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.
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This article is part of the multi-jurisdictional guide to doing business worldwide. For a full list of contents, please visit www.practicallaw.com/about/doingbusinessin-mjg.
From 1 April 2014, Japan's consumption tax (which is similar to VAT) was increased from a rate of 5% to 8%. The government had planned to increase the rate to 10% from October 2015. However, this is expected to be postponed due to the economic impact of the increase. It is likely that the increase will be implemented on 1 April 2017.
In June 2014, amendments to the Companies Act were enacted and will go into effect within the next two years. They include the following:
Governance related amendments. These include:
the introduction of derivative suits by shareholders against directors and statutory auditors of subsidiaries (in addition to directors and statutory auditors of the parent company);
stricter requirements for an outside director, and an obligation to provide an explanation when a company does not introduce an outside director.
M&A related amendments. These include the:
introduction of a cash-out procedure for minority shareholders;
requirement of shareholders approval for the issuance of new shares by third party allotments in conjunction with a change of the controlling shareholder.
The Foreign Exchange and Foreign Trade Act (FEFTA) regulates foreign investment into Japan. However, as most investments only require an acquiring foreign investor to file an ex post facto report (retrospective report), Japan is open to most foreign investment. The ex post facto report must be submitted to the relevant ministries through the Bank of Japan (BOJ) by the 15th day of the following month. There are some exemptions for an ex post facto report (for example, a report is not required for an acquisition of less than 10% of shares of a Japanese company).
Under FEFTA, foreign investment in certain businesses and from certain countries requires prior notification. Businesses requiring prior notification include those:
Related to national security. These include the manufacturing of weapons, aircrafts, satellites and atomic power plants.
Not suitable for investment. These include agricultural, forestry, fisheries, mining, petroleum, utilities, manufacturing of leather products and ships, certain information and telecommunication practices and railroads.
The waiting period for prior notifications is 30 days but is usually shortened to 14 days.
In addition, certain business and industry legislation restricts the maximum shareholding ratio of the aggregate portion held by foreigners for companies engaging in specific businesses. Examples of businesses and their maximum shareholding ratios are:
The Civil Aeronautics Act (one-third for listed air transport service providers).
The Broadcast Act and the Radio Act (20% for listed fundamental broadcasting service providers).
The Nippon Telegraph and Telephone Act (one-third for Nippon Telegraph and Telephone Corporation (NTT)).
Japan has implemented economic sanctions and restrictive measures against certain countries (including North Korea and Iran). This is in accordance with the resolutions of the Security Council of the UN. In addition, following a series of nuclear tests conducted by North Korea, Japan has independently taken sanctions against North Korea, including a prohibition on immigration, imports and exports.
The Foreign Exchange and Foreign Trade Act (FEFTA) governs exchange control and currency regulations. In general, an ex post facto report (retrospective report) is required for payments to or the receipt of payments from foreign countries (and only for amounts of more than JPY30 million).
For payments made or received through a bank, the report must be submitted to the Ministry of Finance through the Bank of Japan (BOJ) within ten days (alternatively, a monthly lump-sum report can be implemented by making a prior notification).
The New Development Strategy adopted by the Japanese Cabinet in June 2010 aims to double the inflow of people, goods and capital into Japan over the next decade. As a result, the Japanese Government and local governments offer certain incentives to investors. The New Development Strategy does not give examples of these incentives. However, The Act for Promotion of Japan as an Asian Business Centre and other incentives at a prefectural level were adopted in order to promote foreign investment.
The Act for Promotion of Japan as an Asian Business Centre was enacted in November 2012. The Act provides for new research and development (R&D) programs and the establishment of regional headquarters for global companies, which can create certain incentives for investors (including certain corporate tax breaks and patent fee exemptions).
The government also provides various subsidy programs, including financial support towards the initial costs of setting up new high value-added locations (R&D and regional headquarters) in Japan. Certain local governments also provide their own incentives.
Registration and formation
A joint stock company is established on registration with the relevant regional office of the Legal Affairs Bureau. The registration application date is the same as the date of establishment, and the company can conduct its business from this date.
The registration procedure for the establishment of a joint stock company in Japan requires the:
Drafting of the articles of incorporation.
Acquisition of the registration certificates and other necessary documentation for the incorporator.
Preparation of affidavits regarding the incorporator's profile and affidavits regarding the signatures of the incorporator's representatives.
Notarisation of the articles of incorporation by a Japanese notary public.
Payment of the full amount of capital.
Appointment of directors. The directors must investigate the legality of the company's formation.
Application to the Legal Affairs Bureau for registration of establishment of the company. There is a registration tax of 0.7% of the amount of capital (minimum JPY150,000).
