Country Q&A

MULTI-JURISDICTIONAL GUIDE 2015

INVESTING IN…

Investing in Japan
Ryuichi Nozaki, Teruhisa Toyama and Yutaka Suzuki
Atsumi & Sakai

1.

How does your jurisdiction compare internationally as adestination for inward investment?

Foreign direct investment (FDI) into Japan remains very low inabsolute terms, in particular in relation to GDP and compared to
the rest of the world. Aside from a peak in 2007 and 2008 where
FDI inflows exceeded US$20billon in each year on the back of a
global mergers and acquisitions (M&A) boom, inbound FDI in thelast decade has been negligible, and indeed suffered net outflows
in four of the last eight years. Net inflows in 2013 were US$2.3
billion, up marginally from US$1.7 billion the previous year. Total
FDI stock in Japan stood at just US$171 billion at the end of 2013.
The Japanese economy has suffered from low growth and deflationin the last decade, and is therefore not seen as an attractive
destination for growth capital, particularly in relation to othercountries in Asia. Japanese companies also prefer to seek growthoutside of Japan, and in 2013 made US$136 billion of outbounddirect investments, the second highest in the world after the US.
Japan currently has a stock of over US$1 trillion direct offshore
investments.
There are perceived to be a number of obstacles to foreignaffiliated companies operating in Japan, including, among others:•High business costs.

•

High rates of taxation.

•

Strict licensing and regulation.

•

Difficulty in securing human resources.

•

Lack of incentives.

In addition, a number of structural impediments remain withrespect to the execution of M&A transactions, which are an
important mode of inbound investment in developed markets.
Japan remains an attractive destination for portfolio investments.
The Tokyo Stock Exchange is the third largest stock exchange inthe world, with a market capitalisation of over US$4 trillion.
Foreign ownership of listed stocks accounted for 31% of shares
listed on Japan's four exchanges at the end of March 2013, thehighest level ever, and up from 28% in the previous year. Trading
by foreigners accounts for around half of turnover in terms of bothvolume and value.
2.

What types of companies are attracting foreign investment
into your jurisdiction and what are the most active sectors?

A large amount of direct investment occurred in Japan between
1998 and 2002, driven by global market factors coupled with deregulation in certain industries in Japan. The focus of the boom waswithin a specific set of industries, including finance and insurance,© Thomson Reuters 2014
This article was first published in the Investing in… Multi-jurisdictional Guide 2015
and is reproduced with the permission of the publisher, Thomson Reuters.
The law is stated as at 1 January 2015.

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wholesale and retail, and the machinery industry in the
manufacturing sector. These industries still hold the largest stocksof foreign investment today. One anomaly is thetelecommunications industry, which received significant foreign
investment, but which is now firmly back in Japanese ownership.
Foreign buying of listed stocks in anticipation of reforms by the Abegovernment was a key driver of the 57% increase in the Nikkei
average in 2013. Net purchasing by foreigners was as much as
JPY15 trillion, while Japanese individuals and corporations were net
sellers. Foreign buying was particularly strong in companies with
global operations expected to benefit from a weaker yen, such as
Seiko Epson, Dentsu and Shiseido. Similarly, companies withmainly domestic operations and a strong reliance on domestic
demand, such as KDDI, Mitsui Real Estate and Seven & i Holdings,
saw a strong increase in foreign ownership.
3.

What will be the main factors affecting the market and how
do you expect the market to develop?

Investor confidence in structural reform and the extremely
accommodative monetary policy of the Bank of Japan have been
the key drivers of the market since the election of the Abegovernment in December 2012. The strengthening of thegovernment's mandate in the snap election of December 2014, andthe effectiveness of government policies in effecting structuralchange following the election, will play a significant role in how themarket perceives the attractiveness of Japan as an investment
destination going forward.
The Abe government has targeted a doubling of FDI stock to JPY35
trillion by 2020, which would require a net inflow of around US$30
billion per year, a tenfold increase from 2013 inflows. The
government has announced policy measures, including tax breaks
and subsidies for companies, in particular Asian companies, toestablish businesses in Japan, among other policies. In addition, alarge number of structural reforms are planned to be introduced toencourage inbound acquisitions, such as the implementation of
improved corporate governance rules.
A notable current trend affecting inbound direct investment toJapan is the rise of China as an investor. Certain Japanesecompanies are particularly attractive to Chinese companies, as they
possess the advanced standards and technology that Chinesecompanies require to move up the value chain from amanufacturing based economy. Typical transactions include thejoint venture between Lenovo and NEC formed in 2011, and theacquisition of Sanyo Electric operations by Haier Group in 2012.
Chinese companies have also recently acquired a number ofJapanese brands popular with the increasing number of Chinese
tourists to Japan.

Country Q&A

LEGAL SYSTEM
7.
4.

Please briefly outline the government and legal system.

Japan operates under a civil law system. The Constitution of Japan
adopts a representative parliamentary democracy, and provides forseparation of powers into three branches:•

The Diet (legislative).

•

The Cabinet (executive).

•

The Supreme Court (judiciary).

The Diet, whose members are directly elected by citizens, is thehighest form of state power and superior to the Cabinet. The prime
minister, as head of the Cabinet, is designated by a majority
resolution of the Diet.
The House of Representatives, the lower chamber of twochambers, can resolve no-confidence motions with respect to the
Cabinet, upon which all Cabinet members must resign from office,subject to the Cabinet's authority to dissolve the House ofRepresentatives. The Constitution provides that all judges must be
independent in the exercise of their conscience and are bound onlyby the Constitution and laws. The Supreme Court is authorised todetermine the constitutionality of any law or government action.
The Cabinet is responsible for designation of the chief judge andappointment of judges of the Supreme Court. The Diet canestablish an impeachment court to try judges.
The Emperor is the symbolic head of state, and does not have any
authority or power under the Constitution with respect to state
affairs. The Emperor acts in accordance with the advice andapproval of the Cabinet for matters prescribed under theConstitution, including, among others, the appointment of theprime minister and the chief judge of the Supreme Court; thecalling of the Diet; and the promulgation of laws and regulations.
5.

What are the key laws and regulatory authorities governing
foreign investment in your jurisdiction?

What other international agreements apply to foreign
investment?

