Doing business in Japan

A Q&A guide to doing business in Japan.

This Q&A gives an overview of the legal system; foreign investment, including restrictions, currency regulations and incentives; and business vehicles and their relevant restrictions and liabilities. The article also summarises the laws regulating employment relationships, including redundancies and mass layoffs, and provides short overviews on competition law; data protection; and product liability and safety. In addition, there are comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trade marks, registered and unregistered designs.

To compare answers across multiple jurisdictions, visit the Doing business In... Country Q&A Tool.

This article is part of the global guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/about/doingbusinessin-mjg.

Kenichi Sekiguchi, Yohsuke Higashi and Hiroshi Oyama, Mori Hamada & Matsumoto
Contents

Overview

1. What are the key recent developments affecting doing business in your jurisdiction?

The amended Companies Act took effect as of 1 May 2015, with amendments aimed at:

  • Enhancing the corporate governance of Japanese corporations.

  • Addressing concerns relating to parent-subsidiary relationships.

  • Further facilitating M&A transactions.

The amendments had, among others, the following effects:

  • A listed corporation that does not have an outside director must now explain why the appointment of an outside director is not appropriate for the corporation.

  • An alternative governance structure has become available involving the establishment of an audit and supervisory committee instead of appointing statutory auditors.

  • The approval of shareholders is required for a corporation to issue shares by third-party allotment that will result in a change of control of the corporation.

  • A shareholder of a parent corporation can bring a double derivative action on behalf of a wholly-owned subsidiary in order to pursue liability of a director of the wholly-owned subsidiary.

  • A shareholder of a corporation can seek an injunction against a business combination transaction (merger, spinoff, share exchange, or share transfer) in limited circumstances where there is a violation of applicable laws. Before the amendments, a shareholder could only dispute the validity of a business transaction after the consummation of the transaction.

  • A 90% shareholder can cash out minority shareholders without obtaining approval at the shareholders meeting, which was always a necessary requirement before the amendments.

Additionally, the corporate governance code, which was jointly drafted by the Financial Services Agency and the Tokyo Stock Exchange, was adopted by the Tokyo Stock Exchange as of 1 June 2015. It is now applicable to corporations listed in Japan (excluding foreign issuers). The corporate governance code provides a series of governance principles, and requires listed corporations to "comply or explain" in relation to the principles. One of the principles is the utilisation of outside directors, and listed companies are now recommended to have at least two outside directors. In response to the corporate governance code, many Japanese listed companies have increased the number of outside directors. The Financial Services Agency had previously published (in 2014) a stewardship code that requests institutional investors to explain how they discharge their responsibilities towards portfolio companies and their investors.

 

Legal system

2. What is the legal system based on (for example, civil law, common law or a mixture of both)?

Japan has a civil law legal system, although some statutory regimes, such as those relating to securities regulations, are somewhat modeled on regulations in common law jurisdictions. There is no federal system and all courts are unified under the Supreme Court of Japan.

 

Foreign investment

3. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

There is no legislation that prohibits foreign shareholding in a Japanese company as such. However, there are certain exceptions in specific industries, such as broadcasting, telecommunications and aviation, where there is a fixed maximum foreign shareholding ratio.

Under the Foreign Exchange and Foreign Trade Act, foreign investments can be subject to pre- or post-transaction reporting requirements. Among others, any acquisition of the following must be reported to the competent ministries via the Bank of Japan:

  • Shares in non-listed companies.

  • 10% or more shares of listed companies.

In most cases, only a post-transaction report is required, which must be made by the fifteenth day of the month immediately following the month in which the investment is made.

A pre-transaction report and screening by the government is required in limited circumstances including (among others):

  • When the relevant Japanese company is engaged in certain industries such as weapons or nuclear energy, petroleum or agriculture.

  • When the investment is made from a country with which Japan has not entered into a treaty relating to inward direct investment,

  • Certain inward investments made from Iran.

In such cases, a waiting period of 30 days will apply, which is usually shortened to two weeks if the investment does not relate to national security.

 
4. Are there any restrictions on doing business with certain countries or jurisdictions?

Japan has implemented economic sanctions against a few countries including Iran, North Korea and Russia, under which, among other things, certain trading activities are restricted.