Acquisition of the registration certificate and company seal registration certificate from the Legal Affairs Bureau.
The joint stock company must register the incorporation of the company on the commercial registry administrated by the Legal Affairs Bureau. The following information must be provided:
Location of headquarters.
Method of public notice.
Authorised number of shares.
Outstanding number of shares.
Amount of capital.
Restriction of transfer of shares (if any).
Issuance of share certificates (if any).
Directors' names and the addresses of any representative directors.
Once the company has been registered on the commercial registry, a registration certificate will be issued. The certificate is also accessible via the internet and by payment of a fee.
Any changes to the registered items (see, Registration and formation), must be registered. The company must give public notice of its simplified balance sheet annually, after approval at the regular general meeting of shareholders. Companies must choose and register a preferred method of public disclosure (that is, publishing in an official gazette, publishing in a daily newspaper or using an electronic notification method) at the time of incorporation.
There is no legal requirement for a minimum or maximum amount of capital or shareholders for a joint stock company. All shares must be fully paid up at the time of issuance.
Shares of a joint stock company can be paid in kind. However, this is not common in Japan, as certain appraisal procedures need to be followed, requiring additional time and costs.
Rights attaching to shares
Restrictions on rights attaching to shares. A company can issue different classes of shares with specific rights and obligations. Under the Companies Act, a company can issue classes of shares which have different terms only for the following categories:
Distribution of residual value.
Requirement of an approval of the company for the transfer of shares.
Put option by the shareholder.
Call option by the company.
Right to appoint directors and/or statutory auditors.
Automatic rights attaching to shares.
Rights automatically attaching to shares of a joint stock company include the:
Right to vote at a shareholders meeting.
Right to receive a dividend.
A joint stock company has a two-tier management structure of shareholders and directors. Shareholders exercise their management rights by voting at a general shareholders' meeting and can only decide on matters provided in the Companies Act and the company articles of incorporation. Other management issues are delegated to the directors of the company.
A joint stock company is required to have a minimum of one director, although in practice, many joint stock companies establish a full board of directors. If a full board of directors is established, three or more directors are required and of these directors, one or more must be appointed as a representative director, with authority to represent the company. In addition, either a corporate auditor (kansayaku) or an accountant (Kaikei-sannyo) is required. Both a corporate auditor and an accounting auditor (Kaikei-kansanin) are required for a joint stock company with capital of JPY500 million or more or total liabilities of JPY20 billion or more.
In Japan, only a natural person can become a director. There are no nationality or residence requirements for directors, but at least one representative director must be a Japanese resident (see Question 16).
Directors' and officers' liability
A director of a joint stock company owes a fiduciary duty to the company. In general, the courts have adopted a business judgement rule to decide whether a director is complying with his fiduciary duty to the company, that is, courts ask whether he made a reasonable judgement based on the facts of the situation.
Parent company liability
Generally, a parent company is not liable for the obligations of the joint stock company. However, in exceptional cases where a joint stock company has no substance standard (an office and other facilities necessary to conduct its main business) or a parent company abuses the corporate formality of the joint stock company, the corporate veil may be pierced. For example, if a company establishes a new subsidiary only to avoid its non-competition obligations or enforcement by its credits, the corporate veil may be pierced. If the corporate veil is pierced, the parent company becomes directly liable for the obligations of the joint stock company.
Laws, contracts and permits
The main laws regulating employment relationships and the protection of workers include the:
Labour Standards Act. This provides the minimum standards for the conditions of employment.
Minimum Wage Act. This provides for the minimum amount of wages to be paid by different prefectures and specific industries.
Industrial Safety and Health Act. This provides the minimum standards on working conditions relating to health and safety.
Industrial Accident Compensation Insurance Act. This provides an insurance system for accidents that occur during working hours.
Labour Contract Act. This regulates fundamental rules on employment contracts.
The laws generally apply to all enterprises in Japan, regardless of whether the employer is Japanese or foreign, or whether the company is a foreign or Japanese-registered company. The laws also apply to foreign workers in Japan if the foreign worker meets the definition of "worker" under the Labour Standards Act, which is a person who is employed at a business and receives wages.
In Japan, a written contract of employment is not required. However, on or before entering into an employment contract, an employer is required to expressly show employees the following employment conditions in writing:
Term of the employment contract (or where there are no provisions relating to the term, the fact that there are no provisions relating to the term).
Job description, including a description of the duties that the employee will have to perform.
Working hours (including provisions relating to overtime, breaks and annual leave).
Grounds for termination of employment, retirement and dismissal.