Economic partnership agreements (EPAs)
As of November 2014, Japan has executed economic partnershipagreements (EPAs) with Singapore, Mexico, Malaysia, Chile,
Thailand, Brunei, Indonesia, Philippines, Switzerland, Vietnam,
India, Peru, Australia and the ASEAN (Association of South-East
Asian Nations). Such EPAs include rules regarding foreign
investments, for example:•

Most-favoured-nation treatment, which provides investors from
EPA countries with treatment no less favourable to investors
from non-EPA countries.

•

National treatment, which provides investors from EPA
countries with treatment no less favourable to local investors
within the country.

Japan is also currently negotiating EPAs with Mongolia, the Gulf
Cooperation Council, the EU, Canada, Columbia, and has recently
commenced negotiations with Turkey. Japan is also negotiating a
tri-partite agreement with China and South Korea. Bilateralnegotiations with South Korea are currently suspended.

Investment agreements
Japan has individual investment agreements with bilateralprovisions similar to those contained in EPAs with a number ofcountries. As of October 2014, Japan has effective investment
agreements with Egypt, Sri Lanka, China, Turkey, Hong Kong,
Bangladesh, Russia, Mongolia, Pakistan, South Korea, Vietnam,
Cambodia, Laos, Uzbekistan, Peru, Papua New Guinea, Kuwait,
Iraq, Myanmar, Mozambique, and a tri-partite agreement with
China and South Korea. In addition, investment agreements with
Columbia, Saudi Arabia, and Kazakhstan have been executed but
are not yet effective. Japan is also currently in discussions withrespect to investment agreements with Oman, Angola, Ukraine,
Algeria, Uruguay, Qatar, the UAE, Kenya, Ghana, Morocco, Libya
and Tanzania.

Energy Charter Treaty
The Foreign Exchange and Foreign Trade Act (FEFTA) is the main
legislation applicable to foreign investments. The Ministry of
Finance and the Ministry of Economy, Trade and Industry
administer matters related to the Act, alongside the ministries withjurisdiction over specific industries. Under FEFTA, the Bank ofJapan also has jurisdiction over certain administrative matters.
6.

What international treaty organisations and/or economic,
customs or monetary unions or free-trade areas is yourjurisdiction a member of?

Japan is a member of the World Trade Organisation. Japan is not amember of any other international treaty organisation, but iscurrently in negotiation with respect to the Trans-Pacific Strategic
Economic Partnership (TPP) and Regional Comprehensive
Economic Partnership (RCEP). Japan is also considering a Free
Trade Area of the Asia Pacific (FTAAP) proposed by the APEC
Business Advisory Council (see Questions 7 and 29).

Japan has executed an Energy Charter Treaty with the EU and 47
other non-EU countries. The Energy Charter Treaty provides for theliberalisation of international trade and transit of energy source
materials and products, and liberalisation and protection of
investment in the energy sector.

Tax treaties
As of November 2014, Japan has executed tax treaties with 63
countries and territories. These tax treaties are generally directed
towards the avoidance of double taxation and measures against
tax avoidance. Japan has also executed tax information exchange
agreements with a further ten countries and territories, and theConvention on Mutual Administrative Assistance in Tax Matterswith 43 countries and territories to support the administration oftax matters.

INVESTOR INDIVIDUALS
8.

Are there any visas, permits or other requirements forforeign individuals entering your jurisdiction for businesspurposes?

Foreign nationals entering Japan must hold a valid passport and avalid visa, unless a visa waiver applies. As of July 2013, Japanapplies a visa waiver to nationals of 66 countries and territories fora short stay of up to 90 days, depending on the country of origin.

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In most cases, a Certificate of Eligibility is also required if entering
Japan for work or investment purposes. The Ministry of Justice inJapan issues Certificates of Eligibility to applicants approved towork, study or live in Japan.

Visa
Issuance of a work visa usually takes around one to three months.
However, this can be shortened to around five business days if theapplicant already has a Certificate of Eligibility. Application fees
are currently:•

Single-entry visas: JPY3,000.

•

Multiple-entry visas (permitting multiple entries within an
effective period): about JPY6,000.

A non-resident is taxed only on domestic-source income. A
permanent resident is taxed on worldwide income, while a nonpermanent resident is taxed only on domestic-source income andforeign-source income paid in Japan or remitted to Japan fromabroad.
A resident is an individual who is domiciled in Japan, or has had
residence in Japan continuously for one year or more. A nonresident is a person other than a resident. A non-permanent
resident is a resident who does not have Japanese nationality andwho has had a domicile or a residence in Japan for not more than
five years in total within the past ten years (Income Tax Act).
A person's domicile is the location where a person's life is based. If
an individual spends significant time in two or more countries, theperson's domicile is determined through an objective considerationof a number of factors such as:•

Length of stay.

•

Housing arrangements.

•

Occupational status.

Certificate of Eligibility for Investors•

Citizenship.

A foreign national can apply for a Certificate of Eligibility for the
purposes of investing in Japan under the category of investment
and management. The amount of investment must in principle be
at least JPY5 million. The procedures for obtaining this category of
Certificate of Eligibility depend on the residential status of theapplicant at the time of application. If the applicant does not holdany existing right of residence, an application for a Certificate of
Eligibility must be made at the Immigration Bureau withjurisdiction over the place of the prospective residence orprospective employment. No fees are payable for this kind of
application. This process usually takes between one and threemonths.

•Location of family.

•

Where living expenses are incurred.

•

Location of assets.

The documents necessary for visa applications vary according to
the nationality of the applicant.

9.

Are there any visa waivers or fast-track procedures
available for foreign individuals entering your jurisdiction
as investors?

Various benefits in terms of preferential processes for immigration
procedures are provided to foreign nationals who are consideredhighly skilled, for instance in cases where there is no alternative
human resource with such skill available in Japan, or for persons
who will contribute to the development of a professional or
technical labour market. The assessment is made on the basis of apoint system, which allocates points to areas such as academic
history, career history and annual income.

INVESTMENT RESTRICTIONS
11.

Are there any restrictions on foreign ownership andinvestment in specific industry sectors? Do any formalities,
permit or notification requirements apply?

