Question 1

What is FEFTA?

Accepted Answer

The Foreign Exchange and Foreign Trade Act (“FEFTA”) is the Japanese law governing, among other matters, certain investments in Japan by foreign investors.For foreign investment, FEFTA operates through a prior-notification and post-investment reporting system. Depending on the investor, the type of transaction and the activities of the Japanese company, a filing may be required before or after the investment.

Question 2

Who is considered a foreign investor under FEFTA?

Accepted Answer

Foreign investors include:individuals who are non-residents of Japan;companies and other entities established under foreign law or having their principal office outside Japan; andcertain Japanese companies that are foreign-controlled.
For example, a Japanese company is generally treated as a foreign investor where 50% or more of its voting rights are directly or indirectly held by non-resident individuals or foreign entities. Certain partnerships and Japanese entities with predominantly non-resident management can also fall within the definition.

Question 3

What types of transactions are covered by FEFTA?

Accepted Answer

FEFTA applies to a range of investments and corporate actions, not only acquisitions of Japanese companies.Inward direct investment can include:Unlisted companies: acquiring shares or equity interests in a Japanese unlisted company, including subscribing for shares when establishing a new Japanese subsidiary;Listed companies: acquiring shares or voting rights resulting in a holding of 1% or more;Management appointments: consenting to the appointment of a director or certain other officers proposed by the foreign investor;Changes of business: consenting to certain material changes to the Japanese company’s business purposes;Business transfers: acquiring all or part of a Japanese company’s business;Japanese branches: establishing a branch in Japan or making certain material changes to its business activities; andFinancing: making certain loans to a Japanese company for a period exceeding one year, where the applicable amount or financial thresholds are met.
The precise filing requirement depends on the type of transaction, the investor’s existing ownership and the business activities of the Japanese company.

Question 4

What FEFTA procedure can apply to an investment?

Accepted Answer

Depending on the transaction, there are four main outcomes:prior notification, which must be completed before the investment;use of a prior-notification exemption, subject to the applicable conditions;post-investment reporting, generally within 45 days after the transaction; orno filing, where the transaction falls within one of the statutory exclusions.The correct route depends on the investor, the transaction, the ownership percentage and the business activities of the Japanese company.

Question 5

Does FEFTA apply only to investments in sensitive sectors?

Accepted Answer

No. FEFTA applies to inward direct investments generally, but the applicable procedure differs depending on the sector.For investments in a designated business sector, prior notification may be required before the investment. For investments outside designated sectors, the transaction will generally fall under the post-investment reporting regime if the relevant reporting thresholds are met. Some transactions are exempt from both procedures.

Question 6

What are designated business sectors?

Accepted Answer

Designated business sectors are sectors identified under FEFTA as requiring enhanced foreign-investment screening.They include specified activities in areas such as cybersecurity, electricity, gas, telecommunications, water supply, railways, petroleum, semiconductors, storage batteries and other strategically important technologies.The classification is made by reference to the company’s actual and planned activities and the detailed FEFTA industry classifications. Activities of certain Japanese subsidiaries may also need to be taken into account.

Question 7

What are core business sectors?

Accepted Answer

Core business sectors are a subset of designated business sectors considered particularly important from a national-security perspective.Under the current rules, core sectors include specified activities relating to, among others, defence, aircraft, space and nuclear activities, dual-use technologies, certain pharmaceuticals and specially controlled medical devices, critical minerals, semiconductors, storage batteries, permanent magnets, machine tools and industrial robots, advanced electronic components and certain other strategic manufacturing activities.Certain activities within cybersecurity, electricity, gas, telecommunications, water supply, railways and petroleum are also classified as core businesses.Whether an activity falls within a core sector therefore needs to be assessed against the detailed FEFTA classifications applicable to the particular business.

Question 8

Are software, SaaS and other IT businesses considered core business sectors under FEFTA?

Accepted Answer

Not automatically. The fact that a Japanese company develops software, provides SaaS or cloud services, or otherwise operates in the IT sector does not by itself mean that it conducts a core business.Certain cybersecurity and other sensitive IT activities are, however, classified as core businesses. These include, for example, specified cybersecurity monitoring and security services, remote system management, and software or data-processing services specifically designed for certain critical infrastructure or other sensitive activities. Certain services involving large-scale processing of sensitive personal information may also fall within the core categories. The classification depends on the actual functions, intended use and data handled by the relevant software or service, rather than on a company’s general description as an “IT” or “software” company. Where the position is unclear, the activities should be reviewed against the detailed FEFTA sector notices before the investment is made.The 2027 changes narrow the broader prior-notification rules applicable to software services while maintaining prior screening in principle for core IT and cybersecurity activities, so this distinction will remain relevant under the revised framework.

