Contracts in Japan: Governing Law, Jurisdiction and Stamp Duty

When a foreign company concludes a contract in Japan, three points come first: the governing law (which country’s law interprets the contract), the method of dispute resolution (which country’s courts, or arbitration) and stamp duty. In principle the parties are free to choose the governing law, but there are limits for consumer and employment contracts. Paper contracts may be subject to stamp duty, but electronic contracts and contracts executed outside Japan are not.

Choosing the governing law: the Japanese rules

In Japan, the governing law of an international contract is determined under the Act on General Rules for Application of Laws (法の適用に関する通則法, the General Rules Act).

• Choice by the parties (Article 7): the law of the country chosen in the contract applies. The parties may choose Japanese law, PRC law, Hong Kong law, English law and so on.
• Absence of a choice (Article 8): the law of the place most closely connected with the contract applies. Which place is most closely connected is easily disputed, so always specify the governing law.
• Special rule for consumer contracts (Article 11): even if a foreign law is chosen, the mandatory provisions of the consumer’s place of habitual residence apply if the consumer so requests.
• Special rule for employment contracts (Article 12): if the employee so requests, the mandatory provisions of the most closely connected place (usually where the work is performed) apply.

When choosing the governing law, also consider who will interpret that law if a dispute arises. If a dispute in a Japanese court is governed by foreign law, the party relying on it bears the burden of proving the content of that law. Conversely, a Japanese business partner may not accept the law of your home country. In negotiations, it is practical to consider the governing law and the method of dispute resolution as a package.

Whatever the governing law, transactions conducted in Japan are subject to laws such as the Antimonopoly Act, the Act on the Protection of Personal Information and the Labor Standards Act. Outsourcing manufacturing or services to Japanese SMEs may also fall under the Subcontract Act (下請法; from January 2026, the Act on Ensuring Fair Transactions with Small and Medium-sized Subcontractors, 中小受託取引適正化法). For contracts between Japanese companies, or transactions completed entirely within Japan, Japanese law is usually chosen as the governing law.

Dispute resolution: jurisdiction and arbitration

Agreements on international jurisdiction

The parties can agree on which country’s courts will resolve disputes (Article 3-7 of the Code of Civil Procedure). The following rules apply to such agreements.

• The agreement must concern actions based on a specified legal relationship and be made in writing (including electronic records).
• An agreement that actions may be brought only in a foreign court cannot be invoked if that court is unable to exercise jurisdiction.
• For disputes over consumer or employment contracts, the effect of the agreement is limited.

Also state whether jurisdiction is exclusive or non-exclusive (allowing actions in other courts as well). When choosing a court in Japan, it is common to specify the court of first instance, such as the Tokyo District Court.

Enforcing judgments and arbitration

Winning a lawsuit is of little use if the judgment cannot be enforced in the country where the counterparty’s assets are located. To enforce a foreign judgment in Japan, requirements such as reciprocity must be met (Article 118 of the Code of Civil Procedure). It has been pointed out that the mutual recognition and enforcement of judgments between Japan and mainland China faces difficulties.

For this reason, arbitration is often chosen for contracts with companies in mainland China. Arbitration is in principle confidential, and another advantage is that arbitrators with expertise in the relevant field can be chosen. Both Japan and China are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The clause should specify the arbitral institution, seat of arbitration, language and number of arbitrators.

Contracts subject to stamp duty and the amounts

In Japan, when a taxable document under the Stamp Tax Act (20 categories) is created on paper, the person who creates it pays the tax by affixing revenue stamps and cancelling them. The main types of contract are as follows.

Contracts for the transfer of real estate and for construction work benefit from reduced rates if created on or before 31 March 2027.

Electronic contracts and contracts executed abroad

• Electronic contracts: stamp duty is a tax on paper documents. Contracts concluded as electronic data (electromagnetic records) are not taxed.
• Contracts executed outside Japan: the Stamp Tax Act applies to documents created in Japan. Documents created outside Japan are not taxed even if they are kept or used in Japan.
• Determining the place of execution: for a contract signed by both parties, the place where the last signature is made is the place of execution. If the Japanese party signs first and the overseas counterparty signs last, the contract is executed abroad. Conversely, if the last signature is made in Japan, it is taxed.

Photocopies of a contract are generally not taxed. However, even a copy or duplicate is a taxable document, just like the original, if it bears the signatures or seals of the contracting parties and is created to prove the formation of the contract. If two originals are made so that each party keeps one, both are taxable.

Failing to affix stamps does not affect the validity of the contract, but a penalty tax of three times the unpaid stamp duty is imposed. If the failure is voluntarily disclosed before a tax audit, this is reduced to 1.1 times. When in doubt, check with the tax office or a certified tax accountant (税理士).

Signatures, seals and contract language

Under the Japanese Civil Code, except where laws and regulations provide otherwise, a contract is formed by agreement alone. A seal is not a legal requirement. However, some contracts, such as guarantee contracts, must be in writing.

• Signing authority: at a Japanese company, a representative such as the representative director concludes contracts. Confirm the representative with the company’s certificate of all registered matters (履歴事項全部証明書).
• Seals: Japanese business partners often ask for the company seal (representative seal). On company seals, see Company seals, seal certificates and e-signatures.
• Signing authority on the foreign side: when an overseas company signs, Japanese business partners may ask for a board resolution or power of attorney showing the signatory’s authority.
• Language: if the contract is in Japanese and English or Chinese, specify which language prevails. If a translation is prepared later, also state which version is the authoritative original.

Concluding contracts electronically

Electronic contracts incur no stamp duty and can be concluded quickly with overseas counterparties. An electronic document bearing the person’s own electronic signature is presumed to have been duly executed (Article 3 of the Act on Electronic Signatures and Certification Business). When using a cloud-based e-contract service, check how signatories’ identities are verified and how contract data is stored.

Under the Electronic Books Maintenance Act, contract data received electronically must be kept as electronic data in a manner that meets certain requirements. Printing it out and keeping it on paper is not sufficient.

Key clauses for foreign companies to review

Anti-social forces clauses are covered in Anti-social forces screening, and contracts with employees in Employment contracts and work rules.

Summary

For contracts in Japan, check four points first: governing law, the method of dispute resolution, stamp duty, and signing authority and language. Even when using your home-country templates, adjustments are needed to fit Japanese mandatory provisions and business practice. Working with partner attorneys and certified tax accountants, TIMOA helps review contracts, prepare parallel translations against English and Chinese contracts, and organize how contracts are executed. For details, see IP, Risk & Compliance.