In practice, many Japanese companies provide for employment conditions in their rules of employment, rather than individual employment contracts. An employer who hires ten or more employees is legally required to establish rules of employment and file with the Labour Standards Inspection Office. If an employer and his employees agree on employment conditions that do not meet the standards established by the employer's rules of employment, the agreed conditions will be invalid, and the standards established by the rules of employment must apply. The standards established by the rules of employment also apply when the applicable employment contract does not provide for certain employment conditions.
The Labour Contract Act and various court precedents have determined that changing rules of employment and/or changing employment conditions in a way that disadvantages employees (without obtaining consent) is generally invalid.
However, changes may be allowed if:
The employer has informed his employees of the amended work rules.
The changes are reasonable. This is determined by the need for the changes, the overall provisions of the rules of employment, and after taking into account the extent of the disadvantage incurred by the employees.
Termination and redundancy
In general, employees are not entitled to management representation or to be consulted in relation to corporate transactions except in limited circumstances. For example, if an employer intends to transfer its business through a corporate split (that is, the corporation transfers a part of its business to a newly established or existing entity) prior consultation with the employees is required. This is because there is a possibility that the employees being transferred to another entity will not have given their consent.
In addition, where the validity of an employee's dismissal is challenged, one factor used by the court to determine whether there were objectively reasonable grounds for dismissal, is whether sufficient consultations with employees and labour unions have taken place (see Questions 14 and 15).
In Japan, many employment contracts are indefinite term contracts (with no fixed contractual term). It is very difficult for an employer to unilaterally terminate an indefinite term employment contract. Under the Labour Contract Act and various court precedents, an employer can only unilaterally terminate an indefinite term employment contract if the termination is based on objectively reasonable grounds and is socially justifiable. For example, objectively reasonable grounds can be if an employee commits a serious crime or continuously breaches provisions of the work rules, which can be deemed as reasonable, or a redundancy that meets certain criteria (see Question 15). All possible grounds for dismissal must also be clearly stated in the employment rules for the dismissal of an employee to be valid.
If the dismissal is valid, the employer must give at least 30 days advance notice of dismissal or payment in lieu of notice.
There are no laws or regulations that directly regulate redundancies and mass layoffs. However, the objective reasonable grounds test (see Question 14) applies in determining the validity of the termination of each employment contract as a result of redundancies and mass layoffs. In addition, there is considerable precedent in case law that has established four criteria that must be observed when employees are made redundant in order for the redundancy to be reasonable:
Necessity. The company must prove that redundancies are unavoidable and necessary in light of its business circumstances and needs.
Effort to avoid redundancy. The company must prove that it has made reasonable managerial efforts to avoid redundancies (for example, reassigning staff and advertising for voluntary redundancies).
Reasonable selection. The company must prove that reasonable standards were used when selecting the employees to be made redundant, and that the redundancies were carried out fairly.
Reasonable process. The corporation must prove that it conducted sufficient consultations with workers and labour unions.
Taxes on employment
Tax resident employees
Under the Income Tax Act, all income (domestic and foreign-sourced) of a Japanese resident is taxed in Japan. A Japanese resident is defined as either:
An individual with an address in Japan. An address is defined as an individual's main place of living and is judged on objective facts. For example, the address of an individual residing in several countries is determined by the individual's job or employment agreement.
An individual with domicile in Japan for one year or more. If an employee is a non-permanent resident in Japan (but does not have Japanese nationality) and has an address or domicile in Japan for five years or less during the previous ten-year period, only domestic sourced income and foreign sourced income that is paid in Japan or transmitted to Japan is taxed.
Non-tax resident employees
If an employee is non-resident, only domestic sourced income is taxed in Japan.
The main taxes imposed on the income of an employee are income tax and local corporate inhabitant tax.
Income tax is a national tax and the competent authority is the National Tax Agency. In 2015, the tax rate for income tax is progressive from 5% to 45%, corresponding to the amount of income. The income tax rates on taxable income are as follows:
JPY1,950,000 or less: 5%.
More than JPY1,950,000 and less than JPY3,300,000: 10%.
More than JPY3,330,000 and less than JPY6,950,000: 20%.
More than JPY6,950,000 and less than JPY9,000,000: 23%.
More than JPY9,000,000 and less than JPY18,000,000: 33%.
More than JPY18,000,000 and less than JPY40,000,000: 40%.
More than JPY40,000,000: 45%.
To calculate an employee's taxable income, a fixed amount (referred to as a deemed expense) is deducted from the employee's gross salary, if the amount of gross salary is:
JPY1,800,000 or less: 40% of gross salary (JPY650,000 at minimum).
