JAPAN Trends and Developments Contributed by: Sadao Maeda, Yusuke Hayashi and Masato Tanaka, TMI Associates
option, and the tax is deferred until the time the shares are transferred, with the entire economic gain treated as capital gain and subject to a lower tax rate. The following notable changes have been made in recent years to make tax-qualified stock options more effective and attractive. • The exercise period for tax-qualified stock options is, in principle, from between two and ten years from the date of the resolution to grant, however, for unlisted companies that have been established less than five years, the termination period was extended in 2023 to 15 years after the resolution to grant. This has made it easier to use stock options even for deep-tech start-ups that require more time to reach exit. • In 2024, the maximum annual exercise price for tax-qualified stock options was raised, up to JPY36 million, three times the previous maximum (provided for companies less than five years old, up to JPY24 million, double the previous maximum). This revision will contribute to securing human resources by start-ups at a later stage, where the exercise price of stock options tends to be higher. In addition, while it was previously mandatory to entrust the custody of shares issued upon the exercise of stock options to a securi - ties company and others, start-ups are now allowed to manage their own shares so that it has become easier to maintain tax-qualified requirements when an M&A transaction occurs. In addition, rules for more flexible issuance of stock options were also created by a spe - cial amendment to Japan’s Companies Act in 2024. Start-ups that have been approved by (i) the Minister of Economy, Trade and Industry
and (ii) the Minister of Justice, by a resolution of a shareholders’ meeting, may delegate to the directors (if a start-up has a board of directors, to the board) the determination of the exercise price and exercise period for the stock options, which, in general, is required to be determined at the shareholders’ meeting, and such delegation will be valid for 15 years from the establishment of the start-up (in general, only one year from the date of the resolution). Startup Visa The Startup Visa system was established to revitalise Japan’s economy by attracting for - eign entrepreneurs with innovative business models and technologies, thereby promoting innovation. Under this system, the Regional Immigration Services Bureau grants residency to foreign nationals who receive management and support for their entrepreneurial preparatory activities from local governments or private busi - nesses accredited by the Minister of Economy, Trade and Industry. Compared to the traditional “Business Manager” visa, requirements such as those relating to initial capital and employment have been relaxed. Furthermore, the maximum residency period for foreign entrepreneurs has been extended from one to two years, allowing for more comprehensive and relaxed start-up preparation. Exits One significant characteristic of start-ups in Japan is that they often opt for IPOs rather than M&A as a means of exit. This preference is largely due to the perception among Japanese start-ups that IPOs offer a more definitive path to success, especially considering the lenient list - ing requirements of the Tokyo Stock Exchange Growth Market, which is accommodating com - pared to global standards. According to a sur - vey by the Venture Enterprise Center, Japan, the
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