About Foreign Investment in Japan In Brief

This post will be useful for entrepreneurs who want to invest in Japanese business.

It is common knowledge that FDI not only enhance business opportunities for investors but also provide many benefits for host countries. Among these advantages are the direct development of production, the introduction of the latest technologies and management models, the creation of new jobs etc. The challenge of creating an investment-oriented multilateral legal framework has come to the fore in recent years in Japan, which has not previously considered attracting FDI as a government priority.

Change of direction

Until recently, FDI levels in Japan were relatively low compared to the coverage of its economy. Today, the government seeks to level the situation and increase the inflow of foreign investment in Japan. To this end, efforts have been intensified to attract additional investment from abroad. For example, the government canceled the requirement for government agencies to agree and approve foreign transactions before they are concluded and now allows post-transaction reporting. This is more beneficial for foreign businessmen as it saves time significantly. The government is also implementing a number of programs to continue to successfully attract investment, and investors have shown in return a willingness to enter quality projects with high returns.

Priority industries

FDI is effective and has the expected multiplier effect only if it is complemented by long-term investments by foreign private investors in Japan and sovereign wealth funds. This is precisely the positive role of foreign investment in the Japanese economy today.

At the moment, investing in Japanese companies is mainly directed to the following industries:

• pharmaceuticals;
• telecommunications;
• finance;
• insurance;
• transport engineering.

Foreign investment regulation in Japan

Domestic investment in Japan is encouraged nationally and regionally. Mechanisms for interaction between relevant ministries and departments have been created, which can comprehensively process requests, provide support to foreign investors for doing business in Japan.

Promotion of Japan as an Asian business center

Japan has even passed a special law to encourage global research and development companies. According to it, new R&D laboratories in Japan can receive the following incentives:

• acceleration of examinations and proceedings on patent applications;
• sufficient reduction in fees for patent inventions;
• FDI in regulated industries in Japan receive shorter verification notice periods;
• expediting the procedure for obtaining a residence permit, which is applied for by foreign citizens intending to start a business in Japan.

Applicable domestic laws

FEFTA is one of the key laws that provides general rules for foreign transactions, including the FDI in Japan. 

Foreign transactions involving FDI in Japan require notification to the authorities. If the transaction is related to certain industries, prior notification and approval from the appropriate government authorities is required. 

List of priority industries:

• aviation, nuclear power, space exploration;
• electricity and gas, heat supply; 
• communications and broadcasting;
• bioengineering;
• high-tech innovations;
• agriculture, fishing, oil production.

In Japan, the term "domestic direct investment" means:

• acquisition of shares in a Japanese company or purchase of shares in an unregistered corporation in Japan (excluding acquisition by transfer from foreign investors);
• Japanese corporation share transfer, which are not included in a listed corporation, by a non-resident (limited to a transfer from a non-resident person to a foreign investor);
• acquisition of shares of a corporation listed on the Japanese stock exchange;
• consent provided to materially change the business purpose of the corporation;
• registration of a branch in Japan or significant change in the commercial activities of Japanese branches;
• securities purchase in Japan;
• loaning money to a legal entity in Japan that exceeds certain thresholds;
• purchase of bonds in Japan offered to the specified foreign investors.

Final word

This article has been prepared for informational purposes and is not a complete consultation.