More than JPY1,800,000 and less than JPY3,600,000: 30% of gross salary plus JPY180,000.
More than JPY3,600,000 and less than JPY6,600,000: 20% of gross salary plus JPY540,000.
More than JPY6,600,000 and less than JPY10,000,000: 10%.of gross salary plus JPY1,200,000.
More than JPY10,000,000 and less than JPY15,000,000: 5% of gross salary plus JPY1,700,000.
More than JPY15,000,000: JPY2,450,000.
Other deductions are also made from the employee's gross salary, including social security contributions.
Local corporate inhabitant tax
This is a local tax and the competent authority is the governor of the local government. Individual inhabitant tax is imposed by local government when an employee registers as an inhabitant on 1 January of each year. In 2015, the standard tax rate for individual inhabitant tax is not progressive at 10%. However, the rates for this tax vary between regions. In 2015, the standard tax rates of individual inhabitant tax rates are as follows:
Prefectural inhabitant tax: 4%.
Municipal inhabitant tax: 6%.
In addition, a fixed amount of individual inhabitant tax is also imposed. The amount is set at JPY5,000 for each individual (JPY1,500 for prefectural inhabitant tax and JPY3,500 for municipal inhabitant tax) until 2023.
In addition to normal income tax, a special reconstruction income tax for recovery programs for the Great East Japan Earthquake in 2011 is taxed from 2013 to 2037. The tax rate is 2.1% of the amount of income tax imposed on an individual.
An employer must withhold income tax from the monthly salary of his employees and, in general, pay to the relevant tax authority by the tenth day of the following month. An employee does not have to submit an annual tax return if their annual salary is JPY20 million or less and there is no other source of income. This is because the payment of income tax will be completed by a year-end adjustment made by the employer.
There are four different kinds of social security systems that companies are legally obliged to participate in:
Employee pension insurance.
Health insurance and nursing care insurance.
Workers accident compensation insurance.
Health insurance is divided into two types of insurance, health insurance managed by the government and a health insurance association managed by a private organisation, established for a specific industry or company. Premiums for health insurance managed by the government are different for each prefecture. Generally, premiums for health insurance associations are lower than health insurance managed by the government. In addition, an employee between the ages of 40 to 64 must pay the premiums for Nursing Care Insurance.
The following are the standard premiums of each social security system and the amount to be paid by the employer and employee:
Total premium (% of salary and bonus): 17.474%;
Employer contribution: 8.737%;
Employee contribution: 8.737%.
Total premium (% of salary and bonus): 9.97% (Tokyo);
Employer contribution: 4.985%;
Employee contribution: 4.985%.
Nursing care insurance:
Total premium (% of salary and bonus):1.72%;
Employer contribution: 0.86%;
Employee contribution: 0.86%.
Total premium (% of salary and bonus): 1.35%;
Employer contribution: 0.85%;
Employee contribution: 0.5%.
Workers accident compensation insurance:
Total premium (% of salary and bonus): from 0.25% to 8.9%;
Employer contribution: all (from 0.25% to 8.9%);
Employee contribution: none.
Contributions to child allowance:
Total premium (% of salary and bonus): 0.15%;
Employer contribution: all (0.15%);
Employee contribution: none.
The premiums are correct as of 1 February 2015 and rates are reviewed periodically. However, different premiums are applicable for certain specific industries. For example, for workers accident compensation insurance, premiums are set depending on the employer's business and according to the relative risk of accidents.
Tax resident business
If a tax resident business vehicle is considered to be a domestic company under the Corporation Tax Act, all income (including domestic and foreign-sourced) is taxed in Japan. However, foreign companies are only taxed on domestic-sourced income. Whether a company is considered to be domestic or foreign under the Corporation Tax Act is determined by the location of its headquarters.
Non-tax resident business
If a foreign company has a permanent establishment in Japan, it must file a tax return with the competent Japanese authority. However, foreign companies without a permanent establishment in Japan are generally subject to withholding tax only.
The main taxes that apply to a Japanese company include:
Corporation tax. This is a national tax.
Corporation inhabitant tax. This is a local tax. It consists of prefectural tax (0.82%) and municipal tax (2.47%).
Enterprise tax. This is a local tax.
Local corporation special tax. This is a national tax paid to a local tax authority.
Tax rates of Japanese corporations can vary due to the amount of taxable income and capital, the number of branches and employees, the location of the headquarters and the fact that they are periodically reviewed. However, the standard applicable rates for a small company located in Tokyo with taxable income of more than JPY8 million and with the financial year beginning after 1 April 2015 are as follows:
Corporation tax: 25.50%.