The Foreign Exchange and Foreign Trade Act (FEFTA) restricts
investments by foreign investors into:•

Industries which are relevant to national security, public orderand public safety. This includes, but is not limited to, themanufacture or mechanical repair of weapons, aircraft, space
exploration, nuclear power and products related to thoseindustries, and other general-purpose goods which can be used
for military purposes. It also includes electricity, gas, watersupply, telecommunications, broadcasting, railway, passenger
carriage, and vaccine manufacturing.

•

Industries for which restrictions are required for reasons specific
to Japan. This includes, but is not limited to, agriculture,
forestry, fisheries, petroleum, leather, air transportation andmarine transportation.

Benefits for highly skilled foreign nationals include the fasttracking of an application for a Certificate of Eligibility. This processusually takes around one to three months, but the relevant
authority will make efforts to process the application of a highly
skilled foreign national within ten days from receipt of theapplication.

Any investment into a restricted business would require a beforethe-fact filing to be made within the six months before making therelevant investment. This filing is made with the Ministry of Financeas well as any ministries which have jurisdiction over such business,through the Bank of Japan. A thirty-day waiting period applies. The
waiting period is often shortened to two weeks, but may also be
extended up to five months.

10. What are the circumstances under which an individual
becomes liable to pay tax in your jurisdiction? Can
individuals be liable for tax on foreign-source income?

In addition to the restrictions under FEFTA, there may be statutory
restrictions on foreign ownership of corporations engaging inspecific industries or businesses. The scope of restricted foreign
ownership vary according to the relevant statute. For example,
under the Civil Aeronautics Act, an air transportation services
business can refuse to record the ownership of a relevant foreign
individual or corporation on its shareholder registry if one-third or
more of the voting rights are to be owned by foreign individuals or
corporations. Other statutes include similar restrictions (forexample, the Broadcast Act). When contemplating the acquisitionof shares in Japanese companies, the specific statute regulating acompany's business should be checked in addition to FEFTA.

Taxation of individuals in Japan depends on the person's status asa resident or non-resident for tax purposes, and, if resident,
whether they are a permanent resident or non-permanent resident.

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Country Q&A

Short stay visas prohibit working in Japan, but permit market
research and other preparatory activities for future investment. The
Japanese Embassy or Consulate General located in the relevant
country or territory issue visas for entry into Japan.

Country Q&A

12. Does the government retain and exercise control overcertain industry sectors? If so how?
The government retains and exercises control over some industry
sectors in Japan. For example, the gambling industry is currently
owned and operated by the government only. Gambling is
prohibited in Japan as a criminal offence. Only governmentaffiliated corporations or local governments are allowed to conduct
such business pursuant to specific statute, such as the conduct ofhorse racing under the Horse Racing Act. The Japanese
government is currently contemplating permission for casinos tooperate in Japan (see Question 29).
The business of mail delivery was deregulated under the Act on
Correspondence Delivery by Private Business Operators. As of 31
October 2014, private operators have entered into a limited
category of businesses, but the category of business comprising
general mail delivery is still only operated by Japan Post Co, Ltd,
which is wholly owned by the government.
Private ownership of public infrastructure is currently prohibited bystatutes regulating particular assets. However, in September 2011,
an amendment to the PFI Law came into force introducing a
concession scheme for the private operation of public
infrastructure. So far, the concession scheme has been
incorporated into legislation regulating airports, and it is expectedthat it will be applied to other public infrastructure assets such as
water, sewerage, toll roads and ports.
13. Are there restrictions on foreign ownership or occupation ofreal estate? Do any formalities, permit or notification
requirements apply?
The Foreign Exchange and Foreign Trade Act (FEFTA) requires thefiling of an after-the-fact report of a capital transaction with the
Ministry of Finance, through the Bank of Japan, when a nonresident acquires from a resident real property or any rightconcerning real property, within 20 days from the acquisition. An
exception applies where the acquisition is made by a non-resident
either:•For his own residential use or that of his relatives or employees.

•

For his use for the purposes of engaging in non-profit businessin Japan.

•

For his own use as an office. However, the filing would be
required if the acquisition is for investment purposes.

Other than FEFTA, there are no national laws that substantially or
effectively restrict foreign ownership of real estate. However, local
ordinances can require a before-the-fact filing in certain
circumstances. For example, Hokkaido Prefecture requires a
before-the-fact filing by a seller of certain real property.

•

Insurance Business Act.

•

Payment Services Act.

These requirements generally apply equally, irrespective ofwhether foreign investors invest in the regulated business in Japan.
In the case of a branch in Japan of a foreign company, theminimum capital or net assets required must be calculated on a
Japan-business basis, (as opposed to a global business basis), andthe requisite capital must be maintained within Japan (in otherwords, capital repatriation is restricted).
15. Are there any exchange control or currency regulations? Are
there any restrictions on the remittance of profits abroad?
The Foreign Exchange and Foreign Trade Act (FEFTA) restricts theremittance of money from a resident in Japan to foreign countries
in certain circumstances. In certain industries, a remittancerequires permission from the Ministry of Finance if it is for the
purpose of business activities conducted in a foreign country by apartnership or other organisations established by the remitting
residents with other residents or non-residents of Japan, forexample:•Fishery.

•

The manufacture of leather or leather products.

•

The manufacture of weapons or weapons-related facilities.

Remittance of more than JPY30 million from Japan to foreigncountries or from a resident of Japan to a non-resident for otherpurposes also requires an after-the-fact report to the Ministry of
Finance, through the Bank of Japan (and through the bankhandling the remittance), unless an exception applies.
In principle, FEFTA requires permission from the Ministry of
Finance and the Ministry of Economy, Trade and Industry for theremittance of money to certain parties, such as those designated as
terrorists, or for the purposes of contributing to nuclear activities.
In practice this amounts to a prohibition as such permission would
be never granted.

IMPORTS
16. Are there any restrictions on the importation of commercial
goods and services?
The following are some non-exhaustive examples of statutes thatprohibit or restrict the importation of certain categories of goods,
for example, by requiring a permission or approval by the relevant
authority:•

The Customs Act. Goods that are prohibited from being
imported to Japan under the Customs Act include:-

narcotic drug products, weapons, explosive products,
gunpowder, chemical substances that can be used for the
manufacture of chemical weapons, certain disease agents,
forged bills and securities, obscene books and other similar
goods;-

goods infringing intellectual property rights; and-goods contributing to unfair competition activities

14. Are there any minimum capital requirements for foreign
investment?
Regulations on financial services and payment services provide
minimum capital requirements, minimum net-asset requirementsor minimum collateral (by way of deposit, bank guarantee or trust)requirements for the purposes of financial system stability or
customer protection. These include the:•Banking Act.

