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Factors to be considered in authorities’ screening of foreign direct investment

May 8, 2020

 

National Police Agency
Financial Services Agency
Ministry of Internal Affairs and CommunicationsMinistry of Finance
Ministry of Education, Culture, Sports, Science and Technology
Ministry of Health, Labour and Welfare
Ministry of Agriculture, Forestry and Fisheries
Ministry of Economy, Trade and Industry
Ministry of Land, Infrastructure, Transport and Tourism
Ministry of the Environment

Press Release

Factors to be considered in authorities’ screening of prior-notification for Inward
Direct Investment and Specified Acquisition under the Foreign Exchange and
Foreign Trade Act

 Following the amendment to the Foreign Exchange and Foreign Trade Act (the “FEFTA”), which enhanced the system of prior-notification with screening of inward direct investment, the Ministry of Finance and other ministries responsible for relevant business sectors hereby publish factors to be considered by the authorities in screening inward direct investment, with the aim of ensuring transparency.
(Note) Factors set out here will be applied in authorities’ screening that is conducted pursuant to Article 27, Paragraph (3), (i) and Article 28, Paragraph (3) of the FEFTA.


1.  The degree of impact of the investment on maintaining basis of production and technologies in the business sectors that relate to protection of national security, maintenance of public order, or safeguard of public safety

2.  The possibility of:
     - leakage of technologies or information that relate to protection of national security, maintenance of public order, and safeguard of public safety; or
      - use of these technologies or information against the objectives of protection of national security, maintenance of public order, or safeguard of public safety

3.  The degree of impact of the investment on:
   ① terms and conditions of supply;
   ② stable supply; or
   ③ quality
      of goods or services that relate to protection of national security, maintenance of public order, or safeguard of public safety, in ordinary and emergency situations

4.  The degree of impact of the investment on ensuring stable supply or stockpiling of goods or services, conserving national land, and maintaining continuity of domestic service providers’ manufacturing activities in terms of business sectors on which Japan has registered reservation pursuant to Article 2-b of the Code of Liberalization of Capital Movements of the Organization for Economic Cooperation and Development

5.  The degree of impact of the investment on the investee company or the borrowing company in view of:
      - the number and share of shares, equities, voting rights, subscription certificates or corporate bonds that have been acquired or are to be acquired by the foreign investor (including the number or share of stocks to be acquired and managed, or voting rights to be owned and exercised, by the foreign investor and its closely related persons who are subject to aggregation); or
      - the amount and terms and conditions of the outstanding loan by the foreign investor

6.  Attributes of the foreign investor including its capital structure, beneficial ownership and business relationships, and the foreign investor’s plan and track record of its behaviors relating to the investment (including the degree of potential direct or indirect influence by foreign governments and other related parties on the foreign investor)

7.  The degree of impact on protection of national security, maintenance of public order, safeguard of public safety, or smooth functioning of Japanese economy (hereinafter “protection of national security and other domains”) of international treaties and domestic laws and regulations with which the foreign investor needs to comply

8.  Track record of the foreign investor’s compliance with the FEFTA and equivalent or similar legislation of other jurisdictions

9.  The possibility, and the degree of impact on protection of national security and other domains, of the foreign investor’s taking the following actions:
     ①  becoming, or having their closely-related persons become, auditors or board members of the investee company;
     ②  proposing to the general shareholders’ meeting transfer or disposition of investee company’s business activities in the designated business sectors; and
     ③  obtaining, or proposing disclosure of, non-public information about the investee company’s technology and systems, or proposing changes in the investee company’s internal rules, etc. on managing such information

10.  In the case of inward direct investment (except such investment conducted by foreign financial institutions on a regular basis) in the business sectors with material risks to protection of national security and other domains as provided for in Article 3-2, Paragraph (2), (iii) of the Cabinet Order on Inward Direct Investment, etc. (Cabinet Order No. 261 of October 11, 1980)(hereinafter “core sectors”), the possibility, and the degree of impact on protection of national security and other domains, of the foreign investor’s taking the following actions by itself or through its designated persons:
     ①  attending, regarding business activities in core sectors, the investee company’s executive board or committees that have the authority to make important decisions for the business activities
     ②  making proposals, regarding business activities in core sectors, in a written or electronic form, to the investee company’s executive board, committees that have the authority to make important decisions, or members of these executive board/committees, requiring their responses and/or actions by certain deadlines

11.  With regard to prior-notification for casting an affirmative vote for the agenda of nomination of board members or auditor, in addition to items 1 to 10 above, the degree of impact of the nominee’s appointment on protection of national security and other domains

12.  With regard to prior-notification for casting an affirmative vote for the agenda of transfer or disposition of investee company’s business activities in the designated business sectors (including stocks or shares of its subsidiaries companies) or merger or split of the investee company, in addition to items 1 to 10 above, the following factors:
     ①  capital structure, beneficial ownership, business relationships and other attributes of the transferee/successor of the business activities;
     ②  the degree of impact on protection of national security and other domains of international treaties and domestic laws and regulations with which the transferee/successor of the business activities needs to comply; and
     ③  track record of the transferee/successor’s compliance with the FEFTA and equivalent or similar legislation of other jurisdictions
(Note) If the foreign investor submitting prior-notification for item 11 or 12 has used exemption from prior-notification for stock purchase, track record of the foreign investor’s compliance with the exemption conditions are considered, instead of items 9 and 10.

Contact

Research Division
International Bureau, Ministry of Finance, Japan
+81-3-3581-4111 (ext. 5410)