Corporation inhabitant tax: 3.29%.
Enterprise tax: 6.7%.
Local corporation special tax: 2.89%.
The effective tax rate released by the Ministry of Finance as applied to a Japanese corporation after 1 April 2015 is 34.62%.
For the financial year beginning 31 March 2015, a special reconstruction corporation tax for recovery programs for the Great East Japan Earthquake in 2011 is also imposed (10% of the amount of corporation tax).
Dividends, interest and IP royalties
Dividends paid to foreign corporate shareholders?
Dividends received from foreign companies?
Interest paid to foreign corporate shareholders?
Intellectual property (IP) royalties paid to foreign corporate shareholders?
Dividends paid to a non-resident of Japan or a foreign corporation are subject to a withholding tax. In general, the tax rate is 20%. If a lower rate is provided in a tax treaty between Japan and the country of the location of the recipient, it will apply.
Generally, the amount of dividends received from foreign companies is included in the taxable income of the Japanese company. To avoid double taxation, if a Japanese company receives dividends from a foreign company of which 25% or more of its shares are held by that Japanese company for a period of six months or more, 95% of the dividends received will not be included in its income. If a different shareholding ratio is provided for in a tax treaty, that ratio will apply.
Interest paid to a non-resident of Japan or a foreign company is subject to a withholding tax. The basic withholding tax rate is 15%. However, if a lower rate is provided for in a tax treaty between Japan and the relevant country, the lower rate will apply.
IP royalties paid
IP royalties paid to a non-resident of Japan or a foreign company are subject to a withholding tax. The basic withholding tax rate is 20%. However, if a lower rate is provided for in a tax treaty between Japan and the relevant country, the lower rate will apply.
Groups, affiliates and related parties
There are thin capitalisation rules in Japan. If the ratio of loans to capital of a Japanese company exceeds a certain amount (for example, when the amount of loans is greater than or equal to three times the amount of capital held by a foreign parent), the interest paid corresponding to the exceeding portion of the loans cannot be deducted as an expense for tax purposes.
In addition, to prevent tax avoidance by utilising loans from foreign affiliates, "excessive interest payment rules" were introduced starting with financial years beginning on or after 1 April 2013. The rules provide that, if the amount of net interest paid by a Japanese company to its controlling or controlled affiliates is more than 50% of its adjusted income, the exceeding amount must not be deducted as an expense. There are some limited exceptions, where the:
Amount of net interest paid to controlling or controlled affiliates is JPY10 million or less.
Amount of net interest paid to controlling or controlled affiliates is 50% or less of the amount of the total interest paid.
The profits of a foreign subsidiary with an applicable tax rate of 20% or less are imputed to the income of its Japanese parent and taxed in Japan unless the foreign subsidiary meets all of the following standards:
A main business standard (that is, the company's main business is not shareholding).
A substance standard (the company has an office and other facilities necessary to conduct its main business).
An administration standard (the company administrates, controls and manages the business on its own).
Either a location standard (the company conducts its main business mainly in the country of its location) or a non-affiliate standard (more than 50% of the company's transactions are with non-affiliates) depending on its main business.
There are transfer pricing rules in Japan. If a transaction price between related parties is different from that of a transaction on an arm's-length basis, the tax authority can recalculate the income of the company and impose taxes as if the transaction had been conducted at arm's-length.
The methods used to calculate the arm's-length price in Japan are in line with those adopted under the Transfer Pricing Guideline of the Organisation for Economic Co-operation and Development (OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2001):
Comparable uncontrolled price method.
Resale price method.
Cost plus method.
Transactional profit method.
Transactional profit split method.
To mitigate the risk of taxation by the transfer pricing rules, advanced pricing arrangement (APA) is available at the National Tax Agency (both unilateral APA and bilateral APA are available).
Double tax treaties
The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Antimonopoly Act) and relevant regulations and guidelines enacted by the Fair Trade Commissions (FTC) regulate restrictive agreements and practices.
Restrictive agreements and practices and unilateral conduct
Joint conduct (including, cartels and bid riggings) and unilateral conduct (including, enforcing downstream price-controls, providing products at predatory pricing, restriction of a resale price without justifiable grounds) are prohibited in Japan. A number of the guidelines issued by the FTC, provide standards and examples to demonstrate whether certain types of conduct would violate the provisions of the Antimonopoly Act.
Unreasonable restraint of trade, private monopolisation and certain unfair trade practices in violation of the Antimonopoly Act are subject to administrative surcharges and criminal penalties. A leniency program for surcharge reduction or immunity is also available.
