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Japanese Regulations on Foreign Direct Investment 101

November 15, 2025

📋 Presentation Summary

Speaker: Takushima (Partner at Kimura Takima Yamaguchi Law Firm)

Topic: Foreign Direct Investment Regulation in Japan - The Basics

👤 Speaker Background

  • Spent 5 years in the UK as a child
  • Became a lawyer after 2000, specializing in cross-border corporate and business transactions
  • Founded his firm in 2011
  • Joined BYBJ in 2025

📖 Hypothetical Case Study

A startup KK (Kabushiki Kaisha - most common Japanese corporation type) developing an online platform for used housing sales targeting foreigners:

  • Founder: Ichiro (Japanese national, invested 10M yen)
  • Investor 1: Hideki (Japanese resident, investing for shares)
  • Investor 2: Shoi (US resident, investing 5M yen for shares)
  • Timeline: Want to complete investment in 2 weeks

🏛️ Foreign Exchange and Foreign Trade Act (FEFTA)

Basic Rules:

  • Foreign investors making inbound direct investments must submit a post-transaction report to the Bank of Japan
  • Sometimes requires pre-transaction filing with a 30-day waiting period before completing the transaction

🔍 Key Definitions

Foreign Investor:

  • Non-Japan resident individuals
  • Entities formed under non-Japanese laws
  • Japanese companies 50%+ owned by foreign residents or entities
  • In the case study: Shoi (US resident) is a foreign investor

Inbound Direct Investment:

  • Acquiring shares of a Japanese company
  • Acquisition of non-public company shares always qualifies
  • In the case study: Shoi's investment qualifies as inbound direct investment

⚠️ Pre-Transaction Filing Requirements

Required if the investment relates to designated business sectors:

Core Business Sectors:

  • Weapons, aircraft, space, nuclear
  • Infectious disease medicines
  • Cyber security-related businesses

Non-Core Designated Business Sectors:

  • Electricity, gas, water supply
  • Software (this complicates matters)

💻 Software Complexity

Pre-transaction filing required if:

  • Software is cyber security-related under FEFTA rules
  • Software specifically designed to handle personal information of 1 million+ persons

Exception: Software developed by "List 3 businesses" for their own use is not subject to pre-transaction filing

✅ Case Study Conclusion

In this hypothetical:

  • Shoi's investment is an inbound direct investment
  • Likely does NOT trigger pre-transaction filing because the platform is only for buying/selling real estate in Japan (considered a List 3 business)
  • However, it's Shoi's obligation to verify whether the business is designated

💡 Key Takeaway

When a foreign investor invests in a Japanese company:

  1. Be aware of FEFTA rules
  2. Consult a lawyer to determine if pre-transaction filing is required
  3. The rules are complex and require professional guidance

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