Shigehiko Ishimoto, Kang Shi, Takahiro Homma, and Norimitsu Mori
Mori Hamada & Matsumoto
Section 1: China outbound investment
a) What are the key sectors in Japan that attract, or to which the government is seeking to attract, China outbound investment (COI)?
Japan is a huge, sophisticated market, of which GDP is ranked third in the world. After two “lost” decades following the burst of the bubble economy in the early 90s, the Japanese economy is on a track of recovery, and is a global leader in the areas of high technology and R&D.
Recently, real estate has been one of the most attractive sectors for COI. Many Chinese investors in Japanese real estate expect a rise in real estate prices and a comfortable living environment, demonstrated by safe, clean and well-developed infrastructure.
In addition, among others, the tourism, energy, and life science fields are also attractive sectors for foreign direct investment (FDI), according to the government-affiliated Japan External Trade Organization (JETRO), which promotes mutual trade and investment between Japan and the rest of the world.
The manufacturing field has also been a high-profile target of FDI for years. There have been several remarkable COI precedents in the manufacturing field, including the acquisition of Toshiba Lifestyle Products & Services Corp. by Midea Group Co. Ltd. in 2016 (see 1c).
b) Is the government generally supportive of COI? Can you describe the current political climate surrounding China and Japan?
The Japanese government announced that it promotes foreign investment by being “the best country in the world in which to do business.” The Council for Promotion of Foreign Direct Investment in Japan was established in April 2014, and announced a “Policy Package for Promoting Foreign Direct Investment into Japan to Make Japan a Global Hub” in May 2016, aiming to further encourage FDI in Japan. Under the Policy Package, the Japanese government will strive to resolve issues faced by foreign companies such as the complexity of regulations and administrative procedures, difficulty in securing highly-skilled human resources, and language barriers.
Also, JETRO serves useful information and support for foreign investors in various languages, including Chinese at jetro.go.jp/sc/invest.
In addition to the general framework for FDI, while some political tension exists between China and Japan, the close ties between the Chinese and Japanese economies provide a solid basis for the development of COI. As of 2015, China is Japan’s most significant trading partner, and Japan is the second-most significant to China after the U.S., according to the Ministry of Foreign Affairs of Japan.
c) What are some notable Chinese investments or M&A that have recently taken place in Japan?
According to RECOF DATA Corp., an M&A database company, the highest-recorded total number (51 transactions) and value (JPY932.2 billion) of M&A transactions by Chinese companies with Japanese companies were in 2016. One significant M&A transaction of COI to Japan in 2016 was when Midea Group acquired 80.1% shares in Toshiba Lifestyle Products & Services, a home appliance company and wholly-owned subsidiary of Toshiba Corp., for approximately $473 million.
Section 2: Investment vehicles and capital
a) What are the most common legal entities and vehicles used for COI in Japan? How long do they take to become operational?
The most common legal entity in Japan is the joint stock company (kabushiki kaisha) (KK), and likewise common for FDI including COI. The features of a KK are limited liability of shareholders and flexible structure of corporate governance depending on the size of the company. In addition, a limited liability company (godo kaisha) (GK) is worth considering for FDI in Japan. GKs also secure limited liability of its members like KKs do, but the structure of the company can be more flexible than with KKs, for instance, they do not have to establish shareholders’ (members’) or board meetings, and one or more executive members (shareholders) decide and execute the operation while the management and profit-sharing systems can be designed by the GK establishment contract.
KKs and GKs must be registered with the Legal Affairs Bureau. Establishment generally takes one or two weeks.
b) What are the key criteria for establishment and operation of these vehicles that are relevant to COI (e.g. capital requirements, local directors)?
There are no special criteria for establishment and operation of KKs and GKs. KK and GK both have no capital requirement—although too little capital could affect commercial credibility—and no requirements for local directors (executive members), though the GK management system is much more flexible than KK.
Section 3: Investment approval
a) Explain the process and timing for foreign investment regulatory approval (including any national security review).
Generally, the Japanese market is open to foreign investors with only some limited exceptions based on industry type. Japan does not have general restrictions that prohibit ownership or limit shareholding ratio by foreign investors, although some specific industries have such restrictions, like broadcasting, telecommunications and aviation.