•

Financial Instruments and Exchange Act.

•

Money Lending Business Act.

global.practicallaw.com/investingin-mjg•

Plant Protection Act. Specific pests, soil and plants imported
from or through specific areas or countries are prohibited forimportation to Japan under the Plant Protection Act. Certain
plants may also be subject to quarantine, with importation
being subject to certification and confirmation by customs
authorities.

•Act on Domestic Animal Infectious Diseases Control.
Infectious diseases are controlled through the prohibition ofimport of certain goods, or goods from certain areas orcountries. Infectious diseases at which prohibition is directed
include rinderpest, foot-and-mouth disease, and African swine
fever. Other temporary measures may be taken in relation to theemergence of new infectious diseases. Certain animals andlivestock products are also subject to quarantine.

whereby importers may make written inquiries with customs
authorities regarding certain importations.

Act on Ensuring Quality, Effectiveness and Safety of Medical
and Pharmaceutical Products and Medical Equipment. The
importation of medical and pharmaceutical products, quasidrugs, cosmetic products and medical equipment is permitted
only with the relevant permission from the Ministry of Health,Labour and Welfare. Similarly, the importation of animal drugs
requires permission from the Ministry of Agriculture, Forestry
and Fisheries.

18. Are the safety regulations and standards applicable tocommercial goods and services in your jurisdiction
compatible with other standards that are recognised
internationally?

•

Food Sanitation Act. A filing with the Ministry of Health,Labour and Welfare is required for each importation of certain
products for sale or commercial use, including food products,
food additives, equipment used for processing, storing, carrying,or displaying foods, certain containers and packaging for foodand food additives, and certain baby and toddler toys. This
documentation must be presented to customs authorities onimportation and a quarantine process may be applicable.

•

Foreign Exchange and Foreign Trade Act (FEFTA). FEFTA
prohibits, or requires permission from the Ministry of Economy,
Trade and Industry for, the importation of various categories of
products including:General consumption taxes applicable to goods and services arecalculated based on their value. Certain goods such as liquor,
tobacco, volatile oils, petroleum, gas, and petroleum coal attract
additional customs duties. See Question 21.

In general, safety regulations and standards applicable tocommercial goods and services in Japan are not more onerous thaninternationally recognised standards. Japan is a member of theWorld Trade Organisation and a signatory to the Agreement on
Technical Barriers to Trade and the Agreement on the Applicationof Sanitary and Phytosanitary Measures. As a result, under thesearrangements, Japan generally cannot establish prohibitive safety
regulations and standards. However, regulations and standards
that are more onerous than international standards may exist for
specific products or industries. Importers of commercial products
to Japan should consult with the relevant authority with jurisdiction
over such products or industries to confirm the applicable safety
regulations.

STRUCTURING AND TAX-

goods for which the volume of importation is limited andallocated between certain importers by the Ministry of
Economy, Trade and Industry, for example certain fish,shellfish and seaweed;

19. How is foreign investment into your jurisdiction typicallystructured? What forms of legal vehicle are attractive to
foreign investors?

-

shipments from certain countries or countries of origin, suchas salmon or trout or their bi-products from China, North
Korea or Taiwan;

Limited liability stock company (kabushiki kaisha)-

goods restricted irrespective of country of origin or shipment,such as nuclear related products, weapons or chemical
weapons; and-certain goods requiring a prior confirmation or confirmation
at the time of customs clearance, by submitting certain
certificates from Ministry of Trade, Economy and Industry orother relevant authorities, such as certain vaccines imported
for clinical trial study, or cultural heritage assets.

FEFTA also restricts the assignment of patents, trade marks
and other industrial property rights by requiring certain filings
through the Bank of Japan with the Ministry and Finance andother ministries with jurisdiction over the relevant industry.
17. What import duties apply to commercial goods andservices?
Customs duties and national and local consumption taxes arepayable on imported commercial goods and services provided inJapan.
Goods imported to the customs zone in Japan can only be moved
from the customs zone after completing an import declaration. The
consignee under an invoice must pay customs duties before
removing goods from the customs area. These duties are
determined according to the value or volume specified in theimport declaration, depending on the nature of the goods. A
customs tariff schedule providing for the taxation rate for each
imported item is set out in the Customs Tariff Law and otherrelevant regulation. Approximately one-third of the items listed in
the schedule are duty free. An advance ruling system is available

The most common corporate structure in Japan is the kabushiki
kaisha (KK), a limited liability stock company, with internalorganisation and operation prescribed under the Companies Act. A
KK must have at least one shareholder and one director. However,
it is common for a KK to have a board of directors consisting of
three or more directors. A KK requires at least one representative
director, who must be resident in Japan.
When a foreign investor establishes a KK as its Japanesesubsidiary, corporation tax is payable on the income of the KK in
Japan. Dividends to shareholders are also generally taxable.
Therefore, there are fewer tax benefits available to a KK comparedto other structures. Certain measures can be taken to avoid double
taxation, such as excluding dividends from the taxable income ofthe shareholder if the shareholder is a Japanese entity. In addition,
exemptions or reductions can be available under tax treaties if theshareholder is a foreign corporation or not resident in Japan.

Limited liability company (godo kaisha)A godo kaisha (GK) is also established under the Companies Act,and like a KK is a limited liability company in which the members
are liable only to the extent of their investment into the GK's
capital. The incorporation procedures are simpler in comparison toa KK, and a GK has more flexible internal control under its articles
of incorporation. At least one representative member of a GK, or ifsuch representative member is a foreign corporation, at least one
executive manager of such member corporation, must be resident
in Japan.
Tax treatment for a GK is generally the same as for a KK, in that net
income earned by the GK and profit distributions to its members
are taxed.
A GK is often used with a profit sharing agreement investment
scheme (tokumei kumiai) (TK). This structure is referred to as a
GK/TK scheme. By entering into a TK agreement and forming a TK

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Country Q&A•

Country Q&A

in which a GK is a business operator, the profits to be distributed tomembers under the TK agreement can be deducted from thetaxable income of the GK, acting as a pass-through to its members.

either by comprehensive taxation or separate taxation at source,
depending on the nature of the income.

