Japan is the third largest economy in the world and is known for market leaders and important players in the automotive, electronics and other manufacturing industries.

See Question 2.

According to statistics published by the Japanese Cabinet Office, the manufacturing and service sectors represent 20.5% and 32.1% of GDP respectively. Japan has long been known for its manufacturing capacity, and the manufacturing sector remains one of the most powerful business sectors in Japan. With the rapid development of digitalisation, many Japanese companies are investing in cutting edge technologies such as the "internet of things", robotics, AI and big data.

The current population of Japan is approximately 125 million as of 1 July 2021, based on statistics published by the Ministry of Internal Affairs and Communications. The Japanese population has been continuously decreasing over the last eight years, and approximately 28.8% of the population is over the age of 65.

There is no official language stipulated by law, but the most widely spoken language and the language most widely used in business in Japan is Japanese. However, doing business in English is generally not an issue as many Japanese people now speak English. Fundamental information necessary to do business in Japan is generally available in English.

Japan is a relationship-oriented culture, particularly when it comes to doing business. While documenting contractual relationships is becoming more common, Japanese corporations and businessmen still tend to value trust before doing business with others. Although it is changing and there are many exceptions, the decision-making of Japanese corporations can take time as multiple layers of approvals would normally be required. While Japanese businessmen normally speak English, they may prefer to use more polite but indirect ways of expression.

Japan has been struggling with its rapidly aging population, and many businesses are seeking growth opportunities abroad, which have resulted in increasing interest in outbound M&A transactions by Japanese companies.

While the COVID-19 pandemic heavily affected the Japanese economy and the Nikkei stock average sharply dropped around March 2020, with the exception of tourism, transportation, restaurant and certain other businesses, the Japanese economy is already recovering from the impact of COVID-19. In particular, the manufacturing sector remains strong and is expected to continue to boost the Japanese economy together with certain other industries that meet new demand arising from the behavioural changes brought about by the pandemic.

Yoshihide Suga became prime minister of Japan in 2020, after the resignation of Shinzo Abe, who had been prime minister eight years. However, due in part to the criticism of his handling of the COVID-19 pandemic, Suga did not seek re-election as the head of the Liberal Democratic Party (LDP), the ruling party of Japan. As a result, the LDP elected former foreign minister Fumio Kishida as the new head of the LDP, and Kishida replaced Suga on 4 October 2021. A general election for the members of Japan's lower house was held on 31 October 2021 and, despite various criticisms regarding the LDP administration and the loss of some seats, including experienced politicians and former cabinet members, the LDP secured a sole majority in the lower house. The upper house election will be held in June 2022 but, barring unexpected events, the LDP administration will likely continue, and significant changes to the political climate are not expected in the near future.

The latest amendment to the Companies Act was approved by the Diet in December 2019 and mostly came into effect as of 1 March 2021. The amendment primarily focuses on corporate governance issues, such as:

The rules applicable to director compensation and directors' and officers' insurance and indemnification have also been streamlined.

The amendment also introduced a new form of corporate reorganisation transaction called a "share delivery" (kabushiki kofu), a form of stock-for-stock acquisition. There is currently a transaction known as a "stock-for-stock exchange" (kabushiki kokan), which is available under the Companies Act, but it can only be adopted when the acquirer intends to acquire all issued shares of the target. However, an acquirer can use a share delivery to acquire only part of the issued shares of the target in exchange for its own shares (for example, an exchange offer for a listed target), as long as the target is not a subsidiary of the acquirer before the acquisition but becomes one after the acquisition.

In tune with the global tendency to tighten scrutiny of foreign direct investment, Japan made major updates to its foreign investment screening framework by amending the Foreign Exchange and Foreign Trade Act (FEFTA) in 2020. Among other things, the threshold for screening of acquisitions by foreign investors of shares of listed companies engaged in businesses designated as sensitive to national security was drastically lowered from 10% to 1%, which is far lower than the 5% threshold applicable under the large shareholding reporting requirement. To strike a balance, the amended FEFTA concurrently introduced exemptions from such screening, which are available for passive investors who are not related to foreign governments if they comply with certain exemption conditions to ensure that they remain passive investors. The amendment also introduced screening of acquisitions of businesses by foreign investors in the form of asset transfers as well as the exercise of voting rights by foreign investors for certain agenda items such as appointment of directors.

