Foreign investment issuesInvestment restrictions
What restrictions, fees and taxes exist on foreign investment in or ownership of a project and related companies? Do the restrictions also apply to foreign investors or creditors in the event of foreclosure on the project and related companies? Are there any bilateral investment treaties with key nation states or other international treaties that may afford relief from such restrictions? Would such activities require registration with any government authority?
If a foreign investor has acquired shares or equity in a Japanese corporation that exceeds certain thresholds, it must report such holdings to the relevant minister. If the Japanese corporation is engaged in certain restricted industries or industry sectors, a foreign investor intending to make a direct investment in such a corporation must provide advanced notice pursuant to the relevant cabinet order to the relevant minister setting out the details of the proposed investment. Depending on the industry sector (eg, telecommunications, airlines or broadcasting), certain maximum foreign ownership restrictions may also apply.
No specific taxes or fees apply to foreign ownership of project companies, but transfer pricing rules, thin capitalisation tax rules or earnings stripping rules may apply to related party transactions.
Japan has entered into bilateral investment treaties with several countries (principally in Asia). However, these bilateral investment treaties typically do not provide exemptions to current foreign ownership restrictions.Insurance restrictions
What restrictions, fees and taxes exist on insurance policies over project assets provided or guaranteed by foreign insurance companies? May such policies be payable to foreign secured creditors?
Although a licence and a local presence are required for any company (including any foreign insurance company) to carry out insurance business activities in Japan, there are no other restrictions or fees on insurance policies over project assets provided by foreign insurance companies. However, payments above a certain threshold amount by a foreign insurance company to a Japanese company need to be reported to the Finance Minister under the Foreign Exchange and Foreign Trade Control Law.
Proceeds from insurance policies over project assets located in Japan may be categorised as Japanese-source income even if the relevant recipient is located offshore and has no permanent establishment in Japan, and therefore may be subject to tax in Japan. Exemptions may apply depending on the applicable tax treaty.
Local insurance is not required under Japanese law. Insurance policies over project assets provided by foreign insurance companies may be payable to foreign secured creditors.Worker restrictions
What restrictions exist on bringing in foreign workers, technicians or executives to work on a project?
Foreign workers, technicians or executives will require an appropriate visa to work in Japan. The visa requirements vary depending on a number of factors, including the type of work to be carried out by the relevant foreign employee.
Executives are required to have at least three years’ experience in the operation or management of a business, or both (including any period of graduate studies majoring in business operations or management, or both) and must be paid a salary at least equivalent to that of a Japanese national performing equivalent or comparable work.
Technicians are required to have graduated from or completed a college or university level programme or otherwise acquired the equivalent education (eg, majoring in a subject relevant to the skills or knowledge, or both, necessary for performing the job concerned) or have at least 10 years’ experience relevant to the job to be performed (including the period spent studying the relevant skills or knowledge, or both, in college or university, upper secondary school or a specialised course of study at an advanced vocational school), and must be paid a salary at least equivalent to that of a Japanese national performing equivalent or comparable work.
Requirements in relation to foreign workers vary considerably depending on their job description.Equipment restrictions
What restrictions exist on the importation of project equipment?
Importation of project equipment is subject to general import and export restrictions under Japanese law, and as such, certain items may be subject to import restrictions pursuant to the Foreign Exchange and Foreign Trade Control Act. There are otherwise no overall restrictions or limitations on the importation of typical project equipment, provided that import duties may apply to the importation of certain equipment from specified countries.Nationalisation laws
What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected (from nationalisation or expropriation)?
The Japanese Constitution provides that private property cannot be nationalised or expropriated without just compensation. Accordingly, the Compulsory Purchase of Land Act (Act No. 219 of 1951) provides that a person who has ownership of or rights in land that is nationalised or expropriated is entitled to compensation. Such compensation may include compensation for business losses and other damages in addition to the value of the property nationalised or expropriated.
There are, however, no rights of ownership or any other property rights that would preclude the nationalisation or expropriation of project companies or assets, and no forms of investment are specially protected from nationalisation or expropriation.
The public guidance on Concession Rights suggests that compensation for the cancellation of Concession Rights for public purposes would be determined based on the Compulsory Purchase of Land Act, which may not be sufficient to cover the private sector’s damage. In this regard, however, the PFI Act and guidance do not restrict the formula of such compensation if differently agreed between the public and private sectors.