Profits distributed to non-resident members or foreign corporations
are treated differently depending on whether the member has apermanent establishment in Japan. If it does not have a permanentestablishment in Japan, a 20% withholding income tax would bepayable on the distribution, unless otherwise provided for in an
applicable tax treaty.

21. What are the main business tax rates?

BranchA branch does not have an independent judicial personality andconducts business in Japan pursuant to decisions made at theheadquarters located outside of Japan. This is the simplest
structure in which to conduct business in Japan because it is notnecessary to establish articles of incorporation or to comply withstatutes concerning internal procedures and other internal control
issues. However, because it conducts business in Japan, certain
matters concerning the branch must be registered with therelevant legal affairs bureau and made public, under theCompanies Act. A branch must have at least one representative
who is resident in Japan.
Currently, only a branch's domestic-source income is taxable.
However, the tax treatments of income generated by permanentestablishments, including a branch of a foreign corporation, areexpected to be changed from April 2016 based on the Authorised
OECD Approach (AOA) under Article 7 of the Model Tax Convention
on Income and on Capital. After the change, income earned by apermanent establishment as a separate and independent entity
from its headquarters will be taxed separately from other income
generated by the foreign company in Japan, subject to adjustments
for intercompany transactions and cost allocations. The AOA is
considered to be a means to avoid double tax or double nontaxation. Advice from local tax specialist should be sought inanticipation of such changes.

Representative office
A representative office is the simplest structure for establishing apresence in Japan. It can be used for performing market research,promotion and advertisement or other preparatory activities prior
to the full launching of a business in Japan. Business beyond suchpreparatory activities is not permitted. Filing with the relevant
authority may be required depending on the industry or business.
For example, notification to the Financial Services Agency isrequired with respect to banking business. However, registration
with the local legal affairs bureau, which is required in relation toother structures, is not required. Generally, a representative office
is not regarded as a permanent office and therefore would not be
subject to corporation taxes. However, the representative
individual's domestic-source income, including the income earned
as representative, would be taxed in Japan.
20. What are the circumstances under which a businessbecomes liable to pay tax in your jurisdiction?
An incorporated entity in Japan is required to pay tax in Japanaccording to its worldwide income. Branches of foreign
corporations are taxed on domestic-source income only. The
manner of imposition of tax, such as comprehensive taxation or
separate taxation at source, varies depending on whether theforeign corporation has a permanent establishment in Japan, as
defined with reference to Article 7 of the Model Tax Convention on
Income and on Capital. If a foreign corporation has established abranch office or other establishment to conduct business within
Japan, that corporation would be comprehensively taxed on all thedomestic-source income. However, if its presence in Japan isrestricted to an individual agent or representative, for instance anindividual who is authorised to execute contracts in Japan onbehalf of the corporation, the corporation's income would be taxed

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Income generated from a corporation's business activities are liableto:•

Corporate tax.

•

Corporate inhabitant tax.

•

Business tax.

•

Special local corporation tax.

Tax rates depend upon the corporate structure and amount ofincome.
As of December 2014, the corporate tax rate for a corporation suchas a KK or GK is 25.5% of annual income exceeding JPY8 million,
with an additional 2.55% as a special reconstruction income tax. In
addition, the company is liable for corporate inhabitant tax at therate of 4.41% (if the corporation is located in Tokyo), business tax at
the rate of 5.3%, and special local corporation tax at the rate of
4.29%. In addition to corporate tax, consumption tax is payable ondomestic transactions or transactions concerning the importationof goods or services. General consumption tax consists of national
tax and local tax, with an aggregate tax rate of 8%. Tax returns
must be filed with respect to payment of corporation tax andconsumption tax.
Stamp duties are payable for documents satisfying certain
conditions, for example:•

Land sale and purchase agreements.

•

Service agreements.

•

Articles of incorporation.

The amount of duty payable depends on a classification of therelevant documents and the contract amount under such
documents. Stamp duties can be paid by purchasing revenue
stamps. Failure to pay stamp duties does not render a document
unenforceable or inadmissible. However, penalties are applicablefor non-payment.
22. What is the tax treatment in your jurisdiction of profits froman investee company remitted outside your jurisdiction by
an investor?
When a corporation such as a KK or GK pays retained income after
tax to a foreign parent corporation as a distribution of profits, thedividend is generally also taxable in Japan. The dividend would be
regarded as a payment of domestic-source income subject to tax
withholding in Japan. At the time of such payment to a foreign
parent corporation or non-resident shareholder, the resident
corporation must deduct income tax and special reconstruction
income tax and pay these taxes on behalf of the foreign corporation
or non-resident. If the remittance is not made within one year of thedate of determination of such a dividend, it is treated for tax
purposes as having been paid one year from its declaration.
Deduction at source applies where a non-resident member of apartnership receives a distribution of profits under a partnershipagreement. Payment is treated as having been made on that day
which is two months from the end of the calculation period, even if
the payment was not actually made.
For a branch of a foreign corporation, no taxes are generally
payable when transferring funds to its foreign headquarters, wheresuch funds come from profits which have been already subject toIf there is a tax treaty between the country of the non-resident andJapan, withholding income taxes on a dividend can be exempted or
reduced. However, the non-resident would need to make a filing,
through the payer, with the relevant local tax office.
23. What transfer pricing and/or thin capitalisation restrictions
may apply to investments into your jurisdiction from
elsewhere?
Transfer pricing rules are applicable in Japan. The calculation
method for transfers between affiliated companies is in line with
the OECD Transfer Pricing Guidelines, and in addition to the threebasic methods of the comparable uncontrolled price method,resale price method and cost plus method. The transactional net
margin method and profit split method may also be used. It is
possible to obtain a prior confirmation from the relevant tax
authority to the effect that a particular inter-company transaction
is made at a certain price.
Thin capitalisation restrictions are also applicable. The restrictionin Japan is applicable if the amount of loans which a domestic
corporation takes out from a foreign controlling shareholder ismore than triple its equity capital, or if the aggregate amount of
the debts owed by the domestic corporation is more than triple its
equity capital. If so, the interest paid by the domestic corporation toits foreign controlling shareholder for the amount exceeding triple
its equity capital cannot be deducted from taxable income as an
expense. A permissible ratio of loan to equity capital may be
determined reasonably by comparison to domestic corporations
engaging in similar industries, if certain conditions are satisfied.