There have also been some updates on important guidelines on corporate governance. The Japanese Financial Services Agency (FSA) introduced a Japanese version of a Stewardship Code in February 2014 and subsequently revised it twice, in May 2017 and in March 2020. The Tokyo Stock Exchange (TSE) adopted the Corporate Governance Code (Governance Code) and revised it in June 2018 and further in June 2021. Concurrently with the revision of the Governance Code, the FSA published the Guidelines for Investor and Company Engagement (Engagement Guidelines). The Governance Code is intended to establish fundamental principles for effective corporate governance for listed companies in Japan and takes the "comply-or-explain" approach with respect to its requirements, as with the codes of the UK and other countries. The Engagement Guidelines were adopted to show paths to effectively "comply or explain" with the Governance Code and the Stewardship Code requirements.

The implementation of the Fair M&A Guidelines is the most notable development in the M&A area. Spurred in part by a Supreme Court decision in July 2016 that clarified the standard of review in an appraisal proceeding in a transaction involving conflicts of interest of controlling shareholders, the Ministry of Economy, Trade and Industry (METI) issued the Fair M&A Guidelines in June 2019. The new guidelines set out basic principles that should be observed to ensure fairness in M&A transactions involving conflicts of interests (such as management buyouts and transactions by a controlling shareholder), as well as guidelines regarding practical measures, including the establishment of an independent special committee. Due in large part to the implementation of the new guidelines, M&A practices in transactions involving conflicts of interests have been rapidly developing, and the parties to transactions involving conflicts of interests have started taking a more cautious approach to ensure procedural fairness in such transactions.

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

There is no legislation that prohibits foreign shareholdings 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.

In addition, a wide range of foreign direct investments in Japan are subject to prior notification or post facto reporting requirement under the Foreign Exchange and Foreign Trade Act (FEFTA). Among other things, any of the following actions by a foreign investor requires a prior notification:

A prior notification must be filed with the Bank of Japan and circulated to and reviewed by the Ministry of Finance and other ministries with jurisdiction over the relevant businesses during the statutory waiting period of 30 days. If the ministries take interest in the prior notification, the waiting period can be extended up to five months, and if they find it necessary, the ministries can recommend and ultimately order a suspension or change in the terms of the investment or action.

The FEFTA affords qualified passive investors exemptions from this prior notification requirement if the investors comply with certain exemption conditions to ensure that they remain passive investors. These exemption conditions include requirements not to:

See above, Government Authorisations.

See above, Government Authorisations.

See above, Government Authorisations.

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

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

The Act on Prevention of Transfer of Criminal Proceeds imposes know-your-customer and reporting obligations on financial institutions and certain other business operators with respect to suspicious transactions.

Japan is eager to invite foreign inward investment. Among other things, Japan has implemented visa programmes for highly skilled professionals since 2012.

Most recently, partly in response to the change in the political environment in Hong Kong, Japan amended the Financial Instruments and Exchange Act in May 2021 and introduced new exemptions from registration obligations available for foreign asset managers to encourage them to move their businesses to Japan. The new exemptions are expected to become available in late 2021.

Certain local governments also provide various incentives to foreign investors.

See above, Grants.

See above, Grants.

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 its 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.

Reporting requirements do not apply to a GK (see Question 9) and so some global companies have incorporated their Japanese subsidiaries in the form of a GK.

A joint stock company (KK) can be established by registering its establishment in the commercial registry with the local legal bureau with 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) is required (the minimum fee is JPY150,000). A KK is considered to be established when the application for registration is received, although it will take some time before the certificate of the commercial registry becomes available.

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

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).

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 the 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 Instruments 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.

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

Contributions-in-kind (issuances of shares for non-cash consideration) are allowed and do 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.

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 one or more of the following:

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.

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 of incorporation. 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.

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 must be a Japanese resident, but the requirement was abolished in 2015.

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 judgement, unless there is a flaw in their fact finding or their decision-making is grossly unreasonable. Shareholder derivative actions can be available. If a director or officer was wilfully 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.

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:

There is no single statute regulating environmental matters in their entirety, but various statutes have been enacted to address specific areas of concerns. Among other things, the Soil Contamination Countermeasures Act obliges landowners to conduct soil assessments, and if any contamination is identified, local governors may impose certain remediation obligations on them.

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 still apply to workers in Japan.

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:

Among other things, there are restrictions on working hours and paid leave, and it is necessary to follow statutory required steps to have employees work overtime or on holidays, and to and pay overtime and holiday work pay. There are also minimum wage regulations, and specific measures to ensure occupational health and safety are mandatory for factory workers.

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

Japanese companies usually prepare a set of work rules that specify the terms of employment, and must 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 is considered invalid. A unilateral change by the employer of the work rules that adversely affects employees is void unless the employer has made the change known to the employees and the adverse change is found to be reasonable under the circumstances.