Under the Foreign Exchange and Foreign Trade Act (FEFTA), foreign investors are required to follow pre- or post-filing procedures depending on the type and manner of inbound direct investment. In many cases, post-filing (i.e. reporting to the Bank of Japan, which must be done by the 15th day of the month immediately following the month in which the investment is made) is sufficient, but certain investments (e.g. in national security or other areas of national interest including weaponry, nuclear energy, petroleum, agriculture and infrastructure such as electricity and gas) require pre-filing with and approval by the government.
b) Briefly explain the investment restrictions for any especially regulated/restricted sectors (e.g. natural resources, financial services, telecom and infrastructure), including whether the government is entitled to any special rights (e.g. golden shares) in those sectors.
As described in 3a, certain industries, including broadcasting, telecommunications and aviation, have restrictions on ownership or limit the ratio of foreign shareholders. In terms of financial services, while certain industrial regulations and governmental supervision are required, there are no restrictions on FDI.
c) Which authority oversees competition clearance, when is notification mandatory, and what is the merger control process (including pre- and post-closure)?
The Japan Fair Trade Commission (JFTC) enforces Japanese competition law (i.e. the Anti-monopoly Act). Pre-filing is required when a company conducts a certain M&A transaction such as a stock transfer (shareholding ratio thresholds are 20% and 50%), merger, company split, stock exchange or asset transfer, and the transaction triggers a certain threshold, which is generally calculated based on domestic revenue. Once the JFTC receives the pre-filing, the investor must wait 30 days before implementing the transaction. The JFTC may shorten the waiting period upon request of the investor if the transaction clearly raises no anti-monopoly issues. On the other hand, if the JFTC requires the investor to submit any additional reports, information or other materials for further examination purposes, the waiting period will be extended to the later of: (i) the day after 120 days following the JFTC’s receipt of the pre-filing; or (ii) the day after 90 days following the JFTC’s receipt of all additional reports, information or other materials required by the JFTC.
d) Are there any unique processes that could potentially block a foreign investment (e.g. consent from labor unions)?
There are no unique processes required that could potentially block FDI other than the transactions listed in 3c. Generally, consent from labor unions is not required for FDI, although, as a practical matter, the understanding and cooperation of labor unions are important for the smooth transition of ownership in certain cases.
e) Are there approval requirements when a foreign investor increases or exits its investments?
Generally, the same procedures described in 3a and 3c apply to increases of investment. There are no specific approval requirements for FDI exits.
Section 4: Tax and grants
a) Are there tax structures and/or favorable intermediary tax jurisdictions that are particularly useful for FDI into Japan?
Generally, there are no specific tax structures or favorable intermediary tax jurisdictions particularly useful for FDI into Japan. There are some jurisdictions, however, that have favorable tax treaties with Japan such as Singapore and Hong Kong, subject to certain requirements.
b) What are the applicable rates of corporate tax and withholding tax on dividends?
The standard effective corporate tax rate in Japan is 29.97% for fiscal 2016, which was lowered about 7% in the three years since the 37.00% rate of fiscal 2013. Further reduction to 29.74% is scheduled for fiscal 2018.
A non-Japanese corporate shareholder who does not have a permanent establishment (PE) in Japan is subject to withholding tax on dividends from a Japanese corporation. If there are no applicable tax treaties, the rate of Japanese withholding tax is generally 20.42%. As for the China-Japan tax treaty, please see 4e.
c) Does the government have any FDI tax incentive schemes in place?
Yes, both the national and local governments offer appealing tax incentives to facilitate FDI in Japan including regulatory exemptions, tax support and fiscal support. Establishing businesses in special economic zones (e.g. National Strategic Special Zone and Comprehensive Special Zone) designated by the government is one way to be entitled to such incentives. In addition, the Act for Promotion of Japan as an Asian Business Center, in effect since November 2012, provides certain incentives (e.g. income tax breaks and patent fee reductions) for foreign companies to establish affiliates in Japan in order to promote R&D centers and regional headquarters of foreign companies.
d) Other than through taxes, does the government provide any other financial support to investors? If so, please provide an overview.
Both the national and local governments offer other financial support including subsidies and low-interest financing.
Incentive and subsidy plans for FDI are summarized on JETRO’s website at jetro.go.jp/en/invest/incentive_programs.
e) Are there any reciprocal tax arrangements between Japan and China? If so, how can they aid investors?
China and Japan entered into a tax treaty which has been in effect since June 1984. Under the treaty, dividends, interest and royalties paid by Japanese companies to Chinese investors are subject to tax in China. At the same time, such dividends, interest and royalties are also taxed in Japan, but will not exceed 10% of the gross amount of the dividends, interest and royalties.
Section 5: FX controls and local operations
a) What foreign currency or exchange restrictions should investors be aware of?
