On October 1 2017, the amendments to the Foreign Exchange and Foreign Trade Act will take effect. The Act aims to develop foreign transactions appropriately, and maintain peace and security in Japan and other countries through providing for minimum necessary control and coordination of foreign transactions.
One of the most important changes for foreign investors is the strengthening of regulations on inward investments by foreign investors. Under the revised Act, if foreign investors acquire from other foreign investors non-listed shares issued by Japanese companies in certain industries, the acquirer must give advance notice of the business purpose, the amount of the shares, the date of investment etc to the Minister of Finance and the competent minister. The Ministers have the authority to examine whether such an investment threatens national security or adversely affects the Japanese economy and, if so, to recommend that the person who submitted the notification change or discontinue the investment. In addition, foreign investors who have submitted such a notification cannot acquire the shares for at least 30 days from the date of acceptance of the notification by the Ministers. This waiting period, however, may be shortened at the discretion of the Ministers. If a foreign investor acquires the shares (i) without submitting a notification or, (ii) before the expiration of the waiting period, and the Ministers find that the investment is harmful to national security, they may order the foreign investor to sell the shares or take other necessary measures.
The types of certain industries mentioned above for which foreign investors are subject to a prior notification requirement are designated by the Ministers. As of the effective date of the amended Act, the Ministers will designate those industries as those related to areas including (i) the manufacture and repair of weapons, aircraft, satellites etc; (ii) the production of equipment used for producing chemical substances; and, (iii) electricity utilities owning nuclear power plants. Therefore, when foreign investors attempt to acquire non-listed shares issued by a Japanese company from other foreign investors, they should confirm whether the acquisition is subject to a prior notification requirement.
This article discusses the acquisition of 'non-listed' shares as these are the main subject of this amendment. However, it should be noted that in connection with a foreign investor's acquisition of 'listed' shares from other foreign investors, the regulations on inward investments have not changed and foreign investors who acquire more than a certain proportion of listed shares issued by Japanese companies in certain industries also must submit a prior notification.
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