytelling and advances in technology. That influence is reaching new heights with the success of recent box office hits and a thriving VFX industry. In response to changes in the market, a new production incentive is putting Japan on the map as a go-to destination for creating content that appeals to a global audience, particularly in the live-action and anime genres.  

 Within the last year alone, Japanese cinema celebrated two remarkable box-office wins:   

Renowned anime director Hayao Miyazaki recently completed his 12th feature film, ‘The Boy and the Heron’, which earned both a Golden Globe and Academy Award for Best Animated Feature Film. Boasting over US$165 million in box office revenue worldwide, the film is the third anime film (and Miyazaki’s first) to ever top the box office in US and Canadian theaters.  

Following closely behind was Toho Studios’ 37th film in the 70-year franchise, ‘Godzilla Minus One,’ which was also honored with an Oscar win for  Best Visual Effects. Director Takashi Yamazaki reaffirmed the enduring relevance of Godzilla with an impressive debut of $8.3 million and a worldwide gross of $105 million, setting a new record for the highest-grossing live-action Japanese film in North American theaters. In his acceptance speech at the 96th Academy Awards, he noted “This award is proof that everyone has the chance.”  

Industry leaders recognize that these milestones are pointing to a larger trend on the horizon– a complete transformation of the industry, fueled by foreign investments in Japan’s film market. It might be reassuring to see Japanese films take the lead in box-office hits but without a competitive incentive program in place to attract filmmakers, Japan cannot effectively promote itself as a fertile ground for those seeking inspiration and opportunity.  

 

‘The Boy and the Heron’ / GKIDS 

Japan’s film tax credit program 

 Japan recently unveiled a new production incentive program in the hopes of attracting large-scale international film, television projects, and streaming dramas to the island nation. Proposed by Japan’s Visual Industry Promotion Organization (VIPO) and the Film Commission (JFC), the program will fund up to 50% of qualifying expenditures in Japan, with a cap of $6.8 million (JPY1BN).  

Applications, which must be submitted by a Japanese production company, need to meet one of the two following requirements:  

  • Direct production costs in Japan exceed US$3.38 million (JPY500M) or total production costs exceed US$6.8 million (JPY1BN) and direct production costs in Japan exceed US$1.35 million (JPY200M)  
  • Projects are scheduled to be released, screened, broadcast, or distributed in more than ten countries 

All qualifying film projects must also meet the following criteria:  

  • Vitalize the domestic film industry through employment opportunities 
  • Promote the location where filming took place 
  • Bolster the appearance of Japan and Japanese culture to a global audience 

 This is an extension of the previous incentive pilot program initiated in 2019 (which expired in June 2022), the newest incentive offering positions Japan to remain competitive in the region. Although this is Japan’s largest tax credit to date, it remains outmatched by neighboring countries who offer higher production incentives, most notably Thailand and South Korea.  

Filmmakers and industry professionals are hoping the incentive program can be expanded and made permanent in order to further entice and withhold overseas projects. The benefits of an increased flow of production in Japan would be multifaceted: increased opportunities for the local workforce; greater economic activity in the communities surrounding filming locations; greater investment in local infrastructure; and stimulation of tourism. With Japanese currency at a five-year low (against the US dollar), the country is a budget-friendly destination.  

 Film Commission executives have noted larger scale productions, such as ‘Snake Eyes: G.I. Joe Origins’ (Paramount Pictures) and the HBO Max drama-series ‘Tokyo Vice’ (season 2 began airing last month) have assisted in boosting the local economy and have created training opportunities within the local industry. However, Japan will need to restructure or facilitate the film permit system–coupled with a more competitive tax rebate–in order to retain large-scale international projects; otherwise, it will continue to lose well-needed projects to its competitive neighbors.  

Why film in Japan? 

Japan’s rich cultural heritage has been an honored source of inspiration for filmmakers. From its ancient folklore and traditions to the aesthetics of modern urban life, Japan offers a diverse range of narratives and settings for creatives.  

Japan’s geography showcases a tapestry of diverse and dynamic landscapes, ranging from cityscapes to forests, picturesque mountains, and beautiful coastlines. Across all regions filmmakers have access to an extensive selection of scenic locations. Additionally, there are numerous villages, historic towns, and cultural landmarks that display centuries-old architecture, providing an authentic backdrop for visually engaging sets.  

The vibrant urban scenery of Tokyo and Osaka, along with their bustling metropolitan surroundings, have served as ideal settings for many productions. Numerous international films, such as ‘Lost in Translation’ (Focus Films), ‘Babel’ (Paramount Pictures), ‘The Last Samurai’ (Warner Bros Pictures), and ‘The Wolverine’ (20th Century Fox), have been set mostly or entirely in Japan.   

Stepping away from Japan’s visual landscape, Japan is also renowned for its advancements in technology, allowing the film industry to employ pioneering animation techniques and cutting-edge VFX techniques. Today, the VFX market size is valued at $9.95 billion; nevertheless, a recent market report forecasts that the VFX market will surge to $22.93 billion by 2031.  

Development of Japan’s infrastructure & filmmaking talent 

In Japan, it is common for a single production company to oversee all major phases of filmmaking – production, distribution, and exhibition. The Japanese film industry has historically been under the direction of the “Big Four” film companies –Toho, Shochiku, Toei and Kadokawa – collectively forming the Motion Picture Producers Association of Japan (MPPAJ). With focus geared towards high-quality content, new infrastructure has been recently developed to accommodate the increasing number of future projects.  

