Foreign Capital Regulation in Japan
Japanese foreign capital regulations are generally limited, particularly in financial business, except for the investment in the industrial fields related to national security and sovereignty. Therefore, it is a rare case to restrict the foreign capital from entering Japan’s Financial Market. However, it must be cautious about acquiring shares of Japanese companies by a foreign company.
- Our core business is supporting overseas financial institutions
to attract international financial companies to Japan.
- Our Group provides a wide range of one-stop services for international financial institutions.
Foreign Capital Regulation under the Foreign Exchange and Foreign Trade Act
Based on the Foreign Exchange and Foreign Trade Act, investment from countries that do not have a treaty on foreign direct investment (some countries in Africa/Central Asia), and the investment from countries other than the above for aircraft, weapons, nuclear power, space development, energy, water supply, telecommunications, broadcasting, railways, route buses, coastal shipping, oil, leather, footwear, agriculture, forestry, fisheries, and security requires prior notification to the Finance Minister and the corresponding Minister. As a result of the examination, it may happen to have the recommendation to change or cancel the investment.
The investment that does not fall under the above conditions must report to the Minister of Finance and the competent minister within 15 days.
Foreign Capital Regulation under the Individual Business Law
In addition to the above, there are some investment regulations for foreign capital under individual business laws. There are some regulations for NTT, Broadcasting Stations, Radio Stations, Airlines, Logistic business and so on.
In general, foreign capital regulation is not a key issue for Securities Business, FX / CFD Business and fund business. However, it is necessary to study carefully when investing in a domestic company by a fund such as VC/PE/Activist Fund as some foreign capital regulations may be imposed.
Comparison of Entry Forms of Overseas Financial Companies
It is sufficient to appoint an agent or a representative in Japan to register the Special Permitted Service for Qualified Institutional Investors, etc. and the Investment Advisory and Agency Business/, and it is not necessary to set up an office in Japan. On the other hand, many financial licenses such as the Type I and Type II Financial Instruments Business, and Investment Management Business obliged to set up an office in Japan.
Establishment of Entity in Japan: It is possible to select either establishing a subsidiary or a branch. There are many cases for both subsidiary and branch, but more subsidiary cases.
Local agent: There are no precise qualification requirements; however, lawyer, certified Administrative Procedure Specialist, domestic financial instruments business operator is appointed as a local agent in many cases.
Income generated in Japan will be imposed corporate tax once a local entity is established.
In the case of “subsidiary,” all subsidiary’s income is taxed, and in the case of the “Japan branch,” “domestic source income” (income generated in Japan) is taxed.
The effective corporate tax rate in Japan is 29.74%. (As of 2018, Ministry of Finance)
There is no domestic taxation in the case of “establishing an agent” in principle.
＊However, it may vary subject to the tax treaty.
It is possible to set up a representative office as a preliminary step to establishing a local entity. It will be set up as an office for foreign companies to carry out preparatory and auxiliary activities for full-scale sales activities in Japan. It is possible to carry out activities such as market research, information gathering, purchase of goods, and advertising, but not possible to carry out direct sales activities. It is not necessary to register the establishment of a representative office. However, financial companies such as banking and investment management are obliged to notify relevant authorities once a representative office is set up in Japan.
In practice, it is not possible to open a bank account or rent real estate under the name of a representative office. Thus, an individual of the head office or a representative of the office will act as an agent for those activities.
Establishment of Company
It is common to establish a joint-stock company / limited liability company when establishing a company in Japan. The legal cost will be about JPY 100,000-200,000 and total costs including professional fees are from JPY 500,000-1,000,000 if the entity’s shareholders and directors resides outside Japan.
It is possible to establish a company even if no director resides in Japan. Registration of a joint-stock company/limited liability company will be completed within 3 business days in principle.
Maintenance Costs and Obligations
An annual corporate tax filing is essential. In the case of a corporation, it is obligatory to join social insurances on a corporate basis if some officers or employees receive salaries. The social insurance premiums will be varied as per the amount of wages.
In addition, it is obliged to submit the report as per the requirement of the license, such as the Financial Instrument Business.
Please don’t hesitate to contact us for details for our support of the establishment of such legal entities and various procedures thereafter.