While the employment statutes set out various detailed duties for both the employer and the employee, the employment relationship will comprise some implied obligations of the employer and the employee, including the employer's obligation to pay due attention to the safety of the employee, and the employee’s confidentiality obligation.

A labour union can enter into a collective agreement with the employer. While a collective agreement can cover various agreements between the union and the employer, any agreements therein on the terms of employment of the unionised employees are granted special protection under the Labour Union Act, and such terms will supersede and replace any terms of employment set out in the work rules or individually agreed with any unionised employee that are less favourable to the unionised employees than the terms agreed in the collective agreement.

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

Permanent residency in Japan is not easily available, and would, in principle, require ten years of consecutive residence in Japan and sufficient assets or skills to maintain a stable living.

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 an applicable 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 17.

Employees hired under a permanent employment contract cannot be terminated from employment except on objective and reasonable grounds. 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 the employer to convert their employment status to permanent on completion of a five-year period.

Dismissals require objective and reasonable grounds, such as:

Statutory Minimum Notice. 30 days' prior written notice (or substitute compensation) is always necessary even if the termination is otherwise valid.

Severance Payment. There is no statutorily required severance payment. However, it is customary for an employer to offer a severance package to induce voluntary resignation of an employee, in part due to the strict restrictions on termination by the employer.

Grounds for Unfair Dismissal. Any termination without a reasonable ground will be considered null and void.

Remedies. Employees who dispute their termination can bring an action for reinstatement, and for damages caused by the termination. In practice, it is common for the employer and the employee to agree on a settlement where the employer pays the employee monetary compensation instead of reinstatement.

While there is a specific statute prohibiting termination because of issues such as pregnancy, any termination without a reasonable ground would be void in any case.

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

To be valid, a termination based on redundancy must follow due process including sufficient explanation to, and faithful consultation with, the affected employees.

Employees who are Japanese residents for tax purposes and non-resident employees are subject to different rules under the Income Tax Act.

Individuals are classified as a "resident" for tax purposes if they either:

The Supreme Court of Japan has held that whether an individual has a domicile in Japan must be determined using objective factors, including:

Residents (except for non-permanent residents) are subject to income tax on all domestic and foreign-source income, under a progressive tax system.

If a Japanese resident of non-Japanese nationality has been domiciled or has resided in Japan for an aggregate period of no more than five years within the last ten years, they are classified as a "non-permanent resident". Non-permanent residents are subject to income tax on:

Tax resident employees are subject to income tax and local individual inhabitant tax.

Income Tax. Japan has a progressive tax system for individual income tax in which higher rates apply to higher income brackets. Currently, income tax rates range from 5% to 45%. In January 2013, a 2.1% surtax on income tax was imposed until 2037 as a special income tax to fund reconstruction efforts in response to the Great East Japan Earthquake of March 2011.

In general, employees are entitled to certain statutory deductions from gross salary to calculate taxable income.

Local Individual Inhabitant Tax. This is a local tax that 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 income, and the income-based portion is calculated based on the resident's income. The rate of the income-based portion is generally 10% of the previous year's taxable income.

Social Security Contributions. Employees must make four different social security contributions:

In general, employees are not required to file tax returns with respect to salary income because these taxes and social security contributions are withheld from the monthly salary by the employer. However, if the annual salary exceeds JPY20 million, the employee must file a tax return for the relevant year.

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

Employers must withhold income tax, local individual inhabitant tax and social security contributions from the salary of employees and pay the withheld amount to the relevant tax authorities.

The employer must bear half the premium payments for the four social security contributions (see above, Tax Resident Employees: Social security contributions). Workers' accident compensation insurance and child allowance are solely borne by the employer. The rate of total premiums borne by an employer is around 15% of the total annual salary.

Domestic and foreign corporations are subject to different rules under the Corporation Tax Act.

A "domestic corporation" is a corporation headquartered in Japan or a corporation whose main office is located in Japan. This generally means that a company incorporated under the laws of Japan is a domestic corporation and a company incorporated in any other jurisdiction is not.

Domestic corporations are subject to corporate tax for all domestic- and foreign-source income with an exception for dividends received from non-Japanese affiliates (see Question 22, Dividends received).

Any corporation that is not a domestic corporation (that is, a non-Japanese corporation) is referred to as a "foreign corporation".

In general, a foreign corporation is only subject to withholding tax on certain domestic-source income (such as dividends, interest and royalties) unless it has a permanent establishment (PE) in Japan. Even internet sales are not subject to corporate taxation if a foreign corporation does not have a PE in Japan. However, if a foreign corporation has a PE in Japan, it is also subject to corporate tax on income attributable to the PE and must file a tax return.

Business vehicles in Japan are taxed on their worldwide income and must file their corporate tax return and pay corporate taxes within two or three months after the end of their business year.