INCENTIVES
24. What tax incentive or other schemes exist to encourage
foreign investment?

Projects promoting FDI,
development in Japansite

locationandregionalThis programme is intended to sustain and strengthen existinghigh value-added business sites, and support the establishment of
new high value-added sites in Japan by global companies
operating internationally, for example, establishing regional
headquarters or research and development (R&D) sites. So far,around ten companies with headquarters in the US or EU haveavailed themselves of the benefits.
Projects for relocation or consolidation of existing sites in Japan are
not eligible for the subsidy, unless it involves the designation of a
new role as a regional headquarters or R&D site. Projects mustsatisfy certain requirements, such as with respect to business
contingency plans. Eligible projects can have certain expenses suchas survey design costs, facility costs, equipment costs, and facility
rental charges subsidised by the Japanese government by up to ahalf, subject to a maximum of JPY350 million, depending on thesize of the business at the sites.

Comprehensive
CompetitivenessSpecial

Zones

for

International

The Japanese government has designated special zones
throughout Japan in order to strengthen regional development andinternational competitiveness.
As of December 2014, seven special zones have been designated asfollows:•

Hokkaido Food Complex (Hokkaido).

•

Tsukuba (Ibaraki Prefecture).

•

Asia Head Quarter Tokyo (Tokyo).

•Life Innovation in Keihin Coastal Areas (Kanagawa Prefecture).

•

Special Zone to Create Asia's No.1 Aerospace Industrial Cluster(Nagano Prefecture).

•Kansai Innovation (Kyoto Prefecture).

•

Green Asia (Fukuoka Prefecture).

Certain tax benefits are available in such special zones, forexample, special depreciation allowances or other tax deductions
for investments in machines or buildings used for businesses
coinciding with the strategy of the special zone.
The Asia Head Quarter Tokyo Special Zone covers business districtsin the metropolitan area, and aims to invite more than 500 foreigncompanies, including 50 foreign companies establishing Asian
regional headquarters or R&D sites. The initiative aims to attract
industries including telecommunications, medical and chemical,
electronics and sensitive equipment, finance and securities, andcontent and creative industries, through deregulation and tax
benefits.

INVESTMENT GUARANTEES
25. What legal guarantees exist against expropriation and/or
provide for appropriate compensation? What is yourgovernment's track record in this regard?
The Constitution of Japan provides that the right to own or to holdproperty is inviolable, that property rights must be defined by law
in conformity with the public welfare and that private property canbe expropriated for public use where there is just compensation to
the holder of such rights. Various laws provide, in compliance withthe requirement under the Constitution, for compulsory acquisitionof property by the government or business operators, as authorisedby the government in specific circumstances. For example, under
the Compulsory Purchase of Land Act, real estate and rights
concerning real estate may be used or acquired for projects ofpublic interest such as roads, railways, electricity, water and social
welfare, by the business operator of such projects. The authorisedbusiness operator must compensate the owners of real estate orother compulsorily acquired rights in an appropriate amount. An
appropriate amount of compensation is generally considered to be
based on the amount by which the owner would be able to acquire
equivalent property in the same vicinity. For the last few years,
approximately 20 to 30 projects have been approved to include
compulsory acquisition under the Act. Other statutes providing forthe expropriation include the Mining Act, Forest Act, andTelecommunications Business Act.
26. Are there any issues in relation to the enforcement ofintellectual property rights?
Patent, copyright, trade mark and design rights are the maincategories of intellectual property rights protected by law in Japan.
Utility model rights and plan breeders' rights are protected underthese categories.
Patent, trade mark and design rights are protected on registration.
When a patent is infringed, remedies available under the Patent
Act or Civil Code include:•

Injunctions.

•

Damage compensation.

•

Measures to restore credibility (such as the publication of an
apology).

•

Return of unjust enrichment.

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Country Q&A

corporation taxes as domestic-source income, and therefore nowithholding tax is payable on the remittance.

Country Q&A•

Compensation of royalties payable due to infringement madebetween patent application publication and registration.

•

Japanese courts do not have a process of discovery or theconcept of privilege, although the court may order a party todisclose certain documents at the other party's request.
However, as it would be generally required to specify therequested documents, parties must first collect evidence before
prosecuting or defending a claim on their own.

•

Under the Code of Civil Procedures, an unsuccessful party may
pay the costs of the action for the successful party. However, anaward of costs in Japan does not include attorney fees. The Act
on Costs of Civil Procedure contains certain items that can berecovered, which include the costs of the fees payable to thecourt at the time of the petition, the costs of witnesses,
appraisers and interpreters (including travel expenses, daily
pay, and accommodation costs), and the costs to prepare andmail court documents.

Criminal sanctions may also be imposed.
In addition to remedies available under the intellectual property
laws, remedies under the Unfair Competition Prevention Act may
also be available. This legislation regulates actions constituting
unfair competition, and may protect intellectual property rights forwhich registration has not been made. For example, the use of an
identifying mark identical or similar to a trade mark well known toconsumers, which results in confusion among consumers, may be
regarded as a violation of the Unfair Competition Prevention Act,
even if the trade mark is not registered. Remedies available under
the Unfair Competition Prevention Act include:•

Injunctions.

•Compensation for damages.

•

Measures to restore credibility.

Criminal sanctions may also be available.
Another relevant issue regarding intellectual property rights is theregulation of parallel imports, that is, imports made by parties
other than authorised distributors. These unauthorised imports
generally infringe intellectual property rights, but the courts haveinterpreted the law so that certain parallel imports are permitted.
With respect to products protected by trade mark, parallel imports
may be allowed if the following criteria apply:•

The products are the genuine products to which the trade markis legally attached by the authorised trademark holder.

•The holder of the trade mark in a foreign country is the same as,or substantially the same as the holder of the trade mark inJapan.