 
5. Are there any exchange control or currency regulations?

The Foreign Exchange and Foreign Trade Act provides for reporting requirements with respect to payments made or received by Japanese residents to or from foreign countries or non-residents within Japan.

 
6. What grants or incentives are available to investors?

The Act for Promotion of Japan as an Asian Business Center was enacted in November 2012 with the aim of attracting research and development centres and regional headquarters of global companies. This Act provides certain incentives for global enterprises intending to establish an affiliate in Japan, including:

  • Income tax breaks.

  • A reduction of patent fees.

Certain local governments also provide various incentives to foreign investors. "Promoting Foreign Direct Investment into Japan" is one of the key initiatives that the government announced in 2015, and it is expected that additional incentives will be available to foreign investors in the future.

 

Business vehicles

7. What are the most common forms of business vehicle used in your jurisdiction?

In japan, the business vehicle most commonly used is the joint stock company (kabushiki kaisha) (KK). The limited liability company (godo kaisha) (GK) is also starting to become an option. Both entities secure the limited liability of shareholders and members. The GK only became available in 2007 and is not yet widely used. Compared to a KK, the GK provides flexibility in the internal governance structure, and is treated as a check-the-box entity for US tax purposes although both forms are subject to entity-level taxation in Japan. The reporting requirements do not apply to a GK (see Question 8) and so certain global companies have incorporated their Japanese subsidiaries in the form of a GK.

 
8. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, what are the main registration and reporting requirements?

Registration and formation

A joint stock company (KK) can be established by registering its establishment in the commercial registry with the local legal bureau having jurisdiction over the area where the head office of the KK is located. A registration fee at a rate of 0.7% of the paid-in capital (excluding capital reserves) will be required (with the minimum fee being JPY15,000). A KK is considered to be established when the application of registration is received, although it will take some time before the certificate of the commercial registry becomes available.

Several documents are necessary for registration, and the most important is the articles of incorporation (articles), which must specify:

  • The name of the KK.

  • The business purposes of the KK.

  • The location of the KK's head office.

  • Other governance matters.

The articles of incorporation must be certified by a Japanese public notary before the registration can be made.

For information about the registration process, see the website of the Japanese External Trade Organisation (www.jetro.go.jp/en/invest/setting_up/laws/section1/page3.html.)

Reporting requirements

After the end of each business year, a KK must publish its financial statements in the official gazette (kampo), a daily newspaper, or on a website (which requires the engagement of a third-party observer to monitor the continuation of publication) in accordance with its articles. The scope of financial statements that are subject to mandatory reporting depends on the size of a KK. Companies with less than JPY500 million paid-in share capital and JPY20 billion in liabilities are not required to publicly report profit and loss statements.

Listed companies are subject to extensive disclosure requirements under the Financial Instrument and Exchange Act, as well as the rules of relevant stock exchanges. Any change in registered items in the commercial registry must be registered with the competent local legal bureau.

Share capital

There is no minimum or maximum share capital requirement for a KK.

Contributions-in-kind

Contributions-in-kind (issuance of shares for non-cash consideration) is allowed and does not require onerous procedures if the non-cash consideration falls within certain exceptions, including contribution of marketable securities at market value or any asset at a value certified by a professional appraiser. If no exceptions apply, the non-cash consideration must be evaluated by a court-appointed examiner to verify that the value of the non-cash consideration is not below the issue price of the shares. This process can take up to a couple of months depending on the type of the non-cash consideration.

Rights attaching to shares

Restrictions on rights attaching to shares. A KK can issue different classes of share by specifying the terms of the class in the articles of incorporation. Such terms must be in accordance with the Companies Act, and must specifically address:

  • Dividend payments.

  • Liquidation preferences.

  • Voting rights.

  • Transfer restrictions.

  • Conversion or other rights of the class shareholders.

  • Mandatory conversions, redemptions or other call rights of the issuer.

  • Veto rights granted to the class shareholders.

  • Class voting for directors and statutory auditors.

Automatic rights attaching to shares. If a KK issues only shares of common stock, all shareholders have the same rights in proportion to their respective shareholding, including with regards to dividend payments, liquidation distributions, and voting rights.

 
9. In relation to the most common form of corporate business vehicle used by foreign companies in your jurisdiction, outline the management structure and key liability issues.

