Japan's Foreign Exchange and Foreign Trade Act

Japan's Foreign Exchange and Foreign Trade Act (FEFTA) is in place to protect the national security, public order, public health and safety, and economy of Japan. FEFTA works alongside other ordinances to comprise the Foreign Direct Investment (FDI) Regulations. FEFTA's purpose is to promote the development of the Japanese economy while simultaneously protecting national security-related technology outflows.
 
Under FEFTA, foreign companies looking to establish a subsidiary in Japan often need to submit a posterior report to the Bank of Japan, otherwise known as post-incorporation notification. However, many, especially technology companies, may also need pre-incorporation notification. Cases in which a foreign investor needs pre-incorporation notification include:
  1. The company, along with its intended subsidiary, is occupied in one or more of the following designated business sectors:
    1. Creation of aircraft, space products, semi-conductors, weapons, nuclear facilities, and dual-use technologies
    2. Creation of pharmaceuticals and special medical devices
    3. Mining of metals with respect to significant mineral resources
    4. Some cybersecurity-related activities
      1. e.g. network security monitoring, service providers of the programs designed for critical infrastructures
    5. Some infrastructure-related activities
      1. e.g. electricity, gas, telecommunications, water supply, railway, oil
    6. Software, data processing service, and internet-use support
    7. Heat supply, broadcasting, biological chemicals, security services, air transportation, maritime transportation, public transportation
  1. When a foreign investor acquires shares of a Japanese non-listed company in a designated business sector from another foreign investor.
 
If the company and its intended subsidiary are not practicing in a designated business sector, only post-incorporation notification is needed. As the definition of the applicable sectors is broad and vague in the law, FinTech companies should ask lawyers to check if their subsidiaries fall in the areas where pre-incorporation is needed.

Exemption from Post Incorporation Notification

A foreign company practicing in a non-core business sector (points E through G listed above) does not need to submit post-incorporation notification if it obliges by the following:
  • Foreign investors or a party who has a special relationship with such foreign investors cannot be appointed as directors or statutory auditors of the target company or certain of its related companies.
  • Foreign investors cannot, by themselves or through other shareholders, propose to the general meeting of shareholders of the target company certain matters such as the transfer or disposition of the target company’s business in the designated business sectors.
  • Foreign investors cannot access non-public information about the target company’s or certain of its related companies’ technology in relation to business in the designated business sectors.

Pre-Incorporation and Post-Incorporation Process

1️⃣
Submit prescribed form (prior notification) to the Bank of Japan within 6 months of expected date of completed transaction.
2️⃣
BOJ sends form to Minster of Finance and minister of relevant business sector.
3️⃣
Waiting period of 30 days from date of prior notification (period may be shortened or lengthened depending on review).
4️⃣
Make inward direct investment or specific acquisition.
5️⃣
Report completion of transaction via post-incorporation notification to the BOJ within 45 days following completion. No further approval is required.
 
 
This article describes more details of the Foreign Direct Investment (FDI) Regulations in Japan.
 
Disclaimer: All of the contents of this webpage are copyrighted by Visual Alpha Co., Ltd. (“Visual Alpha”) and may not be reprinted, duplicated, etc., without the prior written permission of Visual Alpha under relevant copyright laws. This webpage describes only our general and current observations, and Visual Alpha is not rendering professional advice or services by this webpage. No warranties of any kind are given with respect to the information disclosed herein, or with any use thereof. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.