The Antimonopoly Act prohibits business combinations including the acquisition of shares of another company, mergers and other forms of M&A transactions that substantially restrain competition in any particular field of trade and gives the FTC authority to take measures necessary to eliminate acts in violation of the Antimonopoly Act.
The guidelines to the Application of the Antimonopoly Act Concerning Review of Business Combination provide standards for specifying particular markets and analysing whether a business combination substantially restrains competition or not. Among other provisions, the guidelines provide a safe harbour in the following forms:
Vertical type business combination. This applies when:
the measure of market concentration levels (that is, Herfindahl-Hirshman Index (HHI)) is 1,500 or less;
HHI is more than 1,500 and 2,500 or less and increase of HHI is 250 or less; or
HHI is more than 2,500 and increase of HHI is 150 or less.
Horizontal type business combination. This applies when:
the market share is 10% or less; or
HHI is 2,500 or less and market share is 25% or less.
If a business combination meets the safe harbour requirement, it is not considered to be conduct that is in violation of the Antimonopoly Act.
The Antimonopoly Act also requires a prior notification for certain business combinations. For the acquisition of shares of another company, a prior notification is required if both:
The amount of sale of the purchaser group in Japan is JPY20 billion or more.
The amount of sale of the target group in Japan is JPY5 billion or more.
The waiting period is 30 days from receipt of a notification by the FTC.
Definition and legal requirements.
The requirements under the Patent Act are:
Susceptible to industrial application.
Not claimed in a prior application.
Registration. The Japan Patent Office (JPO) is the regulatory authority for registration. See box, Main business organisations.
Enforcement and remedies. There are several levels of judicial courts that deal with infringement of patents:
First instance. Tokyo/Osaka District Court.
Appeal. Intellectual Property High Court.
Last instance. Supreme Court.
Remedies in infringement actions include injunctions (including measures necessary to suspend and prevent the infringement), compensation for damage and measures to restore credibility.
Defences to infringement actions include use for experimental or research purposes, invalidity of the right, prior user's right, lack of an infringement and exhaustion of the right.
Length of protection. Patent protection is effective on registration and expires 20 years from the patent application filing date. In the pharmaceutical and agrochemicals industries, the patent term can be extended by a period not exceeding five years.
Definition and legal requirements. Under the Trademark Act, the mark can be any character, figure, sign, three-dimensional shape, colour (or any combination) or sound, as recognised by an individual's perception, that is used in connection with the goods or services for commercial purposes.
Unregistered marks can be protected under either the Unfair Competition Prevention Law or the Civil Code (or both if it is widely-recognised or well-known). Registration is recommended for protection.
Protection. The JPO is the regulatory authority for registration. See box, Main business organisations.
Enforcement and remedies. There are several levels of judicial courts that deal with infringement of trade marks:
First instance. The District Courts related to the case and the Tokyo/Osaka District Court.
Appeal. The High Courts with jurisdiction over the first instance courts (the Intellectual Property High Court instead of the Tokyo High Court).
Last instance. The Supreme Court.
Remedies in infringement actions include injunctions, compensation for damage and measures to restore credibility.
Defences to infringement actions include the use of an individual's own name, famous abbreviations, invalidity of the right, prior user's right, no infringement and exhaustion of the right.
Length of protection and renewability. Trade mark protection is effective on registration and lasts for ten years. Registration can be renewed any number of times, by filing a renewal application and paying a fee.
Definition. The requirements are:
Not identical or similar to any design previously filed.
Registration. See above Patents.
Enforcement and remedies. See above, Trade marks.
Remedies in infringement actions include injunctions and compensation for damage.
Defences to infringement actions include use for experimental or research purposes, use of vessels or aircraft passing through Japan and products existing in Japan before filing of the application, invalidity of the right, prior user's right, no infringement and exhaustion of the right.
Length of protection and renewability. Registered design protection is effective on registration and expires 20 years after the date of registration.
Definition and legal requirements. Under the Copyright Act, copyright arises automatically without registration on the production of thoughts or sentiments that are expressed in a creative way, and that fall into the category of literary, scientific, artistic or musical works.
Protection. Copyright is protected without registration, However, assignment of copy right cannot be claimed against a third party unless the right has been registered. The Agency of Cultural Affairs and the Software Information Center (SOFTIC) for computer program registration are regulatory authorities for registration.
Enforcement and remedies. See above, Patents.
Remedies in infringement actions include injunctions, compensation for damage and measures to restore credibility.
Defences to infringement actions include reproduction for private or citation use, non-profit purposes, reporting a current event, judicial proceedings, no infringement and exhaustion of the right.
