Acquisition of Japanese Companies and Foreign Investment Restrictions
Acquisition of Japanese Companies
Compared to the global economy, Japan’s economy has a lower economic growth rate, but is characterized by its stable corporate earnings due to its maturity. The Nikkei Stock Average in 2023 has shown steady performance compared to neighboring countries, attracting global attention to Japan as an investment destination.
There are attractive investment opportunities in various sectors such as transportation, real estate, manufacturing, healthcare, and IT. Due to language barriers, foreign companies’ entry into Japan has not progressed significantly. However, by selecting appropriate advisory services, it is possible to uncover numerous hidden opportunities.
Unlike investment banks and major consulting firms, our firm also supports relatively small-scale M&A and market entry into businesses. We can provide flexible and customized services to foreign companies considering entry into Japan.
We engage in the exploration and intermediation of M&A deals through our unique network and are able to assist not only financial institutions but also corporate entities in their M&A activities.
In cases where acquisitions or market entry require permits and approvals, we can provide full support for the application procedures with administrative authorities. Furthermore, as we possess a license of charged employment placement services, we can assist in the recruitment of local staff proficient in foreign languages such as English.
English-speaking talent in Japan is mainly concentrated in major cities like Tokyo. Therefore, Tokyo becomes the primary choice for establishing branches or conducting acquisitions.
If conducting M&A investments of a certain scale, such as having an office in Japan with at least 2 full-time employees and a corporation with a capital of over JPY 5,000,000, executives with more than 3 years of experience in business management or administration are eligible to obtain a Business Manager Visa.
Please also refer to the following foreign investment regulations when considering the acquisition of Japanese companies.
Restriction on Foreign Investment in Japan
In Japan, foreign exchange is liberalized, and there are generally no regulations regarding the acquisition of domestic company shares or real estate by foreigners or foreign entities.
Regulations on Acquisition of Shares by Foreign Entities
However, while there are no specific restrictions for acquiring real estate by foreigners or foreign entities, regulations exist for the acquisition of shares, which require prior notification, examination, or post-reporting obligations.
If foreign investors make investments in companies that do not engage in industries requiring prior notification, there is no requirement to submit prior notifications.
However, when a foreign investor acquires 10% or more of the shares, it is necessary to submit a post M&A reporting document.
Pre-screening System for Investments in National Security-related Industries
On the other hand, for inward direct investment in industries related to national security, there is a pre- screening system by the Ministry of Finance based on the Foreign Exchange and Foreign Trade Act.
Who are Considered Foreign Investors?
Under the Foreign Exchange and Foreign Trade Act, foreign investors (non-residents including individuals, foreign companies, Japanese companies with more than 50% or more of the money invested is invested by non-residents must submit prior notifications to the Minister of Finance and the Minister having jurisdiction over the business when making investments in companies engaged in industries requiring prior notification from the perspective of national security, among other factors.
Foreign investors refer to non-resident individuals, companies or other organizations established based on foreign laws or Japanese companies in which foreign companies hold a majority of voting rights, companies, associations in which non-resident individuals or foreign companies contribute 50% or more of the capital, or associations where the majority of executive committee members are non-resident individuals or foreign companies.
It includes individuals residing in countries or regions other than Japan, companies or funds established in foreign countries and with their principal office in a foreign country, subsidiaries of foreign companies, and investment funds with more than 50% investment from foreign companies, among others.
Definition of Core Industries
Industries requiring prior notifications from the perspective of national security are divided into core industries and non-core industries.
Core industries include manufacturing industries related to weapons, aircraft, space development, nuclear power, repair businesses related to these industries, software industry, manufacturing industries of militarily applicable general-purpose goods, pharmaceutical manufacturing for infectious diseases, manufacturing of advanced medical devices, metal mining industries related to important mineral resources, and construction businesses involved in specific remote island port facilities.
Cyber Security and Infrastructure-related Industries
For cyber security-related industries (manufacturing industries of information processing-related equipment, components, software, and information services-related industries), infrastructure-related industries (electric power, gas, telecommunications, water supply, railway, oil, heat supply, broadcasting, passenger transportation), and other industries (security services, agriculture, forestry, fisheries, leather product manufacturing, aviation transportation, maritime transportation), only certain segments within these industries fall under core industries.
Exemptions and Prior Notification Requirements
However, even if they do not fall under core industries category, businesses operating in these sectors are still required to submit prior notifications.
In the following cases, it is possible to utilize an exemption system for prior notifications, however, in such cases, post- notifications are still required.
Acts subject to prior notifications include acquiring 1% or more of the shares of a listed company, acquiring one or more shares of an unlisted company, consenting to the appointment of a director or auditor who is a foreign investor or related person, and proposing or consenting to the transfer or termination of businesses belonging to industries requiring prior notification.
Consequences of Non-compliance
If a foreign investor makes an investment without prior notification and there are concerns from the perspective of national security or other factors or other factors, there is a possibility that an order, including divestment of shares, may be issued.
Regardless of the scale of the business, if a business is operated which falls within the scope of prior notification, even if its sales account for only a minimal proportion, it becomes subject to prior notification requirements.
Conclusion: Free Capital Movement in Japan
In any case, Japan adopts the principle of free capital movement, which generally allows unrestricted investments in Japanese companies. Our firm supports foreign investors in their investments, M&A, business partnerships in Japan, through services such as procedural assistance, financial advising and arrangement. We strive to contribute to the success of foreign investors’ investments in Japan.
Please contact us for any consultation through the inquiry form.