Japan: Investing

FDI in Figures

FDI flows to Japan remain low compared to most other developed nations across the world and are relatively unstable. According to UNCTAD's 2021 World Investment Report, FDI declined by 30% to USD 10 billion in 2020, reflecting a 25% decline in FDI from MNEs in the United States. Japan's FDI stock was estimated at about USD 243 billion in the same year. The country is also one of the main investors worldwide, with an estimated stock of outward investments of USD 1,982 billion. In 2020, investment by Japanese multinationals fell 49% to USD 116 billion from a record USD 227 billion in 2019, partly due to the economic crisis triggered by the Covid-19 pandemic. The United States, Singapore, France, the Netherlands, and the United Kingdom were the main investing countries and represented nearly two-thirds of the FDI inflows. Investments are mainly oriented towards finance and insurance, transportation equipment production, electric machinery, communication, and chemicals and pharmaceuticals. According to the latest figures from OECD, in the first semester of 2021 FDI inflows to Japan totaled USD 16.8 billion, up by 215% year-on-year. In the same period, Japan recorded increases in FDI equity outflows of more than USD 15 billion, partly influenced by some large M&A transactions, such as the acquisition of the entire share capital of Nipsea Pte Ltd, a Singapore-based manufacturer of coatings, by Nippon Paint Holdings Co Ltd.

Japan ranked 29th out of 190 countries in the World Bank's latest Doing Business report, an increase from the previous edition when it ranked 39th. The country has a solid net foreign creditor position and external indicators are generally robust.  Japan is actively opening its doors to foreign business, as it's aiming to create the best possible environment for overseas investors. The country's key strengths are its position as a leader in advanced technology and R&D, the fact that it is the third-largest economy in the world, a big internal market with high purchasing power and a highly skilled workforce. The potential barriers to investment are essentially demographic, linguistic and cultural; with international competition restricted by a very insular local business culture. Moreover, the Foreign Exchange and Foreign Trade Act (the Forex Act) was amended, lowering the ownership threshold for pre-approval notification to the government for foreign investors from 10% to 1% in sectors that could pose a national security risk, and introducing a new prior notification exemption scheme for share acquisitions. Nevertheless, Japan remains a key market for investors.

What to consider if you invest in Japan

Protection of Foreign Investment

Procedures Relative to Foreign Investment

Freedom of Establishment

Guaranteed

Acquisition of Holdings

Possible

Obligation to Declare

The different obligatory declarations in Japan are:

• when a company with meets these thresholds (Competition Law):
  • Joint share company: one company contribution exceeds JPY 20 billion and the other JPY 5 billion,
  • Joint corporation-type company split: companies contributions exceed JPY 10 and 3 billion,
  • Share acquisition: capital issued exceeds JPY 5 billion and acquiring company capital exceeds JPY 20 billion,
  • Merger: company capital exceed JPY 20 and 5 billion,
  • Acquisitions of business: transferring company capital exceeds JPY 3 billion and acquiring company capital JPY 20 billion,
• when a company exceed 1 % of equity participation, regardless the amount of investment (Foreign Exchange and Foreign Trade Law).

Competent Organisation For the Declaration

Ministry of Finance
Japan Fair Trade Commission (JFTC)

Requests For Specific Authorisations

The Japanese government has imposed relatively few restrictions on inward foreign investment. However, with regard to sensitive sectors of the Japanese economy, six months' prior notification is required and the Ministry of Finance may restrict FDI if it considers that investments "undermine national security, disrupt public order, impinge on public safety or have serious effects on the smooth operation of the national economy":

• Defence.
• Broadcasting and telecommunications.
• Agriculture, forestry and fisheries.
• Petroleum, utilities and nuclear energy.
• Aviation, aerospace and maritime transport.
• Leather making.

Any investment in the banking, insurance, energy, electricity, security and pharmaceutical sectors is subject to license.
On 22 November 2019, the Japanese parliament adopted a bill revising the Foreign Exchange and Foreign Trade Act. The revised law requires foreign investors to request prior notification to the government before obtaining a 1% or more stake in a listed Japanese company engaged in activities related to arms, nuclear energy, semiconductors, railways and other areas, lowering the threshold from the current 10%. The amended law came into force on 7 May 2020.

