I. Inward Direct Investment Regulation

1. If a non-resident, a foreign company, etc., (the “Foreign Investor”) (i) acquires no less than 10 percent[1] of the shares in a Japanese listed company, etc., (ii) acquires shares or equity in a Japanese company other than a Japanese listed company, etc., (iii) establishes a branch office, factory or any such place of business other than a representative office in Japan, or (iv) takes an equivalent action ( the “Inward Direct Investment”), such Foreign Investor does not have to obtain any approval in advance, but it must report the substance of such Inward Direct Investment, its timing and certain other information to the Minister of Finance and the competent minister through the Bank of Japan by the 15th of the next month in cases other than mentioned below in 2.

 

2. Notwithstanding the above, in the following cases, the Foreign Investor must first file a notification of the Inward Direct Investment regarding its business purpose, its amount, its timing and certain other information with the Minister of Finance and the competent minister for the business through the Bank of Japan and must not undertake the Inward Direct Investment until the final day of the 30-day examination period.  The Minister of Finance and such competent minister may shorten the examination period or extend the period by up to five months.  The Minister of Finance and such competent minister may order the Foreign Investor to modify the substance of the Inward Direct Investment or to discontinue it pursuant to certain procedure.

 

The cases where the Foreign Investor must file a notification are as follows:

(1) The Foreign Investor is from a country other than the countries contained on a certain list.

Such list currently contains 166 countries as of February 15, 2020, and includes the UAE, Algeria, Israel, Iran (to which the other regulation mentioned below also applies), Egypt, Oman, Qatar, Kuwait, Saudi Arabia, Syria, Sudan, Tunisia, Turkey, Bahrain, Morocco, Jordan and Lebanon in the Middle East and North Africa, but excludes Yemen, Iraq, Palestine and Libya.

 

(2) The Inward Direct Investment is likely to cause:

(a) national security to be impaired, the maintenance of public order to be disturbed, or hinder the preservation of public safety; or

(b) a significantly adverse impact on the smooth operation of the Japanese economy.

 

The Inward Direct Investments discussed above are identified as basically falling into investments in one of the following business types:

(i) (a) weapons, etc., (b) aircraft, (c) artificial satellites, rockets etc., (d) nuclear reactors, nuclear turbines, nuclear power generators, nuclear source material and nuclear fuel material and (f) goods listed for security export control, and

(ii) (a) most agriculture, (b) most forestry, (c) most fisheries, (d) crude petroleum production and natural gas production, (e) certain manufacturing businesses (such as (aa) biological preparations, (bb) petroleum refining, (cc) lubricating oils and greases, (dd) rubber or plastic footwear, (ee) leather, (ff) integrated circuits, (gg) semiconductor memory media, (hh) optical discs and magnetic tapes and discs, (ii) electronic circuit implementation boards, (jj) wired communication equipment, (kk) mobile phones and PHS, (ll) radio communication equipment, (mm) computers and external storage devices, and (nn) certain software[2]), (f) most suppliers of electricity, gas, heat and water, (g) many kinds of information and communication providers, (h) many kinds of transportation, (i) wholesale and retail trade of petroleum, (j) agriculture, forestry and fishery cooperative associations, (k) security services, (l) others.

 

However, many business types are excluded from the above list.

 

(3) The Iranian Government, Iranians, Iranian companies, etc. making an Inward Direct Investment involved in (a) rockets, etc., (b) nuclear reactors, nuclear turbines, nuclear power generators, nuclear source material and nuclear fuel material, (c) unmanned aerial vehicles, and (d) others.

 

II. Business Reputation

1.  In addition to the requirements listed in I above, there are a few businesses which Foreign Investors are prohibited from engaging in, such as certain broadcasting operations, radio stations and air transport services.

 

2. There are businesses which require licenses, such as banking, insurance, certain electricity businesses and marketing of pharmaceuticals, or registrations, such as the financial instruments business and other electricity-related businesses. 

 

III. Vehicles for Doing Business

1. The most common vehicle for doing business in Japan is the form of an incorporated company, although there are several kinds of partnerships in addition thereto.  There are four kinds of companies that can be established in Japan: a Stock Company (Corporation), General Partnership Company, Limited Partnership Company and Limited Liability Company.

 

Stock Companies are usually used because it is easier to get credit or loans from financial institutions. Stock Companies can consist of at least one shareholder and there is no minimum capitalization requirement. The organization of Stock Companies can be very flexible, but it usual for a Stock Company to have a Board of Directors and Company Auditor, because it is easier to get credit or loans with such organization type.

 

General Partnership Companies, Limited Partnership Companies and Limited Liability Companies are called “Membership Companies.”  A General Partnership Company consists only of member(s) with unlimited liability.  A Limited Partnership Company consists of member(s) with unlimited liability and member(s) with limited liability.  A Limited Partnership Company consists only of member(s) with limited liability.  Because of the risks involved with unlimited liability, there are very few General Partnership Companies and Limited Partnership Companies in Japan.  Limited Liability Companies have started to see increased use compared with before because they cost less to establish and operate than a Stock Company.  Some Foreign Investors choose to establish a Limited Liability Company because a Limited Liability Company may be classified as a “pass-through entity” under certain foreign tax laws, though it cannot be classified as a “pass-through entity” in Japan.

 

2. In addition, a foreign company that is Foreign Investor may carry out transactions continuously in Japan after it specifies its representative(s) in Japan, whose addresses must be located in Japan, and registers itself as a foreign company without establishing an office in Japan.