•The products imported in parallel are of a quality equivalent to
the products of the trade mark holder distributing the products
in Japan.

In seeking remedies with respect to intellectual property rights,
issues with respect to the court procedures should be considered(see Question 27).
27. Are there any issues in relation to the gaining andenforcement of judgments and/or arbitral awards?
Foreign investors receive the same treatment as domestic parties inJapanese courts. However, a person with no presence in Japan may
be required to deposit a surety for the costs of the action.
Proceedings in Japanese courts are conducted in Japanese, andcourt documents and evidence must be produced in Japanese oraccompanied by a Japanese translation.
Some other obstacles faced by foreign nationals participating incourt proceedings in Japan include the following:•

Japanese court proceedings are considered to be lengthy andtime consuming compared to proceedings in some otherdeveloped countries. The Supreme Court of Japan published asurvey report in 2013 that the average time from the firsthearing date to obtaining judgment or settlement in the firsttrials of civil litigation cases (excluding claims for return ofexcess payment of interests on borrowing) is 8.9 months.
However, this depends on the complexity of the case and it is
not uncommon to take 18 months or longer, and in some cases,
several or more years, to obtain a judgment. It is common for
litigation in Japanese courts to be concluded by settlement
before a final determination.

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Judgments obtained in foreign courts are generally enforceable inJapanese courts, subject to satisfaction of terms required by the
Code of Civil Procedures, including, for example, reciprocal
treatment (meaning the country of the foreign court allowing
enforcement of judgments rendered by Japanese courts undersimilar conditions) and proper service to a Japanese defendant ofproperly translated documents.
Arbitration awards obtained abroad are enforceable in Japan under
the New York Convention on Recognition and Enforcement of
Foreign Arbitration Awards if the arbitration award is rendered in amember country. Court procedures to enforce such arbitration
awards may take several months.
Foreign investors can avoid difficulties such as the language issues
or delays discussed above by using arbitration through the Japan
Commercial Arbitration Association (JCAA). Arbitration can be
conducted in any language agreed by the parties. Under the JCAA
rules, the arbitration panel can make an award of costs, including
attorney's fees, in favour of the successful party. Discovery
procedures are not available under the JCAA rules, and the costs
and fees payable to the arbitration organisation may sometimes bemuch more than the costs and fees payable when the case isbrought to court.
Parties may also elect to have disputes resolved at a forum ofinternational arbitration such as the International Chamber ofCommerce or the International Centre for Dispute Resolution –American Arbitration Association, with the venue in Japan. The
Code of Civil Procedure applies in enforcing the arbitral award incourts in Japan.

RECENT DEVELOPMENTS AND PROPOSALS FORREFORM
28. Have there been any significant recent or proposed legal
developments affecting investors?

The Act on Special Measures for Promotion of Research andDevelopment Business, etc. by Specified Multinational
Enterprises
This Act came into effect on 1 November 2012, with the purpose ofinviting foreign companies to establish research and development(R&D) sites or regional headquarters in Japan (see Question 24).
The following support is available for companies that satisfy
certain conditions with respect to incorporating affiliates in Japan
to conduct R&D, or for the control of their business in Japan, if theministry with jurisdiction over the relevant industry or businesscertifies the business plan:•

Special treatment with respect to corporate tax and income tax.
This includes a deduction of 20% of the income generated by
the R&D businesses from taxable income for each business year
ending within five years from certification. Depending on thegeographic area, reduction in local taxes (corporate inhabitant•

Shortened periods for investment procedures in certain cases
where a filing would be required under FEFTA.

•

Equity financing support by the Small and Medium Business
Investment & Consultation Co, Ltd.

•

Reduction by half of patent examination fees and patent feesfor patentable invention.

•

Acceleration of patent application examinations and trial
examinations for patent applications for the results of R&D
conducted under the programme.

•

Special treatment with respect to immigration procedures, suchas fast-track issuance of Certificates of Eligibility.

Immigration procedures for highly-skilled foreign nationals
A points system for highly skilled foreign nationals was introducedin May 2012 (see Question 9). The following additional benefits are
now available:•

Performing multiple activities is now permitted, and theapplicant is not restricted to specific eligibility, as waspreviously the case.

facility. It is currently expected that a bill to establish the special
casino zones will be submitted to the Diet in the spring of 2015.
The government intends to have such integrated resorts operatingby 2020 when Tokyo will host the Olympic Games.
29. Are there any planned or on-going treaty negotiations orpolitical developments that could have an impact on yourjurisdiction's bilateral relationships with other nations
and/or other economic, customs or monetary unions, freetrade areas or markets?

Trans-Pacific Strategic Economic Partnership Agreement(TPP)
Japan is currently negotiating the TPP, a comprehensive free trade
agreement by and among 12 countries around the Pacific Ocean,comprising New Zealand, Singapore, Chile, Brunei, the US,
Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan. The
subject of negotiations include:•

Tariff removal.

•

Trade facilitation (in relation to establishing the rules onsanitation and plant quarantine measures establishingstandards specifications and compatibility, and simplifying
custom procedures).

•Service liberalisation.

•

The eligibility period is five years without exception.

•

National treatment of government procurement.

•

Permanent residence can be applied for after only five years ofresidence, as opposed to ten years of residence as previously
required, as well as preferential processes in relation to
immigration procedures.

•

Co-operation in relation to competition and intellectual
property rights issues.

•

Permission for spouse to work.

Regional Comprehensive Economic Partnership (RCEP)•

Parents of such persons are permitted to accompany theirchildren under certain conditions.

•

Domestic helpers are permitted to accompany their employers
under certain conditions.

RCEP is a free trade arrangement being negotiated as between ten
ASEAN countries, (comprising Brunei, Cambodia, Indonesia, Laos,
Malaysia, Myanmar, Philippines, Singapore, Thailand, andVietnam) as well as Japan, PRC, South Korea, Australia, New
Zealand and India. The arrangement aims to cover trade in goods
and services, direct investment, co-operation in the fields of
economics and technology, intellectual property rights,
competition law and dispute resolution.

