JAPAN Law and Practice Contributed by: Akira Matsushita, Norihito Sato, Hideki Ben and Nobuhiko Suzuki, Mori Hamada
to the JV and the JV is subject to taxation. If a part - nership is used, all gains and losses are allocated to its partners and the partners are subject to taxation. For a stock company ( kabushiki-kaisha ), at least one half of the shareholders’ contributions must be applied to the stated capital; however, for a limited liability company ( godo-kaisha ), the amount of mem - bers’ contributions to be applied to the stated capital is not subject to the foregoing restriction. Therefore, a limited liability company may save on registration tax, which is determined based on an amount of stated capital. 3. JV Regulation 3.1 Legal Framework and Regulatory Bodies Japan does not have specific primary regulators for JVs, but there are several regulators in relation to set - ting up JVs, such as: • the Bank of Japan (BOJ); • the Ministry of Finance; and • the Japan Fair Trade Commission (JFTC). These are discussed further in later sections. 3.2 Anti-Money Laundering Compliance Under the Act on Prevention of Transfer of Criminal Proceeds (the “Criminal Proceeds Act”), specified business operators such as banks, insurance com - panies and other financial institutions must: • conduct customer due diligence; • keep records of customer information; and • file suspicious transaction reports with the National Public Safety Commission. However, JV agreements generally do not contain provisions relating to anti-money laundering (AML) regulations and the Criminal Proceeds Act. 3.3 Sanctions, National Security and Foreign Investment Controls Foreign direct investment (FDI) in Japan is regulated by the Foreign Exchange and Foreign Trade Act (FEFTA), which provides for restrictions on foreign investors.
Under the FEFTA, a foreign investor is required to make, through the BOJ, a prior notification of its FDI or post facto reporting to Japan’s Minister of Finance and to the ministers with jurisdiction over the busi - nesses of the target, if the target is in a sector des - ignated as sensitive to national security, public order, public safety or the smooth management of Japan’s economy (“Sensitive Businesses”). Sensitive Busi - nesses include: • cybersecurity-related businesses; • the manufacturing of semiconductors; • electricity; • gas; • telecommunications; and • IT-related industries. If the following actions are involved in establishing a JV or transferring shares in a JV, and the JV engages in Sensitive Businesses, a prior notification is generally required (with certain exceptions): • the acquisition of shares of an unlisted JV (no threshold) other than from another foreign investor; • the acquisition of 1% or more of the shares or vot - ing rights of a listed JV by a foreign investor and its closely related persons; and • the acquisition of shares by an entity of countries with which Japan does not have existing treaties regarding FDI, such as Iraq and North Korea. There is a statutory waiting period of 30 days from the date of acceptance of the notification by the BOJ, which may be extended to up to five months if the authority identifies any national security concern. For cases not requiring scrutiny, the waiting period may be shortened. The typical and recommended approach is to contact the relevant ministries in advance of the for - mal filing and provide them with the required informa - tion – such as the foreign investor’s capital structure, purpose of the investment, and plans for managing the JV – to avoid any recommendation of changes to the details of the investment or the cancellation of the investment. Violations of the FEFTA and/or an order made by the government may be subject to criminal sanctions, such as imprisonment and/or fines.
53 CHAMBERS.COM
Powered by FlippingBook