Management structure

A joint stock company (KK) must appoint at least one director (torishimariyaku), and the shareholders can vote on any matters unless the KK elects to establish a board of directors. If a KK establishes a board of directors, the shareholders can vote only on matters provided under the Companies Act and the articles. A KK with a board must also appoint one or more statutory auditors (kansayaku) or accounting advisors (kaikeisanyo), or establish a statutory committee. Appointment of an accounting auditor (kaikeikansanin) is required for a KK whose paid-in capital amounts to JPY500 million or more or whose liabilities amount to JPY20 billion or more.

Management restrictions

There is no restriction on the nationality or residency of a director or other officer of a KK. There was a previous requirement that at least one representative director was a Japanese resident, but the requirement was abolished in 2015.

Directors' liability

Directors of a KK owe the duties of a good manager (similar to fiduciary duties under common law) to the KK (not directly to the shareholders). However, Japanese courts grant broad discretion to directors with respect to their business judgment, unless there is a flaw in their fact finding or their decision-making is grossly unreasonable. A shareholder derivative action is available. If a director or officer was willfully or grossly negligent in breaching their duties, they can be held liable directly to third parties who incurred damages as a result of the breach.

Parent company liability

In general, a parent company is not liable for the liabilities owed by the KK. However, the general theory of lifting the corporate veil exists in case law. The parent company can be held liable for the liabilities of the KK if it is found by the court that the:

  • Parent company abuses the limited liability nature of the KK.

  • KK lacks legal substance of an independent company (typically a constant failure to hold shareholder or board meetings, or a commingling of operations or assets with the parent).

 

Employment

Laws, contracts and permits

10. What are the main laws regulating employment relationships?

Labour regulations are generally applicable to all workers in Japan, regardless of their nationality or their employer's nationality. Even if the employment contract provides for a foreign governing law, certain mandatory provisions of Japanese law will still apply to workers in Japan. On the contrary, Japanese labour regulations do not generally apply to Japanese nationals working in a foreign jurisdiction.

The main statutes regulating employment relationships of workers in Japan are the:

  • Labour Standards Act.

  • Labour Contract Act.

  • Labour Unions Act and Labor Relations Adjustment Act.

  • Industrial Safety and Health Act.

 
11. Is a written contract of employment required? If so, what main terms must be included in it? Do any implied terms and/or collective agreements apply to the employment relationship?

A written contract is not required, but the employer must always notify the employee in writing of certain principal terms of employment, including the:

  • Term of employment.

  • Location of work.

  • Working hours and holidays.

  • Calculation of salary and payment terms.

  • Grounds for dismissal.

Japanese companies usually prepare a set of work rules that specify the term of employment, and are required to prepare work rules if there are ten or more employees per workplace. Any individual agreement on employment terms that falls below the terms provided in the work rules will be considered invalid. A unilateral change by the employer of the work rules that adversely affects employees will be void unless the employer has made the change known to the employees and the adverse change is found to be reasonable under the circumstances.

 
12. Do foreign employees require work permits and/or residency permits?

Foreign employees (other than permanent or long-term residents) must have a valid working visa. Each working visa specifies a status of residence that will determine the area of work that an employee can engage in.

Termination and redundancy

13. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

Employees are not granted management representation. Employees do not generally have a say in mergers and acquisitions or other similar transactions, unless there is a specific provision to that effect in the collective bargaining agreement. However, when an employer contemplates a statutory spin-off of part of its business to another company, the employer must consult the affected employees in advance and certain affected employees will have a right to refuse to be transferred or to request to be transferred. For information on redundancies, see Question 15.

 
14. How is the termination of individual employment contracts regulated?

Employees hired under a permanent employment contract cannot be terminated from employment except on objective and reasonable grounds (for example, violation of disciplinary rules or significant incompetence). Any other termination will be considered null and void.

Employees hired on a fixed-term basis cannot be terminated during the term of employment except for a compelling reason. Non-renewal of a fixed-term employment contract can be subject to scrutiny similar to that applicable to termination of a permanent employment contract if the fixed-term employment has been renewed repeatedly. Employees hired on a fixed-term basis can request for the employer to convert their employment status to permanent on completion of a five-year period.

In addition, 30 days prior written notice (or substitute compensation) is always necessary even if the termination is otherwise valid.