Special casino zone
Gambling is currently prohibited under Japanese law except for
certain gambling activities that are operated by governmentaffiliated corporations or local governments (for example,
horseracing and motorboat racing). The national government iscurrently considering legislation to allow privately operated casinos
to operate in Japan. As there are no experienced operators inJapan, it is expected that foreign investors will participate. Casinos
will operate within an integrated resort facility consisting of hotels,
conference rooms, recreation facilities and exhibition facilities. It is
expected that such casinos will only be permitted in special zones,
and that the local government with jurisdiction over the special
zone would choose private business operators permitted by therelevant authority to establish and operate the integrated resort

A co-operation framework in strategic areas such as technicalinnovation and R&D.

Free Trade Area of the Asia-Pacific (FTAAP)
FTAAP is a planned comprehensive free trade arrangement amongthe 21 countries and territories comprising the Asia-Pacific
Economy Cooperation (APEC). The proposal has only recently been
put forward by APEC and formal negotiations have notcommenced. It is expected that such comprehensive agreement
would address trade facilitation including the areas of investment,
services, e-commerce, and supply chain connectivity such as
international logistics facilitation.
For bilateral relationships, please see Question 7.

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Country Q&A

tax and business tax) may also be available. Therefore, asignificant reduction in corporate tax is possible. Special
treatment for income tax includes, for the grant of share options
by a foreign parent, delay of taxation to the time of the sale of
the relevant shares, for which the maximum tax rate would be20%.

Country Q&A

MAIN INVESTMENT ORGANISATIONSJapan External Trade Organisation (Nihon Boeki Shinko Kiko) (JETRO)JETRO engages in promoting foreign direct investment into Japan, promoting trade and business between Japan and the rest of theworld, assisting business expansion of developing countries, contributing to trade policies and economic partnership, researchingdeveloping economies and providing support and information on overseas business.
W www.jetro.go.jp

Manufactured Imports and Investment Promotion Organisation (Ippan-zaidan Hojin Tainichi Boeki Toshi Koryu Sokushin
Kyokai) (MIPRO)MIPRO engages in the business of supporting investments into Japan, as well supporting importation businesses, collection, provisionand consultation for intellectual property rights, product safety and welfare, and introducing developing countries' products into Japan.
W www.mipro.or.jp/english

ONLINE RESOURCES
Invest Japan
W www.invest-japan.go.jp/en_index.html
Description. The Invest Japan website is operated by Cabinet Office. It provides links to the websites of the offices of Invest Japan held at
the ministries and other governmental offices.

Japanese Law Translation
W www.japaneselawtranslation.go.jp/?re=02
Description. This Japanese Law Translation database is operated by the Ministry of Justice and provides unofficial English translationsof Japanese laws and regulations. Please note that it provides only tentative translations for some laws and regulations, and some of thetranslations it provides are out-of-date, as they are not necessarily updated after amendments to the relevant laws and regulations.

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Country Q&A

Practical Law Contributor profiles
Ryuichi Nozaki, Partner

Teruhisa Toyama, Partner

Atsumi & Sakai

Atsumi & Sakai

T +81 3 5501 2111
F +81 3 5501 2211
E ryuichi.nozaki@aplaw.jp
W www.aplaw.jp/en

T +81 3 5501 2111
F +81 3 5501 2211
E teruhisa.toyama@aplaw.jp
W www.aplaw.jp/en

First Law International Board Member Firm (Chambers Global
Elite Network)

First Law International Board Member Firm (Chambers Global
Elite Network)

Professional qualifications.

Professional qualifications.

Japan, Lawyer (bengoshi)

Japan, Lawyer (bengoshi), Certified Public Accountant

Areas of practice. Mergers and acquisitions; investment funds.

Areas of practice. Securities litigation; corporate; renewableenergy; disclosure policies; risk management.

Recent transactions•

Advising a foreign major PV developers for a largest-scale
farming type solar power project in Japan.

•

Investigation of alleged irregularities at the Japan office of aforeign corporation.

•

Advising a US major investment bank on collateralised
reinsurance transactions with major Japanese insurancecompanies.

Acting for a number of institutional investors on litigations inrelation to a claim for damages based on annual securities
report containing false statements.

•

Acting for a number of foreign institutional investors (including
sovereign and pension funds) on litigations in relation to theirinvestment into a Japanese listed company.

Assisting with improving group business management of a major
securities company group, risk management of overseas
subsidiaries.

Languages. Japanese and English.

•

Acting for US foreign exchange firms in acquisition of Japanesecompanies and developing regulated businesses in Japan.

•

Advising UK and US major banks on Japanese laws andregulations applying to various Japan-related financial activities
conducted directly or through Japan subsidiaries.

••

Recent transactions

Publications•

Japan - changes in regulation following the AIJ scandal,
Euromoney Yearbooks - Global Asset Management & Servicing
Review 2013/14, Euromoney Institutional Investor PLC (2013).

•

Aiming at diversity, IFLR JULY/AUGUST 2012, IFLR (2012) [Coauthor].

•

Japan - Changes in Regulation, Euromoney Yearbooks - Global
Asset Management & Servicing Review 2012/13, Euromoney
Institutional Investor PLC (2012).

Publications•"Industry-Classified Accounting: Securities Business", DaiichiHoki (2012).

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Country Q&A

Yutaka Suzuki, Of Counsel
Atsumi & Sakai

T +81 3 5501 2111
F +81 3 5501 2211
E yutaka.suzuki@aplaw.jp
W www.aplaw.jp/en

First Law International Board Member Firm (Chambers Global
Elite Network)
Professional qualifications.
Japan, Lawyer (bengoshi)
Areas of practice. Mergers and acquisitions; corporate; labour;
dispute resolution.
Recent transactions•

Acting for a US semiconductor manufacturer in its acquisition ofa business of a Japanese semiconductor designer andmanufacturer.

•

Acting for a US medical equipment manufacturer in terminating
a Japanese exclusive distributorship which was, in substance, anacquisition of a material part of the distributor's business.

Languages. Japanese and English.
Publications.
•“Lay-offs and Age Discrimination Issues for Japanese Companies
Doing Business in the U.S.”, Come to America Vol.25, U.S. Japan
Publication N.Y., Inc. (2011).

•“Overview of U.S. Bankruptcy Law and Procedure: Dealing with
Customers in These Troubled Economic Times”, Come toAmerica Vol. 24, U.S. Japan Publication N.Y., Inc. (2010).

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