Foreign Ownership Regulations in Japan

Published on October 30, 2025 and written by Cyril Jarnias

Japan, the world’s third-largest economy, is increasingly attracting foreign investors due to its stable business environment and favorable regulatory framework. However, investing in real estate or starting a business in Japan as a foreigner requires a thorough understanding of current regulations. This article outlines key aspects of foreign ownership in Japan, from legal restrictions to practical tips for successful investment.

A Broadly Open Legal Framework for Foreign Investors

Contrary to common misconceptions, Japan maintains a legal and regulatory environment that is quite favorable to foreign investors. The country continuously aligns its regulations with international standards to attract foreign capital. Intellectual property rights are well-protected, and robust enforcement mechanisms are in place.

Japanese capital markets are deep and accessible to foreign investors. Nearly all foreign exchange transactions are freely permitted, including profit transfers and capital repatriation. This openness is reflected in international rankings: Japan ranks 13th in the 2024 Global Innovation Index and 7th in Kearney’s 2024 Foreign Direct Investment Confidence Index.

However, foreign investors may encounter certain cultural challenges, such as the historical reluctance toward mergers and acquisitions in Japanese corporate culture. Weak corporate governance, reflected in low return on equity and cash hoarding, can also pose problems. Finally, rigid labor laws and the regulated system for recruiting and managing workforce contribute to increased costs and complexity in human resource management for foreign investors.

Sectoral Restrictions: Strategic Areas Under Scrutiny

Although Japan is generally open to foreign investment, certain sectors considered strategic face restrictions or increased scrutiny. These areas notably include defense, energy, telecommunications, and critical infrastructure.

In 2020, the Japanese government introduced new legislation lowering the ownership threshold requiring prior approval notification for foreign investors from 10% to 1%. This measure particularly affects sectors with potential risks to Japanese national security. The goal is to enable more thorough examination of foreign investments in these sensitive areas.

It’s important to note that these restrictions are not intended to discourage foreign investment but rather to ensure Japan’s strategic interests are preserved. In most sectors, foreign investors enjoy the same rights and protections as Japanese investors. The Japanese government strives to maintain a balance between openness to foreign capital and protection of national interests.

Approval Process: A Simplified Procedure in Most Cases

The approval process for foreign investments in Japan is generally simple and fast. In most cases, the only requirement for foreign investors is to submit an ex post facto report to the relevant ministries. This streamlined procedure demonstrates Japan’s commitment to facilitating foreign capital entry.

However, for investments in sectors considered sensitive or strategic, a prior approval procedure is necessary. Investors must then submit a detailed notification of their investment project to Japanese authorities, who carefully review the application to ensure it poses no risk to national security or public order.

The Japanese government has implemented measures to streamline this approval process. InvestJapan, an agency under the Ministry of Economy, Trade and Industry, plays a key role in assisting foreign investors with their procedures. It provides information on required processes and can facilitate contacts with relevant administrations.

Rights and Obligations: A Fair Framework for Foreign Investors

Once their investment is approved, foreign investors generally enjoy the same rights as Japanese investors. The principle of national treatment applies, guaranteeing equal treatment regarding investment protection, profit repatriation, and access to courts.

Foreign investors have the right to own 100% of shares in a Japanese company in most sectors. They can also acquire real estate without particular restrictions. Japanese law strongly protects property rights, offering valuable legal security for investors.

In return, foreign investors are subject to the same obligations as Japanese companies. This includes compliance with local laws and regulations, particularly in tax, social, and environmental matters. Foreign-owned companies must comply with Japanese accounting standards and produce regular financial reports.

It’s important to note that certain specific obligations may apply to foreign investors, such as the need to appoint a resident representative in Japan for certain types of companies. Similarly, special declarations may be required for significant cross-border financial transactions.

Practical Tips for Successful Investment in Japan

Investing in Japan can be highly profitable but requires good preparation. Here are key tips to maximize your success chances:

1. Master Cultural Specificities

Japanese business culture is unique and can confuse Western investors. Take time to familiarize yourself with communication codes, the importance of personal relationships, and the consensus-based decision-making process. Investing in Japanese language courses and intercultural training can prove very beneficial long-term.

2. Build a Strong Local Network

Success in Japan often depends on your network quality. Actively participate in professional events, join foreign chambers of commerce, and establish partnerships with local companies. These connections will help you navigate the Japanese business environment and identify new opportunities.

3. Seek Expert Guidance

The complexity of Japan’s regulatory and tax framework justifies surrounding yourself with experienced professionals. Engage lawyers, accountants, and consultants specialized in assisting foreign investors in Japan. Their expertise will help you avoid common pitfalls and optimize your investment strategy.

4. Adopt a Long-Term Vision

The Japanese market can be difficult to penetrate but offers excellent long-term prospects. Prepare to invest significant time and resources before reaching profitability. Patience and perseverance are essential qualities for success in Japan.

5. Stay Informed About Regulatory Developments

Japan’s regulatory framework evolves regularly, particularly regarding foreign investments. Ensure you stay informed about legislative and regulatory changes that could impact your operations. Japanese authorities and professional organizations regularly publish guides and resources for foreign investors.

Future Outlook: A Japan Increasingly Open to Foreign Investors

The Japanese government recently unveiled an ambitious “Action Plan for Attracting Foreign Human and Financial Resources.” The goal is to double incoming foreign direct investment (FDI) to reach 100 trillion yen, approximately 15% of GDP, by 2030. This initiative demonstrates Japan’s commitment to further opening to foreign capital to stimulate economic growth.

To achieve this objective, Japan plans to implement various incentive measures. These could include tax relief for foreign companies, simplified administrative procedures, or relaxed visa conditions for foreign investors and talents.

The country also seeks to diversify sectors attractive to foreign investors. Beyond traditional areas like manufacturing or technology, Japan aims to attract investments in emerging sectors such as artificial intelligence, renewable energy, and connected health.

Finally, Japan is working to improve its business environment to make it more competitive internationally. Reforms are underway to strengthen corporate governance, relax labor markets, and encourage innovation. These developments should help make the country even more attractive to foreign investors in the coming years.