 
15. Are redundancies and mass layoffs regulated?

In addition to the general restrictions on the termination of employment, in relation to termination based on redundancy, judicial precedents have established that four factors must be considered to establish validity:

  • Necessity of personnel reduction.

  • Efforts to avoid termination by redundancy.

  • Reasonableness of the selection process of the employees subject to termination.

  • Due process including sufficient explanation to, and faithful consultation with, the affected employees.

 

Tax

Taxes on employment

16. In what circumstances is an employee taxed in your jurisdiction and what criteria are used?

Under the Income Tax Act, any individual is subject to income tax and special income tax for reconstruction (in response to the Great East Japan Earthquake of March 2011) (collectively referred to as "income tax").

Tax resident employees

An individual is classified as a resident for tax purposes if he/she either:

  • Is domicile in Japan.

  • Has been resident in Japan for one year or more.

Residents (except for non-permanent residents) are subject to income tax on all domestic and foreign-sourced income. The Supreme Court of Japan has determined that domicile must be determined using objective factors, including:

  • Occupation.

  • Whether the individual lives with his spouse and children.

  • Location of the individual's properties.

If a Japanese resident who does not have Japanese nationality is domiciled or resident in Japan for an aggregate period of no more than five years within the last ten years, he is classified as a non-permanent resident. Non-permanent residents are subject to income tax on both domestic-sourced income and foreign-sourced income that is paid in Japan or remitted to Japan.

Non-tax resident employees

Any individual who is not a resident is classified as a non-resident for tax purposes. Non-residents are subject to income tax for only domestic-sourced income, such as salaries, compensation or allowances that arise from work carried out in Japan.

 
17. What income tax and social security contributions must be paid by the employee and the employer during the employment relationship?

Employees

Employees are subject to income tax and local individual inhabitant tax.

Income tax. There are seven levels of income tax rates depending on the amount of taxable income. Income tax rates range from 5% to 45%. The rate of special income tax for reconstruction efforts in response to the Great East Japan Earthquake of March 2011 is 2.1% of the amount of income tax, and applied from 2013 to 2037.

In calculating the taxable income of an employee, there are certain deductions from gross salary.

Local individual inhabitant tax. This is a local tax and it consists of a per capita portion and an income-based portion. The per capita portion is a flat rate levied on each resident regardless of his income, and the income based portion is calculated based on the resident's income. The rate of the income-based inhabitant tax is generally 10% of the taxable income in the previous year.

Social security contributions. Employees are required to pay four different social security contributions:

  • Health insurance.

  • Nursing care insurance.

  • Employee pension insurance.

  • Unemployment insurance.

Income tax, local inhabitant tax and social security contributions are withheld from the monthly salary by the employer, and the employer makes a year-end adjustment to the income tax paid or withheld, so an employee is not generally required to file a tax return with respect to his salary. However, if the amount of annual salary exceeds JPY20 million, a year-end adjustment is not made and the employee is required to file a final tax return.

Employers

Employers must withhold income tax, local inhabitant tax and social security contributions from the salary of employees and pay the withheld amount to relevant authorities. The employer is required to bear half the premium payments for the four social security contributions (see above, Employees: Social security contributions). Workers accident compensation insurance and child allowance are solely borne by the employer. The rate of the total premiums borne by an employer is around 15% of the total annual salary.

Business vehicles

18. When is a business vehicle subject to tax in your jurisdiction?

Tax resident business

All domestic corporations are subject to corporate tax for all domestic and foreign-sourced income. The classification of an entity as a domestic corporation depends on where the headquarters or main office of the corporation is located.

Non-tax resident business

Any corporation that is not a domestic corporation is referred to as a foreign corporation. If a foreign corporation (that is, a non-Japanese corporation) does not have a permanent establishment (PE) in Japan, it is generally subject to withholding tax on certain domestic-sourced income, such as dividends, interest, and royalties. On the other hand, if a foreign corporation has a PE in Japan, it is generally subject to corporate tax for domestic-sourced income in addition to the withholding tax. A foreign corporation with a PE in Japan is required to file a tax return.

 
19. What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?

After 1 April 2015, the main taxes imposed on a domestic corporation with its headquarters in Tokyo and an annual taxable income of more than JPY8 million are as follows:

  • Corporation tax: 23.9%.

  • Local corporation tax: 4.4%.

  • Local corporation inhabitant tax: 3.29%.