Question 9

Do I need a FEFTA filing when establishing a Japanese subsidiary?

Accepted Answer

Generally, yes. The establishment of a wholly owned Japanese subsidiary by a foreign investor will generally constitute an inward direct investment for FEFTA purposes.The subscription for shares or equity interests in a new Japanese KK or GK is treated as an acquisition of shares or equity in an unlisted Japanese company. For an investor from a jurisdiction covered by the ordinary FEFTA reporting regime:if the subsidiary will not conduct a designated business, no prior notification is required and a wholly owned subsidiary will normally require a post-investment report;if it will conduct a non-core designated business, prior notification is required in principle, although an eligible investor may use the prior-notification exemption if all applicable conditions are satisfied; andif it will conduct a core business, prior notification is required and the exemption for acquisitions of shares in unlisted companies is not available.For shares acquired upon establishment, the relevant transaction date is the incorporation registration date.

Question 10

What are the main shareholding thresholds?

Accepted Answer

For an unlisted Japanese company, acquisition of even one share or equity interest constitutes inward direct investment. However, in the ordinary post-investment route for a non-designated business, no filing is required where both the effective equity ratio and effective voting-right ratio, including closely related investors, remain below 10%. A post-investment report generally applies where either reaches 10% or more.For a listed Japanese company, acquisition of 1% or more of the shares or voting rights constitutes inward direct investment. The subsequent prior-notification and reporting rules depend on the business sector, investor category and use of any exemption.

Question 11

When is prior notification required?

Accepted Answer

Prior notification is generally required where:the Japanese company, or certain relevant Japanese subsidiaries, conducts a designated business and no exemption applies;the investor is from a country or region outside the jurisdictions recognised under the ordinary FEFTA regime; oranother specific prior-notification rule applies.The analysis therefore requires both a review of the investor and a classification of the Japanese business activities.

Question 12

Does a designated activity in the articles of incorporation automatically require prior notification?

Accepted Answer

Not necessarily.The assessment is based on the business the company actually conducts or plans to conduct, not solely on the wording of its articles of incorporation.If a designated activity is included in the articles but is not actually carried out and is not planned to be carried out for approximately six months after the investment, prior notification may not be required.If the company later decides to commence that designated activity, a separate FEFTA analysis should be carried out before the change is implemented.

Question 13

Are exemptions from prior notification available?

Accepted Answer

Yes, but they are limited and should not be assumed to apply.Certain regulated financial institutions may benefit from broader exemptions. Other foreign investors may also qualify, but only if specific conditions are met, including limitations on involvement in management and access to sensitive non-public information.In practice, these exemptions may not be suitable for a foreign investor that intends to actively manage or control the Japanese business. In particular, an acquisition of shares in an unlisted company engaged in a core business sector is generally not eligible for an exemption.The availability of an exemption should therefore be checked before the investment is made.

Question 14

How is a prior notification made and how long does the review take?

Accepted Answer

A prior notification is submitted by the foreign investor through the Bank of Japan to the Ministry of Finance and the ministry or ministries responsible for the target’s relevant business activities. A non-resident foreign investor files through a resident agent in Japan.Once a prior notification has been accepted, the investment is subject to a statutory 30-day waiting period during which the notified transaction may not be implemented. The authorities may shorten this period where the review can be completed earlier. Conversely, the review period may be extended where further examination is required.In practice, the competent authorities may request detailed information regarding the proposed transaction, the investor and its ultimate ownership, the target’s business activities, the investor’s intended involvement in management, and its access to technology or other sensitive information. If the authorities require substantial additional information or are not yet in a position to complete their assessment, the investor may be asked to withdraw and resubmit the notification, which effectively extends the overall review timetable.For transaction planning purposes, foreign investors should therefore generally allow at least two months where prior notification is required. A longer period may be appropriate where the target conducts core business activities or where the investment raises particularly sensitive issues. Once the transaction is permitted to proceed, the investment must generally be implemented within six months after acceptance of the notification.

Question 15

What information is required for a prior notification?

Accepted Answer

The filing identifies the investor, the Japanese investee company, the proposed transaction and the relevant business activities. The authorities may require more detailed information to assess the investor, its ownership structure, its ultimate parent, the target and the national-security implications of the proposed investment.The rules becoming applicable in 2027 formalise the submission of additional information concerning the investor, the investee, the investor’s shareholders and its ultimate parent as supporting documentation for prior notifications. This reflects information that is already commonly relevant to the review process.Foreign investors should therefore ensure that their ownership structure and ultimate beneficial or controlling interests can be documented at an early stage of the filing process.

