June 12, 2023
Japan remains a sought-after market for companies aiming to expand their reach. Amidst recent market changes, such as the rise of alternative energy sources and the widespread integration of AI solutions, companies face not only the challenge of adapting to these trends but also ensuring compliance with regulatory frameworks like the Foreign Exchange and Foreign Trade Act (FEFTA). This week alone, we had five cases of companies subject to review of FEFTA. But what is it about?
In 2020, the Ministry of Finance of Japan introduced amendments, enhancing regulatory measures to ensure the stability of the Japanese economy and protect national interests. These revisions encompass areas such as foreign exchange transactions, reporting obligations, and restrictions on specific activities.
Under the FEFTA, foreign investors acquiring shares in a Japanese company need to file a notification with the Japanese government if the acquisition is considered an FDI. For target Japanese publicly listed companies conducting business in designated sectors that may impact national security or public welfare, a prior notification of stock purchases (PN-SP) is required before acquiring shares. However, the threshold for PN-SP was lowered from 10% to 1% with the amendments to protect Japan’s national security. This change increases the number of filings, causing concern in the international investment community.
To mitigate the burden on foreign investors, the amendments introduced an exemption scheme for PN-SP. The blanket exemption applies to licensed or registered foreign financial institutions, providing a comprehensive exemption from filing PN-SP if certain conditions are met. The regular exemption is available for non-financial foreign investors and depends on whether the target company operates in designated business sectors or core business sectors. The exemptions aim to facilitate foreign investments while ensuring necessary oversight.
The amendments also expanded the scope of foreign investors to include indirect subsidiaries of Japanese companies and revised the filing obligations for foreign investment managers and investors. Additionally, the amendments introduced new shareholder activities classified as FDIs, requiring prior notification.
At Kreston ProWorks, we recognize the implications of the FEFTA for foreign direct investments. As the market evolves with the rise of AI and alternative energy resources, understanding the regulatory framework and exemption schemes becomes crucial for businesses seeking to invest in Japan’s changing market landscape. Through careful analysis and strategic advisory services, we stand ready to assist clients in navigating these regulatory changes and seizing opportunities in the evolving Japanese market.
If you have any questions or would like more information on the Foreign Exchange and Foreign Trade Act and how it may affect your business, please reach out to us here.