  • Enterprise tax: 6.56%.

  • Local corporation special tax: 43.2% of the amount of enterprise tax.

The effective tax rate of a domestic corporation in Tokyo is 33.1% after 1 April 2015 and 32.34% after 1 April 2016 (due to the 2015 reform of enterprise tax in Japan). The effective tax rate of a domestic corporation in other parts of Japan varies depending on the rates of local taxes.

Dividends, interest and IP royalties

20. How are the following taxed:

    Dividends paid

    A non-Japanese corporate shareholder that does not have a permanent establishment (PE) in Japan is subject to withholding tax on dividends from a Japanese corporation. In the absence of any applicable tax treaty, the rate of the Japanese withholding tax is generally 20.42% (or 20% for dividends due and payable on or after 1 January 2038). If Japan has a tax treaty with the country where the non-Japanese corporate shareholder resides that reduces the maximum rate of withholding tax or allows exemptions from Japanese withholding tax, the reduced tax rate or tax exemption may be applied.

    Dividends received

    Where a Japanese company receives dividends from a non-Japanese affiliate in which the Japanese company holds 25% or more of the shares or the number of shares as provided in an applicable tax treaty for at least six months, 95% of the dividends received are exempt from taxable income. If a Japanese company does not satisfy the requirements above, the amount of dividends received from a non-Japanese corporation is subject to corporate income tax.

    Interest paid

    See above, Dividends paid.

    IP royalties paid

    See above, Dividends paid.

    Groups, affiliates and related parties

    21. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)?

    Thin capitalisation rules

    Japan has thin capitalisation rules for cross-border loans that limit the amount that a Japanese corporate borrower can deduct as expenses from its taxable income. Generally, under these rules, if the average balance of loans and other credits and debts that a non-Japanese affiliate provides to the Japanese corporate borrower exceeds three times the amount of the borrower's paid in share capital, interest and other costs of borrowing payable to the affiliate relating to the excess debt are not deductible expenses from the income tax of the Japanese corporate borrower.

    Earnings stripping rules

    In addition to the thin capitalisation rules, earnings stripping rules were introduced in Japan in 2013. Under these rules, if interest and other costs of borrowing payable to an affiliate (that is not subject to Japanese income tax or corporate income tax) by a Japanese corporate borrower exceed 50% of earnings before interest, taxes, depreciation and amortisation (EBITDA) amount of the Japanese corporate borrower, such excess is generally not deductible from the taxable income of the borrower. However, any non-deductible excess can be carried forward for seven fiscal years and be deductible until the 50% threshold has been reached.

     
    22. Must the profits of a foreign subsidiary be imputed to a parent company that is tax resident in your jurisdiction (controlled foreign company rules)?

    There are controlled foreign company (CFC) rules in Japan. The Japanese CFC rules require a Japanese company to include in its taxable income any income earned by a non-Japanese affiliate whose effective tax rate in accordance with local tax laws is less than 20%, if the:

    • Affiliate is more than 50% controlled (directly or indirectly) by Japanese shareholders.

    • Japanese company owns 10% or more of the total number of voting shares of the affiliate.

    However, the taxable income of the non-Japanese subsidiary (other than certain passive income) is not included in the taxable income of the Japanese parent company, if all of the following four conditions are satisfied:

       
      23. Are there any transfer pricing rules?

      There are transfer pricing rules in Japan. If a transaction between a Japanese company and a non-Japanese related company is not priced in accordance with the arms-length principle, the tax authority can recalculate the tax payable in Japan by using an arms-length price for the transaction. The transfer pricing rules apply to transactions between a Japanese company and its non-Japanese related company where 50% or more of its shares are directly or indirectly owned by the Japanese company or is effectively controlled by the Japanese company.

      The following methods can be used to determine the arms-length price:

        Under the Japanese transfer pricing rules, taxpayers must provide the tax authority with certain information and documents in tax audits and proper documentation is critical to ensure compliance with the transfer pricing rules.

        Both unilateral and bilateral advanced pricing arrangements are available in relation to transactions with non-Japanese related companies in certain countries to mitigate the tax risk under the transfer pricing rules.

        Customs duties

        24. How are imports and exports taxed?

        Imports and exports of goods or services may be subject to custom duties or consumption tax. There are also various treaties on custom duties to which Japan is a party, including the:

        • World Trade Organisation (WTO) Agreement.

