ODI Series | Overseas Greenfield Investment: Exploring Japan

Creating an Overseas Company: Process and Considerations

Following Warren Buffett's investment in Japan and the increasing attention from global investors, China's enterprises expanding overseas have set their sights on Japan's capital market. As the world's third-largest economy, Japan boasts a robust legal framework, credit system, social order, and comprehensive infrastructure, making it a favored destination for foreign investors. While China's investment in Japan may be smaller compared to countries like the UK and the US, it has been on the rise in recent years.

This article aims to provide an overview of information regarding Chinese enterprises setting up companies in Japan, serving as a reference for those interested in investing in Japan.

Restrictive Regulations on Foreign Investment in Japan

Japan's Foreign Exchange and Foreign Trade Act, commonly known as the "Foreign Exchange Law," serves as the fundamental legislation regulating foreign investors. According to this law, foreign investors intending to invest in sectors affecting national security, public order, public safety, economic operations, and other core areas are subject to prior approval. Most other industries require only post-investment reporting. Apart from the Foreign Exchange Law, specific industries may have additional restrictive regulations on foreign entry.

Since 2019, Japan has revised the Foreign Exchange Law and related regulations, tightening scrutiny of foreign investment. According to these laws, foreign investment activities include:

Foreign investors acquiring 1% or more of shares or voting rights in a domestically listed Japanese company.

Foreign investors acquiring shares or equity in non-listed companies, with no specific limits.

Foreign investors participating in decisions related to changing a company's business scope, appointment of directors or supervisors, business transfers, mergers, divestitures, dissolutions, share transfers, or dividend proposals.

Establishing branch offices or other branches in Japan.

Providing loans to Japanese corporations for a year or more, or subscribing to company bonds with redemption periods of a year or more.

The revised Foreign Exchange Law expands the scope of industries requiring prior approval and designates 25 "core industries," including:

a. Industries affecting national security: weapons, aircraft, nuclear power, space development, and communication technology.

b. Industries affecting public order: electricity, natural gas, water supply, telecommunications, and railways.

c. Industries affecting public safety: pharmaceuticals, medical devices, vaccine production, and security.

d. Industries affecting economic operations: agriculture, forestry, fisheries, shipping, etc.

e. Network security industries: network security services, critical infrastructure software design, etc.

f. Information processing and communication businesses: equipment and component manufacturing, software production, communication-related services, etc.

Primary Types of Japanese Companies and Registration Requirements

The main types of Japanese companies include stock companies (Kabushiki Kaisha, KK) and limited liability companies (Godo Kaisha, GK), which are further categorized into partnerships, joint-stock companies, and joint ventures.

The establishment of a KK involves more complex procedures and stringent requirements, resulting in greater credibility, clearer responsibilities, flexible organizational structures, and separation of ownership and management rights. More than 90% of companies in Japan are KKs, which are also a preferred option for Chinese investors. GKs are simpler to set up, subject to fewer legal regulations. Among them, "Gomei Kaisha" is similar to a general partnership, while "Goshi Kaisha" is akin to a limited partnership.

Given that KKs are the more common choice for company establishment in Japan, below are key elements in the registration process:

Corporate Name: The company name can be in Chinese, Japanese, or English, with little restriction even if the name is already taken.

Registered Capital: Minimum capital of 1 Japanese yen is required, and the specific amount can be determined based on the company's circumstances.

Registered Address: A local address is necessary, including virtual addresses.

Shareholders: At least one shareholder is required.

Directors: A minimum of one director is needed, with no local director requirement; the director's term needs to be established.

Auditors: A minimum of one auditor is needed.

Business Scope: No specific industry restrictions; most industries can be engaged in. It's advisable to list all future business activities during registration to avoid frequent business amendments.

The Registration Process for Establishing a KK 

Below is an outline of the registration process for overseas investors initiating the establishment of a KK in Japan, which is estimated to take around two months.

Important Note: As a shareholder, Chinese enterprises need to prepare documents in China, including a notarized business license, articles of association, company overview, documents certifying the legal representative's authority, documents confirming the authenticity of the legal representative's signature, documents verifying the authenticity of the Japanese subsidiary's director's signature, etc.

Sinbobravo has extensive practical experience in assisting clients with investing in Japan. If you require further information, feel free to contact our professionals.

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