Length of protection and renewability. A copyright is effective at the time of creation of the work and continues for 50 years following the death of the author (for a cinematographic work, 70 years from publication).
Definition and legal requirements. Under the Unfair Competition Prevention Act, designs can be protected as a configuration of goods, (meaning the external and internal shape of goods and the pattern, colour, gloss and texture combined with the shape) that can be determined by consumers in normal use. If a design is very distinctive and well-known, it can also be protected under the Copyright Act.
Enforcement and remedies. Remedies in infringement actions include injunctions and compensation for damage.
Defences to infringement actions include:
Lack of imitation.
That the configuration is indispensable for ensuring the function of the goods.
Expiration of the protection term.
Lack of knowledge.
Not being grossly negligent of the fact that the goods imitate the configuration of another individual's goods at the time the goods are acquired.
Length of protection.
Protection under the Unfair Competition Prevention Act arises on creation and lasts for three years.
Definition and legal requirements. A trade secret is protected under the Unfair Competition Prevention Act if it consists of technical or business information that is useful for commercial activities and is kept secret and not publicly known.
Enforcement and remedies. Remedies in infringement actions include injunctions and compensation for damage.
Defences to infringement actions include the fact that the alleged trade secret does not meet the requirements, lack of infringement and that the trade secret was used or disclosed under a right acquired by the defendant.
There are no general laws regulating marketing agreements. However, guidelines exist under the Antimonopoly Act.
Agency and distribution
There are no general laws and regulations in Japan that regulate agency and distribution agreements.
However, there are a number of judicial precedents where the validity of the termination of agency and distribution agreements has been disputed. Courts rule on a case by case basis and no unified standards have arisen yet. However, in many cases, regardless of the provisions of agency and distribution agreements, courts have required suppliers to allow for certain grace periods before the termination of their agreements in order for the agent/distributor to prepare another business or to collect their investment for the supplier.
The Antimonopoly Act Guidelines to Distribution Systems and Business Practices provide cases where employing exclusive distributorship agreements are considered an unfair trade practice under the Antimonopoly Act.
There are no general laws and regulations in Japan that regulate franchise agreements.
The Act for Promotion of Small and Medium Retail Business requires franchisers to deliver franchisees the material terms of their franchise agreement in writing and to explain them before entering into the agreements. These terms include provisions regarding the:
Deposits to be paid by a franchisee.
Terms of sale of products by a franchiser to a franchisee.
Management instruction by a franchiser.
Display of trademark and trade name (among others) licensed to a franchisee.
Term, renewal and termination of the franchise agreement.
The Antimonopoly Act Guidelines to Franchise Systems provide cases where a franchise agreement is considered an unfair trade and becomes subject to the provisions of the Antimonopoly Act.
There are no general laws and regulations in Japan that regulate e-commerce.
However, several laws regulate certain aspects of e-commerce. For example, the Act on Special Provisions to the Civil Code Concerning Electronic Consumer Contracts and Electronic Acceptance Notice provides:
An electronic agreement enters into effect when acceptance of an offer reaches a counterparty. For e-mail, it is usually interpreted to have reached the counterparty when the e-mail has been recorded in the mailbox of the counterparty and becomes legible. Under the Civil Code, an agreement between parties in remote locations enters into effect when acceptance of an offer by a counterparty is made.
If a consumer makes an unintentional offer by mistake, he may claim invalidity of the offer even if he has committed gross negligence. This is except where a seller has taken measures to give the consumer an opportunity to confirm his intention to make the offer and to confirm the contents of the offer, or where the consumer voluntarily waives the opportunity.
Under the Civil Code, a party cannot claim invalidity of his legal conduct made by a mistake if he has committed gross negligence.
The Act on Specified Commercial Transactions regulates the mail-order of specified products and services, which includes e-commerce between a consumer and a business entity. The business entity offering specified products and services must present certain matters, including terms and conditions of the offer and the identity of the business entity and it is prohibited from using misleading advertisements. It is also prohibited from transmitting unsolicited e-mail advertisements.
The Act on Regulation of Transmission of Specified Electronic Mail regulates advertisements sent by e-mail. The Act has adopted an "opt-in" principle since 2008. Advertisement by e-mail can only be sent to those who have agreed in advance to receive such advertisements.
The Act on Electronic Signatures and Certification Business provides requirements and procedures to be met when using electronic signatures.
The Act against Unjustifiable Premiums and Misleading Representations (Premiums and Representations Act) generally regulates the content of advertisements. The Premiums and Representations Act prohibits misleading representations relating to:
Quality (for standards and other particulars of goods or services).