From 1 April 2021, the main local taxes imposed on a domestic corporation headquartered in Tokyo with more than JPY100 million in stated capital are as follows:

The effective tax rate of a domestic corporation is currently approximately 34% in Tokyo and varies in other parts of Japan depending on the applicable local tax rates.

A non-Japanese corporate shareholder without a permanent establishment (PE) in Japan is subject to withholding tax on dividends from the Japanese corporation. In the absence of any applicable tax treaty, the rate of Japanese withholding tax is generally 20.42%. If Japan has a tax treaty with the country where the non-Japanese corporate shareholder resides that reduces the maximum withholding tax rate or allows exemption from Japanese withholding tax, the reduced tax rate or exemption may be applied.

The same rule applies to interest and IP royalties paid.

When a Japanese company receives dividends from a non-Japanese affiliate in which the Japanese company holds 25% or more of the outstanding or voting shares for at least six months (or if an applicable treaty alternatively provides a ratio less than 25%, it will be the ratio specified in the treaty), 95% of the dividends received are exempt from taxable income, except for dividends that are deductible by the paying non-Japanese affiliate. If these requirements are not met, the dividends received from the relevant non-Japanese corporation are fully subject to corporate income tax.

See above, Dividends Paid.

See above, Dividends paid.

Japan has thin capitalisation rules for cross-border loans that restrict the deductibility of interest paid by a Japanese corporate borrower to foreign affiliates. 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 capital, the interest and other costs of borrowing payable to the affiliate relating to the excess debt are not deductible by the borrower.

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 by a Japanese corporate borrower to a non-Japanese affiliate exceed 50% of earnings before interest, taxes, depreciation and amortisation (EBITDA) of the Japanese corporate borrower, the excess is generally not deductible by the borrower. However, any non-deductible excess can be carried forward for seven fiscal years and is deductible up to the 50% threshold.

Profits of a foreign subsidiary must be included in the taxable income of its Japanese parent company if controlled foreign company (CFC) rules apply.

Under the Japanese CFC rules, a Japanese company must include in its taxable income any income earned by CFCs whose effective tax rate in accordance with local tax laws is less than 30% if both of the following apply:

The taxation method depends on effective tax rate of CFCs as follows:

The Economic Activity Tests are as follows:

There are transfer pricing rules in Japan. If a transaction between a Japanese company and a related non-Japanese 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.

In general, a foreign company is related to a Japanese company if 50% or more of the shares of either company are directly or indirectly owned by the other company or both companies are controlled by the same person.

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 each year. 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 related non-Japanese companies in certain countries to mitigate the tax risk under the transfer pricing rules.

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

As of 1 July 2021, Japan has 66 tax treaties with 75 countries and territories, including Canada, China, France, Germany, Italy, Russia, the UK and US, to avoid double taxation.

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 may lead to criminal penalties and substantial administrative fines. The JFTC also publishes various guidelines to illustrate prohibited restrictive agreements, practices and unilateral conducts.

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

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

Restrictive agreements and practices as well as unilateral conducts are subject to administrative fines ranging from 1% to 10% of the relevant sales or services. Criminal penalties of up to five years' imprisonment or fines of up to JPY5 million can be imposed on individuals, and a fine of up to JPY500 million can be imposed on a legal entity.

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:

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

Revenue thresholds apply to the notification requirements. For share acquisition transactions, the advance notification must be made if both:

The JFTC reviews the horizontal, vertical and conglomerate effects of a transaction, and determines whether the transaction will result in a substantial restriction on competition in any particular market. The JFTC's guidelines provide certain safe-harbour provisions, and if the transaction does not result in the relevant Herfindahl-Hirschman Index exceeding the prescribed threshold, the JFTC will not conduct any substantive review.

Foreign-to-foreign transactions are subject to notification if the thresholds are met. There is no separate test for local effects.

An Act setting out special measures for the application of Japanese merger control for regional banks and shared bus services was enacted in 2020 to facilitate mergers among SMEs in these industries.

In addition, the JFTC provides guidelines on the enforcement of merger control regulations and the procedures for merger filings. While the guidelines are generic in nature, they are regularly updated in response to concerns in certain industries such as platformers.

Both domestic and foreign bribery are regulated in Japan. The Criminal Code regulates domestic bribery of public officials and prohibits giving, offering or promising bribes to public officials in connection with their duties. The Unfair Competition Prevention Law regulates bribery of foreign public officials. Private commercial bribery is not generally regulated except for specific circumstances (for example, company board members are restricted from receiving personal undue benefits in connection with their duties as board members).