Office Real Estate and Land Ownership

Possible Temporary Solutions

Located in the main Japanese cities (Tokyo, Yokohama, Nagoya, Osaka, Kobe and Fukuoka), the Invest Japan Business Support Centers (IBSC) managed by JETRO, offer temporary office space (up to 50 working days) and various services and support.

The Possibility of Buying Land and Industrial and Commercial Buildings

No restrictions apply to the purchase, ownership or disposition of real estate in Japan by foreign nationals.

Risk of Expropriation

Up to now, bilateral disagreements have given rise to no expropriation. In general, expropriation by the government must comply with the standards of international law, which means that expropriation must be in the public interest. The act must be non-discriminatory, legally enforceable and subject to the payment of prompt, adequate and effective compensation.

Investment Aid

Forms of Aid

The Japanese government’s program for promoting imports and investment takes the form of discounts and reductions of taxes, guarantees on loans, and loans at reduced rates.
It also takes the form of assistance for foreign exporters wishing to import into Japan.

Privileged Domains

Creation of jobs, national and regional development, protection of the environment, Aid for research and development, poll of competitiveness.

Privileged Geographical Zones

Since applications for special zones for structural reform began being accepted, a total of 910 zones have been established throughout Japan, each with its own distinctive character. Established at the initiative of local governments or private businesses, they are exempt from one or more national regulations. In theory, this measure offers foreign investors attractive terms for setting up; in practice, the acceptance of projects raises some difficulties. The Cabinet Office summarises this policy.

Click here for a more detailed breakdown of investment conditions region by region.

Free-trade zones

Japan’s free trade zones are attractive options for business setups since they offer foreign companies partial tax exemption and partial custom duties exemption. The FTZ include:

• Okinawa SFTZ, ideal for semiconductor, circuit board and precision grid jigs production,
• Naha FTZ, ideal for business operating in manufacturing, cargo ship building and import and export,
• Nigata Free Port, suitable for business in the sectors of sea freight, international distribution, energy and foreign trade.

Public aid and funding organisations

The State, the Japanese development bank, the Japanese bank for international cooperation, Japanese financial corporation for SMEs make loans at advantageous rates. The regional corporation for the development of Japan develops “nurseries” for companies and obtains long term reduced rate loans valid for foreign companies too.

Investment Opportunities

The Key Sectors of the National Economy

Medical equipment, pharmaceutical products, biotechnology, dietary supplements, electronic components, software, aviation and spare parts, engineering services, new energy production, tourism, education and training services, safety equipment, telecommunications equipment, the fashion market, real estate products.

High Potential Sectors

Business opportunities related to the Olympics and the Paralympics, smart robots, biopharmaceuticals and biosimilars, smart agriculture, VR/AR, renewable energy, tourism-related business, electricity and renewable energy, life Science, information and communication technologies. The JETRO details the attractiveness of these sectors.

Privatization Programmes

There are plans to privatise the operations of New Chitose, Wakkanai, Kushiro, Hakodate, Asahikawa, Obihiro and Memanbetsu airports. They are currently managed by the central government or local authorities.

Tenders, Projects and Public Procurement

JETRO - Japan External Trade Organisation, Tenders
Asian Development Bank, Procurement Plans in Asia
Tenders Info, Tenders in Japan
dgMarket, Tenders Worldwide

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors

The monopolistic sectors are:

• postal services
• water
• telecommunications : foreign investors are not allowed to hold more than 1/3 of the rights to vote in « Nippon Telegraph » and « Telephone Corporation » (NTT)
• arms, explosives, atomic energy, aviation industries and aerospace

Finding Assistance For Further Information

Investment Aid Agency

Japan External Trade Organisation, JETRO
Invest Japan Business Support Centres (IBSC)
Kansai Bureau of Economy,Trade and Industry
Japan Investment Council

Other Useful Resources

Venture Japan

Doing Business Guides

Japan Doing Business Guide - Export to Japan
Doing business in Japan - UHY
Deloitte Tax Guide to Japan

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