The terms and conditions of goods or services. Misleading representations are defined as those that could cause a general consumer to misapprehend that the goods or services being provided are better than the actual goods or services, or alternatively, are better than other providers of the same or similar kinds of goods or services.
The Premiums and Representations Act permits establishment of the Code of Fair Competition (that is, voluntary rules with respect to premiums and representations by a business entity or trade association to be adopted on an authorisation by a competent authority). Currently, there are 104 Codes of Fair Competition for various industries (including, food, alcohol, commodities, household appliances, drugs and cosmetics, publication, automobiles and real estate).
The Act on the Protection of Personal Information (APPI) is the main data protection legislation in Japan and provides fundamental principles for the handling and protection of personal information. The APPI requires a business operator handling personal information to:
Specify the purpose of the use of personal information.
Take certain measures to protect personal information.
A business operator handling personal information is defined as an entity that has a total number of specific individuals (for example, 5,000 or more) identified by personal information constituting a personal information database that is used to operate its business. The various ministries (including the Ministry of Justice, the Ministry of Finance, the Ministry of Economy, Trade and Industry, the Ministry of Welfare and Labour and the Ministry of General Affairs) stipulate guidelines for the handling and protection of personal information for specific industries. There are currently 40 guidelines for 27 industries, including, medical, finance, telecommunications, economic and employment services industries.
The Product Liability Act was enacted in 1994 and regulates product liability and product safety. It stipulates the liability of the manufacturer (for loss of life or injury to the body or the property of others) caused by a defect in the product manufactured, processed or imported by the manufacturer. The Product Liability Act supplements the Civil Code, and shifts the burden of proof of negligence to the manufacturer. The manufacturer will not be exempted from liability unless it can prove that the defect could not have been discovered due to the scientific or technical knowledge at the time when the manufacturer delivered the product. The right to damages under the Product Liability Act ends if:
The consumer does not exercise the right within three years from the time that he became aware of the damages and the party liable for the damages.
Ten years have lapsed from the time when the manufacturer delivered the product.
Main business organisations
Japan External Trade Organisation (JETRO)
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)
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
Main activities. The ministry is responsible for the establishment of and amendments to the Civil Code and Companies Act (among others). The Ministry is also responsible for commercial and real estate registration and immigration control.
Ministry of Finance (MOF)
Main activities. The ministry is responsible for the national budget, tax, customs and tariffs, treasury systems and foreign exchange control (among others).
National Tax Agency
Main activities. The agency, as an external body of the Ministry of Finance, is in charge of assessing and collecting taxes.
Japan Patent Office (JPO)
Main activities. The JPO is the regulatory authority for the registration of intellectual property.
Japan Fair Trade Commission (JFTC)
Main activities. The commission is responsible for the enforcement of the Antimonopoly Act and related laws.
Ministry of Economy, Trade and Industry
Main activities. The ministry is responsible for planning for the development of the economy and to ensure Japan has a stable supply of natural resources and energy.
Japan External Trade Organisation (JETRO)
Description. This website of JETRO introduces investment incentive programs provided by national and prefectural level.
Civil Laws Association
Description. This website managed by Civil Laws Association offers services for providing registered information of corporation and real estate in Japan. There is no English translation.
Ministry of Foreign Affairs
Description. This website of Ministry of Foreign Affairs provides comprehensive information about working visa in Japan.
Description. This website of MOF provides updated information about corporate tax in Japan.
Japan Pension Service
Description. This website of Japan Pension Service provides general information about social security system in Japan.
Description. This website of MOF provides information about customs duty in Japan including the current applicable tariff schedule.
Description. This website of JFTC provides general information about legislation related to the Antimonopoly Act.
Kazuyoshi Furusumi, Partner
Nishimura & Asahi
Areas of practice. General corporate; mergers and acquisitions; international transactions.
Acting for Tomy in its 100% acquisition through tender offer of RC2 Corporation, a Nasdaq listed company.
Acting for DOWA Metals & Mining in its joint acquisition with Sojitsu and Furukawa, of a 25% interest in a Gibraltar copper mine in Canada.
Acting for Mita Securities in its acquisition of 100% shares of Unimat Securities by a tender offer and subsequent squeeze-out procedures.
Acting for Toshiba Corporation in the sale of its system LSI back-end process operations and certain assets to Nakaya Microdevices Corporation and Amkor Technology, Inc. in connection with the formation among the parties of a new joint venture in Japan.
Maho Oishi, Associate
Nishimura & Asahi
Areas of practice. General corporate; M&A; international transactions, labour law.
Publications. Japanese-English Model Work Rules (2nd Edition) (Co-author) 2014 Chuo-Keizaisha.