Question 16

Can the Japanese authorities refuse or impose conditions on an investment?

Accepted Answer

Yes. If the authorities determine that an investment may pose risks to national security or other interests protected under FEFTA, they may recommend that the transaction be modified or discontinued. If the investor does not accept the recommendation, the authorities may ultimately order the modification or discontinuance of the investment.In practice, concerns may also be addressed during the review process through risk-mitigation measures. The investor may be asked to provide written representations or commitments designed to provide sufficient safeguards, for example regarding its involvement in management, access to sensitive technology or information, or other matters identified by the authorities.The 2027 FEFTA amendments expressly formalise the use of such risk-mitigation measures and their ongoing compliance.Accordingly, a FEFTA review does not necessarily result in a simple clearance or refusal: the ability to address the authorities’ concerns through appropriate safeguards may be an important part of the review process.

Question 17

Are there FEFTA obligations after the investment has been completed?

Accepted Answer

Yes. If a prior notification was filed, an execution report is generally required within 45 days after completion of the investment. A post-investment report may also be required where no prior notification was necessary. For investments in non-designated sectors, share acquisitions generally become reportable when the investor’s ownership or voting rights reach 10% or more. Where a prior-notification exemption is used, different reporting thresholds apply. For example, an exempt acquisition of shares in an unlisted company generally requires a post-investment report regardless of the percentage acquired.Accordingly, the absence of a prior-notification requirement does not necessarily mean that no FEFTA filing is required after closing.

Question 18

Can FEFTA apply to shareholder decisions made after the original investment?

Accepted Answer

Yes.FEFTA covers certain corporate actions independently from the initial acquisition of shares. Depending on the circumstances, prior notification can be required in connection with matters such as the appointment of the foreign investor or certain closely related persons as directors or corporate auditors, material changes to the company’s business purposes, or proposals or approvals relating to the transfer or disposal of designated-sector businesses.FEFTA should therefore be considered not only when a foreign shareholder later obtains or exercises additional governance or management rights.

Question 19

Can an acquisition taking place entirely outside Japan trigger FEFTA?

Accepted Answer

Yes. From 2027, FEFTA expressly covers certain indirect acquisitions. This may arise where a foreign investor acquires control of a foreign company that already holds shares or voting rights in a Japanese company engaged in a designated business sector.For this purpose, an acquisition of control includes, in particular, acquiring 50% or more of the voting rights of the foreign company holding the Japanese investment. The rules also cover certain cases where persons related to the acquirer come to constitute a majority of the directors of that foreign company or its parent company. Whether prior notification is required then depends on the indirect investor:for investors not eligible for the FEFTA prior-notification exemption scheme, including certain foreign governments and state-owned enterprises, the threshold is generally 1% or more of the shares in the Japanese company;For investors eligible to use the FEFTA prior-notification exemption regime, prior notification is generally required where the indirect holding in the Japanese company is 50% or more.
The filing obligation rests on the indirect acquirer, even though no shares in the Japanese company are transferred directly. Therefore, when acquiring a foreign group, the buyer should identify any Japanese companies held within the group, their business activities and the percentage of shares held in them as part of its FEFTA due diligence.

Question 20

When should FEFTA be considered in transaction planning?

Accepted Answer

FEFTA should be considered at an early stage of the transaction, before the signing and closing timetable is finalised.The analysis should cover the identity and ownership of the investor, the percentage and type of interest being acquired, the target’s actual business activities, and whether any designated or core business sectors are involved.If a prior notification is required, the transaction documents should allow sufficient time for the FEFTA review and make completion conditional upon the applicable waiting period having expired or been shortened.The analysis should also be revisited if the transaction structure, investor, ownership percentage, governance rights or target business changes.Early screening is particularly important for transactions involving technology, infrastructure, energy, sensitive manufacturing, regulated data or multinational groups with Japanese subsidiaries.

FEFTA Foreign Investment Filing in Japan

WHO THIS SERVICE IS FOR

FEFTA FILING ROUTES

PRIOR NOTIFICATION (事前届出)

POST-INVESTMENT REPORT (事後報告)

EXEMPTION AND FILING ANALYSIS (事前届出免除制度)

DESIGNATED AND CORE BUSINESS SECTORS

DESIGNATED BUSINESS SECTORS (指定業種)

CORE BUSINESS SECTORS (コア業種)

APPLICATION PROCESS

①

INVESTOR AND TRANSACTION REVIEW

➁

BUSINESS AND SECTOR CLASSIFICATION

​③

DOCUMENT PREPARATION

④

FILING AND AUTHORITY REVIEW

⑤

INVESTMENT AND FOLLOW-UP

STANDARD FEES

FAQ

Frequently Asked Questions