There are no material currency or exchange restrictions on foreign investors in Japan.
b) Are there any legal restrictions on bringing in foreign workers? How difficult is it to secure expatriate visas for shareholder representatives, senior managers and workers in practice?
Foreign employees other than permanent or long-term residents must have a valid working visa to work in Japan. The types and effective terms of visas vary depending on employee status and activity. Generally, business managers can easily obtain working visas, but employees may be required to be highly skilled or have technical knowledge in certain fields.
c) What are the requirements and process for purchasing commercial property?
Generally, foreign investors can freely purchase commercial property such as real property and equipment. It is important to note that if foreign investors purchase real property in Japan, they must report the transaction to the Bank of Japan within 20 days following the transaction.
Section 6: Dispute resolution
a) Does Japan have a bilateral investment protection treaty with China or other locations commonly used for investing into the country?
China, Japan and South Korea entered into the China-Japan-Republic of Korea Agreement for the Promotion, Facilitation and Protection of Investment in May 2012, which has been effective since May 2014. The purpose of the agreement is to promote investment and establish a legal framework with respect to such investment among the three countries.
b) How efficient are local courts’ enforcement and dispute resolution proceedings, and are there any procedural features that foreign investors must be aware of?
The litigation process in Japanese courts is generally reliable, but it can take a long time to obtain a judgment. In many cases, courts offer a settlement to the disputing parties after a certain examination of the evidence. A party who seeks dispute resolution can choose mediation, which is also conducted by courts but through a more flexible and rapid process. There is no discovery process like in the U.S.
c) Do local courts respect foreign judgements and are international arbitration awards enforceable? Are local judgments and arbitration awards from Japan generally enforceable in other jurisdictions?
Japanese courts recognize judgments obtained in foreign courts only if there are mutual guarantees between Japan and the countries where such judgments were made and the judgments were obtained through a process that meets certain requirements. Japanese and Chinese courts do not have such mutual guarantee to recognize their respective judgments; therefore, judgments obtained in China are not enforceable in Japan, and vice versa.
As for international arbitration awards, since Japan is party to the New York Convention, arbitration awards obtained in member countries of the Convention, including China, are enforceable in Japan.
Shigehiko Ishimoto is a partner at Mori Hamada & Matsumoto (MHM), admitted in both Japan (1994) and New York (2001). As a core member of the firm’s China Practice Group, Asia Practice Group and International Trade Practice Group, he advises a number of Japanese and foreign clients in English and Mandarin Chinese. Mr. Ishimoto graduated from the University of Tokyo (LL.B.) and New York University School of Law (LL.M.).
Kang Shi has been practicing law since 1997. From 2005 to 2009, he worked in New York focusing on U.S. domestic and international mergers & acquisitions, securities offerings, private equity investments and fund formations. Since 2009, he has been working in Asia on cross-border transactions involving multiple jurisdictions and complex structures, representing both Japanese and Chinese companies.
Takahiro Homma is an associate at MHM, admitted in both Japan and New York. He is working on China-Japan investment transactions in Shanghai after working on a variety of matters including M&A transactions in Tokyo. He graduated from the University of Tokyo (LL.B.) and Columbia University (LL.M.). Mr. Homma is fluent in Mandarin as well as English and Japanese.
Norimitsu Mori is an associate at MHM, admitted in both Japan and New York. He focuses his practice on cross-border M&A and has experience working for the Japanese government to improve the corporate governance system in Japan. Currently, Mr. Mori mainly supports transactions between Japanese and Chinese companies at the Shanghai office of MHM.
第一部分 : 中国境外投资
根据并购数据库公司RECOF DATA Corp的数据，中日企业并购交易的总体数量和总金额在2016年创下最高纪录，分别达到51宗交易和9322亿日元。2016年，中国对日境外投资其中一宗重要的并购交易是美的集团以大约4.73亿美元收购东芝生活电器株式会社(东芝株式会社的全资家电子公司)的80.1%股份。
石本茂彦是日本森·滨田松本法律事务所（MHM）的合伙人，拥有日本(1994)和纽约州(2001) 律师执业资格。作为该所中国业务部、亚洲业务部和国际贸易业务部的核心成员，他能运用英文和中文为日本和外国客户提供法律咨询。石本茂彦毕业于东京大学 (法学学士) 和纽约大学法学院 (法学硕士)。
本间隆浩是MHM律师事务所律师，拥有日本和纽约州律师资格。他曾在东京从事包括并购交易在内的多项业务，目前在上海从事中日投资交易。本间隆浩毕业于东京大学 (法学学士) 和哥伦比亚大学 (法学硕士)，能够熟练运用中日英三国语言。