Investment regulation - Japan


Investment Restrictions

Direct investment report under the Foreign Exchange and Foreign Trade Law

Under Articles 27 and 55-5 of the Foreign Exchange and Foreign Trade Law, a foreign investor who has acquired 10% or more of issued shares of a company (including unlisted companies) and/or invests in entities established under a specific law, for example, Bank of Japan, is deemed as “Direct (inward) Investment” and must file a report. Foreign discretionary investment managers must file the report when aggregate shareholding exceeds 10% of the issued shares of a listed company.

In normal circumstances, this report must be filed after the event (by the 15 of the following month of the actual investment). Exceptions, that require approval from the competent authorities one month prior to the actual investment, are as follows:

  • In entities established under a specific law, for example, Bank of Japan;
  • In companies involved in certain industries, for example, defence, nuclear-related;
  • From certain countries, for example, Iraq, North Korea.

Custody of book-entry Japanese Government Bonds (JGB)

Foreign financial institutions acting as intermediaries, for example, global custodians are required to obtain status of:

  • Account Management Institution (AMI);
  • Foreign Indirect Participant (FIP).

If the underlying end-investor is to be eligible for withholding tax exemption, the foreign intermediary must obtain the status of a Qualified Foreign Intermediary (QFI) for JGBs in addition to FIP.
Note: Every custodian chain should be pre-approved by the BOJ even if a financial institution has an FIP status.

Custody of book-entry Japanese Corporate Bonds and Convertible Bonds

If a foreign end-investor would like to receive tax exemption under the Special Measures on Taxation (J-BIEM), they must open an account with a foreign financial institution, for example, global custodians, that are the following:

  • Account Management Institution (AMI) (same status under FIP);
  • Foreign Indirect Account Management Institution (FIAMI) per instruments;
  • Qualified Foreign Intermediary (QFI) for Corporate Bonds.

Please be reminded that FIAMI status is approved by JASDEC for each custodian chain rather than an entity level.

Holding restrictions

Companies in certain industry sectors (for example, airlines, broadcasting, telecommunications)

Ownership by foreign shareholders is limited as stipulated in the laws governing each industry (either 20% or 33%). Foreign investors are able to acquire shares of issuing companies with Foreign Ownership Limit (FOL shares) even after the aggregate limit is reached. Specific entitlement calculation methodology applies for FOL shares. In the event that a FOL limit is reached (as of Record Date), a comparison of registered holding positions between two Record Dates will be done; and entitlements will be guaranteed for the lower position only. Should there be any increase in position, allocation of entitlement will be conducted by registrar via pro­rating methodology and lottery system.

Please refer to “Equities with foreign ownership level (FOL)” under Settlement process. To forewarn investors that the aggregate limit in a particular company is about to be reached, JASDEC provides a daily indicative report of the Foreign Ownership Ratio for Foreign Ownership Limit (FOL). Details can be found on the JASDEC website.

Foreign investors holding more than 10% shares of a company which itself holds more than 10% of the voting rights of a broadcasting company and/or a telecommunications company are defined as “Foreign Indirect Investors”. The company holding the broadcasting and/or telecommunications shares within which the foreign investor is holding a higher stake than 10% is designated as “Foreign Affiliated Company”.

Such holding of an affiliated company may be taken into account in calculating the FOL and available room for foreign ownership registration may decrease.

Disclosure requirements

For details of the local domestic disclosure requirements, please refer to the Disclosure Requirements.