Definition and Legal Requirements. An invention can be patented if it involves novelty and an inventive step, and is susceptible to 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) (www.jpo.go.jp/e/system/patent/gaiyo/patent.html).

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. Enforcement is 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.

Definition and Legal Requirements. Marks that can be registered as a trade mark include any character, figure, sign, three-dimensional shape, colour, or combination thereof, or sound, that 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 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 (www.jpo.go.jp/e/system/trademark/gaiyo/trademark.html).

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 Trade mark Act. Enforcement is 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.

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

Registration. Registered designs can be registered with the JPO (www.jpo.go.jp/e/system/design/gaiyo/design.html).

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. Enforcement is 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.

Definition and Legal Requirements. The Unfair Competition Prevention Act considers a sale of an identical 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. Enforcement is through court rulings and civil enforcement proceedings.

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

Definition and Legal Requirements. The Copyright Act provides 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 without 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 Centre (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. Enforcement is through court rulings and civil enforcement proceedings.

Length of Protection and Renewability. Protection becomes available on the creation of the protected work and 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). However, protection for a cinematographic work continues until 70 years has passed after the publication of the work.

Definition and Legal Requirements. The Unfair Competition Prevention Act considers certain acquisitions, uses or disclosures of trade secrets to be 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. Enforcement is 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.

There are no specific statutes regulating agency or distribution agreements. However, in a number of court rulings suppliers have been required to give a termination notice to the agent or distributor sufficiently in advance or provide compensation to dispense with 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.

The Small and Medium-sized Retail Business Promotion Act provides obligations for certain franchisers in the retail or restaurant industry 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, and there are guidelines published by the Japan Fair Trade Commission in this regard.

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.

See Question 35.

There is no regulation generally applicable to all online platforms.

However, the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade prohibits platformers from abuse of their dominant bargaining position. In addition, as digital platformers have been playing a significant role in the market, the Act on Improving Transparency and Fairness of Digital Platforms (TFDPA) was enacted on 1 February 2021 to improve the transparency and fairness of digital platforms.

The basic principle of the TFDPA is to encourage voluntary and proactive measures for the enhancement of transparency and fairness of online trading by platforms. It stipulates necessary measures for digital platforms designated by the Ministry of Economy, Trade and Industry (METI), including requirements for digital platform providers to:

As of 2 April 2021, five major platforms, including Amazon, Apple and Google, are designated platformers subject to the TFDPA. TFDPA also requires the METI Minister to:

If the METI becomes aware of any suspicious conduct that may constitute a violation of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade, the METI Minister can request the Japan Fair Trade Commission (JFTC) to take appropriate measures.

The JFTC conducted a survey of restaurant portal websites and published a related report on 18 March 2020. While the JFTC did not find any clear violation of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade, the JFTC stated in the report that certain conduct by restaurant portal websites tends to constitute abuse of superior bargaining position, discriminatory treatment on trade terms, interference with a competitor's transactions or private monopolisation. The JFTC has made it clear that it will keep closer eyes on the market and will take strict action if necessary.

There are currently no specific regulations on digital advertising. However, based on a report published by Headquarters for Digital Market Competition, it is expected that new guidelines will be prepared at the earliest around the middle of 2022.

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:

The Act on Specified Commercial Transactions provides regulations applicable to online shopping, including regulations for 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.

The Act against Unjustifiable Premiums and Misleading Presentations restricts inducement of customers by means of unjustifiable premiums and misleading representations in connection with transactions of goods and services. The amount of premiums that can be offered to induce customers is limited to a certain amount prescribed by the Act and is determined based on whether the premiums are offered to all customers or only limited customers selected by lottery.

However, the Act does not generally prohibit giving discounts by way of cashback or buy-one, get-one-free campaigns.

There are also detailed guidelines in relation to permissible premiums and unjustifiable premiums published by the Consumer Affairs Agency.

The Act on the Protection of Personal Information sets out 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). Previously, the Act was applicable only to business operators who were 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 as of 30 May 2017, the Act is now applicable to any business operator that 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.

Under the Product Liability Act, any 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. Instead, to avoid liability, the manufacturer must prove that:

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

Main activities. The Ministry is responsible for establishing environmental policies, dealing with environmental conservation, pollution control and nature conservation.

Main activities. The Financial Services Agency oversees the banking, securities and exchange, and insurance sectors.

Main activities. The commission is responsible for the protection of the rights and interests of individuals while taking into consideration proper and effective use of personal information.

Main activities. The Agency is responsible for protecting and promoting consumer rights and interests by shaping consumer policy, requesting other government members to take appropriate actions, and preventing deceptive and unfair business practices through law enforcement.