        • Free Trade Agreement (FTA).

        • Economic Partnership Agreement (EPA).

        Double tax treaties

        25. Is there a wide network of double tax treaties?

        Japan currently has 53 tax treaties with 64 countries and territories.

         

        Competition

        26. Are restrictive agreements and practices regulated by competition law? Is unilateral (or single-firm) conduct regulated by competition law?

        Competition authority

        The Japan Fair Trade Commission (JFTC) oversees competition matters as well as merger control. The main statute regulating competition matters is the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade. Violations of the Act could lead to criminal penalties and a substantial amount of administrative fines. The JFTC also publishes various guidelines to illustrate the prohibited restrictive agreements and practices and unilateral conduct.

        Restrictive agreements and practices

        The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade prohibits unjust restrictive agreements and practices, including cartels and bid rigging.

        Unilateral conduct

        The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade also prohibits unilateral conduct, including predatory pricing and price controlling.

         
        27. Are mergers and acquisitions subject to merger control?

        Subject to the revenue thresholds described below, a share acquisition transaction must be notified to the Japan Fair Trade Commission (JFTC) at least 30 days before the conclusion of the transaction (although this is sometimes shortened by the JFTC at its discretion) if prior to the completion of the transaction, the acquirer:

        • Holds less than 20% of the voting rights and will acquire 20% or more of the voting rights after the completion of the transaction.

        • Holds less than 50% of the voting rights and will acquire 50% or more of the voting rights after the completion of the transaction.

        There are comparable rules that apply to mergers, spinoffs, joint stock transfers, and business transfers.

        There are revenue thresholds that apply to such notification requirements. For share acquisition transactions, the advance notification must be made if both:

        • The consolidated revenues of the ultimate parent company (without taking into account the revenue of the target company and its subsidiaries) of the acquirer exceeds JPY20 billion in Japan.

        • The consolidated revenues of the target company exceeds JPY5 billion in Japan.

         

        Intellectual property

        28. Outline the main IP rights in your jurisdiction.

        Patents

        Definition and legal requirements. An invention can be patented if it involves novelty, an inventive step, and susceptibility of industrial application. The Japanese patent law is based on a first-to-file principle.

        Registration. Patented inventions can be registered with the Japan Patent Office (JPO).

        Enforcement and remedies. Both damages and injunctions are available for the right holder of an infringed patent. The right holder can also claim presumed damages in accordance with the formula provided under the Patent Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection. The registration of a patent is valid for 20 years after the date of application for registration. Extension of the patent term (up to five years) is available for medical products and agricultural chemicals.

        Trade marks

        Definition and legal requirements. A mark that can be registered as a trade mark is any character, figure, sign, three-dimensional shape, colour, or combination thereof, or sound, which can be recognised by human perception, and is used in connection with the goods of a person who produces, certifies or assigns the goods as a business, or is used in connection with the services of a person who provides or certifies the services as a business.

        Registration. Trade marks can be registered with the JPO.

        Enforcement and remedies. Both damages and injunctions are available for the right holder of an infringed trade mark. The right holder can also claim presumed damages in accordance with the formula provided under the Trademark Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection and renewability. The registration of a trade mark is valid for ten years after the date of application for registration, which can be renewed any number of times for an additional ten years.

        Registered designs

        Definition. A design that can be registered as a registered design is any pattern or colour, or combination thereof, of an article, which involves industrial applicability, novelty, and creativity, and is not identical or similar to a design filed for registration previously.

        Registration. Registered designs can be registered with the JPO.

        Enforcement and remedies. Both damages and injunctions are available for a right holder of an infringed registered design. The right holder can also claim presumed damages in accordance with the formula provided under the Design Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection and renewability. The registration of a registered design is valid for 20 years after the date of application for registration.

        Unregistered designs

        Definition and legal requirements. The Unfair Competition Prevention Act considers a sale of a dead copy product as unfair competition, and grants the original designer certain legal protection.

        Enforcement and remedies. Both damages and injunctions are available for the original designer. The original designer can also claim presumed damages in accordance with the formula provided under the Unfair Competition Prevention Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection. The protection is available for three years after the initial sale of the original product.