One of Japan’s film giants Toei Tokyo recently constructed Toei VP Studios, Japan’s largest virtual production (VP) hub, anticipated to reach full operational status this year. Amongst the many technologies offered at this VP studio is the largest LED stage in the country, utilizing the most state-of-the-art technologies to streamline virtual production.  

M6 Studio, owned by production company THE SEVEN and built within the TBS Midoriyama Studio, was recently presented as one of Japan’s largest studio, providing high-quality filming environments for production and the post-production process.  The M6 Studio is equipped with a Digital Imaging Technician room, enabling the immediate confirmation of recorded video data. It also has an established high-speed communication infrastructure suitable for the swift transmission of large data. This setup provides an optimal environment for both shooting content intended for global streaming platforms that demand high-end video quality and the subsequent post-production processes. Netflix’s highly successful series ‘Alice in Borderland’ Season 3 is in current production at the studio.  

 In addition to the investment in infrastructure, there are various institutions and film festivals within Japan dedicated to promoting and nurturing filmmaking talent. The Japanese government, the Agency for Cultural Affairs, and UNIJAPAN have partnered together to present up-and-coming directors to international film markets. Works screened at Japanese festivals, including Tokyo International Film Festival, Tokyo FILMeX, Tanabe Benkei Film Festival, and the Tokyo Student Film Festival, have given global audiences a glimpse into new Japanese films and filmmakers. 

 

‘Godzilla Minus One’ / TOHO 

The history and evolution of Japanese cinema 

 International recognition for Japanese cinema began in the 1950s with the groundbreaking works of filmmakers Akira Kurosawa’s ‘Rashomon’ and Yasujirō Ozu ‘Tokyo Story.’ Western audiences were captivated by Japanese filmmakers’ unique method of storytelling, particularly in the monster films of this era, such as ‘Godzilla’ and ‘Mothra,’ and in samurai-themed projects of Kurosawa’s ‘Seven Samurai’ and Masaki Koboyashi’s ‘Hara-kiri.’ This ‘Golden Age’ of cinema produced many internationally acclaimed films, placing Japan as a contender in the global film market and initiating a wave of Japanese inspiration in western filmmaking.  

Japan’s ‘Second Golden Age’ (1980s and 90s) arrived with the rising popularity of anime movies, often based on anime television series or manga-style comic books. Japanese animation studios produced some of the most iconic anime films of this era, like Tokyo-based Studio Ghibli with ‘My Neighbor Totoro,’ ‘Ponyo’ and Academy-award winning ‘Spirited Away,’ as well as Toei Animation’s television series ‘Sailor Moon’ and ‘Dragon Ball.’  

From western classics to today’s anime adaptations, Japan continues to play a key role in shaping global cinema, particularly in America.  

Directors George Lucas, Steven Spielberg, and Francis Ford Coppola have all credited Akira Kurosawa’s films as a source of inspiration in their work. In fact, elements from Kurosawa’s ‘Seven Samurai’ still echoes in the films ‘Ocean's Eleven’ (Warner Bros) and ‘A Bug’s Life’ (Pixar). Even Kurosawa’s ‘Hidden Fortress’ had far-reaching influence over George Lucas’ ‘Star Wars’ franchise; costumes, helmets, and headgear were inspired by both Japanese warlords and samurai attire. 

Director Quentin Tarantino has also drawn from Japanese films to inspire his own vision, particularly in both ‘Reservoir Dogs’ and ‘Kill Bill’ (Miramax Films), and has spoken highly of Japanese filmmakers Kinji Fukasaka’s ‘Battle Royale’ and Takeshi Kitano’s ‘Sonatine’, even labeling the latter film a true masterpiece.  

Lana and Lily Wachowski have also mentioned the impressionable influence Japanese anime has had in their career, particularly how Japanese anime-films ‘Ghost in the Shell,’ ‘Akira,’ and ‘Ninja Scroll’ inspired the look and theme of ‘The Matrix.’ Keanu Reeves has even credited the Wachowskis for inspiring his love for anime, after they suggested he familiarize himself with anime classics as preparation for ‘The Matrix.’ Even the Wachowski’s later project, live-action ‘Speed Racer,’ was an anime adaptation based on the manga series by the same name, written by Tatsuo Yashida.

The future of Japan’s film industry 

As Japan ranks among the largest subscription video markets in Asia, streaming giants like Netflix have announced plans to increase their Japanese content, particularly game shows and anime content. In fact, Japanese content is expected to rank as the third-most-viewed non-English category on Netflix, after Korean and Spanish.

In the last year Netflix has significantly increased its live-action releases with ‘Burn the House Down,’ romance series ‘First Love,’ ‘Sanctuary,’ and the upcoming ‘City Hunter.’ Netflix’s biggest international Japanese live-action hit, ‘Alice in Borderland,’ was ranked as the most watched Japanese show on the platform and just recently approved for its third season. ‘One Piece,’ an English-language adaptation of a popular manga, set Netflix debut records as it ranked first in 86 countries. Netflix will soon be looking into adding fifteen reality-based shows in the repertoire of Japanese content.

Other streaming giants (Disney+, FX, Amazon Prime Video, and Warner Bros Discovery) have all projected a substantial increase in Japanese content within the coming year. With Japan’s audience in continuous demand for premium content, industry professionals can project an inevitable transformation within the industry.

Entertainment Partners has long supported production in Japan and has been involved in discussions with the Japanese government on the importance and the development of production incentives in Japan.  

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