        Copyright

        Definition and legal requirements. The Copyright Act provides the rights for an author of a work in which thoughts or sentiments are creatively expressed and which falls within the literary, academic, artistic or musical domain.

        Protection. The protection under the Copyright Act becomes available automatically and without any registration on creation of the work. Although not widely used, voluntary registration is available and any transfer of a copyright cannot be asserted against a third party unless the transfer is registered. The registrations must be made with the Agency for Cultural Affairs, or the Software Information Center (for computer programs).

        Enforcement and remedies. Both damages and injunctions are available for the author. The author can also claim presumed damages in accordance with the formula provided under the Copyright Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection and renewability. The protection becomes available on the creation of the protected work. It continues until 50 years has passed after the death of the author (if the author is a natural person), or the publication of the work (if the author is a judicial person), provided that the protection for a cinematographic work continues until 70 years has passed after the publication of the work.

        Trade secrets

        Definition and legal requirements. The Unfair Competition Prevention Act considers certain acquisition, use, or disclosure of a trade secret as unfair competition, and grants the holder of the trade secret certain legal protection. Trade secrets must be technical or business information useful for business activities that are treated as confidential and not known to the public.

        Enforcement and remedies. Both damages and injunctions are available for the holder of the trade secret. The original designer can also claim presumed damages in accordance with the formula provided under the Unfair Competition Prevention Act. The enforcement will be realised through court rulings and civil enforcement proceedings.

        Length of protection. There is no time limitation for the protection of trade secrets. The protection is available for as long as the requirements for protection under the Unfair Competition Prevention Act are satisfied.

         

        Marketing agreements

        29. Are marketing agreements regulated?

        Agency and distribution

        There are no specific statutes regulating agency or distribution agreements. However, in a number of court rulings the supplier was required to give a termination notice to the agent or distributor sufficiently in advance, or provide compensation to dispense with such prior notice. This is due to the continuous nature of agency and distribution agreements.

        The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade also prohibits certain unilateral conduct by the supplier against the agent or distributor.

        Franchising

        The Small and Medium-sized Retail Business Promotion Act provides obligations for certain franchisers to give franchisees written explanations about certain principal terms of the franchising.

        The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade also prohibits certain unilateral conduct by the franchiser against the franchisee.

         

        E-commerce

        30. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)?

        The Act on Electronic Signatures and Certification Business regulates electronic signatures.

        The Act on Special Provisions to the Civil Code Concerning Electronic Consumer Contracts and Electronic Acceptance Notice provides special rules for the validity of online offers and acceptances. Consumers can claim invalidity of an offer or acceptance made online by error, even if they were grossly negligent in making such offer or acceptance (this defence is not available under the Civil Code). However, if merchants have implemented a measure that asks consumers to reconfirm their offer or acceptance (for example, showing a pop-up window and asking for reconfirmation of acceptance), the defence will not be available.

        The Act on Specified Commercial Transactions provides regulations applicable to online shopping, including regulation on advertisements and prohibitions on sending unsolicited email advertisements.

        The Act on Regulation of Transmission of Specified Electronic Mail was enacted to regulate spam emails, and adopts an opt-in principle, under which email advertisements can only be sent to those who agreed to receive them in advance.

         

        Advertising

        31. Outline the regulation of advertising in your jurisdiction.

        The Premiums and Representations Act regulates advertisements and promotional campaigns. The Act prohibits advertisements that have the potential to mislead consumers with respect to the quality of a product or service, or with respect to the price or other transaction terms of the product or service.

        There are also industry-specific statutes regulating advertisements, such as the:

        • Pharmaceutical and Medical Device Act for medical products.

        • Food Labeling Act for foods.

         

        Data protection

        32. Are there specific statutory data protection laws? If not, are there laws providing equivalent protection?

        The Act on the Protection of Personal Information provides obligations for business operators who deal with personal information. For example, the Act provides a general prohibition on disclosure of personal information without the consent of the data subject (with exceptions under certain circumstances). Currently, the Act is applicable only to business operators who are in possession of the personal information of 5,000 or more individuals. However, as a result of the amendment to the Act passed in 2015 and effective by September 2017, the Act will be applicable to any business operator who uses a personal information database for its business.

        In addition, the Japanese Government has adopted a social security and tax numbering system in 2015 under the Act on the Use of Numbers to Identify a Specific Individual in the Administrative Procedure, which imposes enhanced obligations on the secure treatment of social security and tax numbers.

         

        Product liability

        33. How is product liability and product safety regulated?

        Under the Product Liability Act, a person who manufactured, processed or imported a product, or advertised its name on the product as the manufacturer of the product, will be liable for damages caused by any defect in the product, except for the damages caused to the product itself. The Act places strict liability on the manufacturer, and once the claimant establishes a defect, the claimant does not have to further establish the manufacturer's negligence. On the contrary, to avoid liability, the manufacturer has to prove that:

        • The defect could not have been discovered given the state of scientific or technical knowledge at the time of the delivery of the product.

        • In cases where the product is used as a component of another product, the defect occurred as a result of design instructions given by the manufacturer of the other product, and that the manufacturer was not negligent with respect to the occurrence of the defect.

         

        Main business organisations

        Japan External Trade Organisation (JETRO)

        W www.jetro.go.jp

        Main activities. JETRO is a government-related organisation that works to promote mutual trade and investment between Japan and the rest of the world.

        Bank of Japan (BOJ)

        W www.boj.or.jp/en/index.htm/

        Main activities. The BOJ is the central bank of Japan. The BOJ's main objectives include issuing banknotes, carrying out currency and monetary control and ensuring the smooth settlement of funds among banks and other financial institutions.

        Ministry of Justice

        W www.moj.go.jp/ENGLISH/index.html

        Main activities. The responsibilities of the ministry include administration of judicial systems including commercial and real estate registration and immigration control as well as public prosecution. The ministry also plays an important role in legislation of fundamental statutes including the Civil Code and the Companies Act.

        National Tax Agency

        W www.nta.go.jp/foreign_language/index.htm

        Main activities. The agency is in charge of assessing and collecting taxes.

        Japan Patent Office (JPO)

        W www.jpo.go.jp/

        Main activities. The JPO is in charge of the registration of intellectual property.

        Japan Fair Trade Commission (JFTC)

        W www.jftc.go.jp/en/index.html

        Main activities. The commission oversees competition matters as well as merger control.

        Ministry of Economy, Trade and Industry

        W www.meti.go.jp/english/index.html

        Main activities. The ministry is in charge of planning of a broad range of industrial and trade policies.



        Online resources

        Japan External Trade Organisation (JETRO)

        W www.jetro.go.jp/en/

        Description. This website provides useful information for starting business in Japan including a description of incentive programmes available for foreign investors.

        Ministry of Foreign Affairs

        W www.mofa.go.jp/j_info/visit/visa/long/index.html

        Description. This webpage provides descriptions of working visas in Japan.

        Ministry of Finance

        W www.mof.go.jp/english/tax_policy/index.html

        Description. This webpage provides some useful materials regarding Japanese tax policies in English.

        W www.mof.go.jp/english/customs_tariff/index.html

        Description. This webpage provides information about customs and tariffs applicable in Japan.

        Japan Fair Trade Commission (JFTC)

        W www.jftc.go.jp/en/

        Description. This website provides information about competition policies and merger control applicable in Japan, including translation of guidelines stipulated by the Commission.



        Contributor profiles

        Kenichi Sekiguchi, Partner

        Mori Hamada & Matsumoto

        T +81 3 6266 8562
        F +81 3 6266 8462
        E kenichi.sekiguchi@mhmjapan.com
        W www.mhmjapan.com/en/

        Professional qualifications. Admitted in Japan and New York

        Areas of practice. Corporate and M&A.

        Yohsuke Higashi, Associate

        Mori Hamada & Matsumoto

        T +81 3 6266 8599
        F +81 3 6266 8499
        E yohsuke.higashi@mhmjapan.com
        W www.mhmjapan.com/en/

        Professional qualifications. Admitted in Japan and New York

        Areas of practice. Corporate and M&A.

        Hiroshi Oyama, Associate

        Mori Hamada & Matsumoto

        T +81 3 6266 8589
        F +81 3 6266 8489
        E hiroshi.oyama@mhmjapan.com
        W www.mhmjapan.com/en/

        Professional qualifications. Admitted in Japan, Japan-Licensed Tax Accountant

        Areas of practice. Tax and M&A.

        Publications. "Countering BEPS: Preventing Abusive Commissionnaire Arrangements", Tax Notes International (2014)


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