FEFTA Inward Direct Investment: Prior Notification and 45-Day Reports

When a foreign investor acquires shares in a Japanese company, or takes any other step that counts as “inward direct investment, etc.” under the Foreign Exchange and Foreign Trade Act (外為法, FEFTA), it must file either a prior notification or a post-investment report through the Bank of Japan, depending on the business sector and the nature of the acquisition. A prior notification is filed before the investment, which then cannot be made for 30 days after the notification is accepted. A post-investment report is filed within 45 days of the date of the investment.

What counts as inward direct investment under FEFTA

FEFTA treats cross-border transactions as free in principle. Alongside that principle, it sets up a mechanism to screen investments that could threaten national security and similar interests. What it screens is “inward direct investment, etc.” (対内直接投資等).

Main transactions covered

• Acquiring shares or equity interests in an unlisted company (even a single share)
• Acquiring shares in a listed company that bring the investor’s shareholding or voting rights to 1% or more
• Establishing a branch or similar office in Japan by a foreign company (in certain cases)
• Certain other acts, such as consenting to a change in a company’s business purpose

Setting up a subsidiary in Japan, with the foreign parent subscribing for shares at incorporation, also counts as acquiring shares in an unlisted company. Checking FEFTA is therefore one of the very first steps in entering the Japanese market.

Who is a foreign investor

A “foreign investor” under FEFTA is defined by residency and control, not by nationality. The category mainly includes:

• Individuals who are non-residents
• Corporations established under foreign law, or with their principal office outside Japan
• Companies in which any of the above directly or indirectly hold 50% or more of the voting rights
• Companies in which non-resident individuals make up a majority of the officers, among others

In practice, this works as follows:

• A Chinese head office sets up a kabushiki kaisha (KK) in Japan: the head office is a foreign investor, and the transaction is an acquisition of shares in an unlisted company
• An individual living in Hong Kong invests in a Japanese company: as a non-resident individual, they are a foreign investor
• A Japanese company in which foreign capital holds 50% or more of the voting rights invests in another company: that Japanese company is also a foreign investor

A foreign national living in Japan is usually not a foreign investor if they are a resident. Conversely, even a Japanese company is a foreign investor if a foreign parent holds 50% or more of its voting rights, so procedures may be required when it invests in another Japanese company.

When prior notification is required

If the investee (including its subsidiaries and similar entities) operates in a “designated business sector”, prior notification is generally required. The designated sectors are set out in public notices. Besides weapons, aircraft, nuclear power, space, electricity and gas, telecommunications, broadcasting and railways, they include software and information-processing businesses from a cybersecurity perspective.

IT businesses may fall within the designated sectors. The assessment looks at the business actually conducted, not only the purposes listed in the articles of incorporation, so check this early.

Timing and the waiting period

The prior notification is submitted within six months before the planned investment date, through the Bank of Japan, to the Minister of Finance and the minister responsible for the business sector. The investment cannot be made for 30 days after the notification is accepted (the prohibition period).

The prohibition period may be shortened if the investment is judged not to threaten national security and similar interests. If review is needed, it may be extended, and the investor may receive a recommendation to modify or abandon the investment.

Exemption from prior notification

Foreign investors who comply with certain standards, such as not becoming officers and not accessing non-public technical information, may be able to use the exemption from prior notification. However, the exemption is unavailable, or subject to stricter conditions, for investments by foreign governments and related entities and for investments in particularly sensitive sectors (特定業種).

When the exemption is used, a post-investment report is required. For investments in unlisted companies using the exemption, the report must be filed regardless of the shareholding or voting-rights ratio.

Completion report after prior notification

Where an investment is made after a prior notification, a completion report must be filed within 45 days of execution. The notification is not the end of the process.

When a post-investment report is required: the 45-day deadline

Even investments that do not need prior notification may require a post-investment report. The main cases are:

• Certain investments in companies outside the designated sectors (non-designated sectors)
• Investments made using the exemption from prior notification

The post-investment report is filed within 45 days of the date of the investment, in the form prescribed by the Order on Inward Direct Investment (直投命令), through the Bank of Japan, to the Minister of Finance and the minister responsible for the business sector. The forms and filing guides are published on the Bank of Japan website.

Points to watch when setting up a subsidiary

Setting up a subsidiary involves a sequence of steps, from drafting the articles of incorporation to paying in capital and registration, so FEFTA procedures are easily overlooked. In a sector that requires prior notification, the notification must be filed and the prohibition period must expire before the shares are acquired. Because this affects the incorporation timetable, check it at the planning stage.

For a post-investment report, confirm case by case which date counts as “the date of the investment”, since the 45 days run from that date. Failing to report, or filing a false report, may be subject to penalties under FEFTA. For the overall incorporation process, see how foreign nationals and companies set up a company in Japan.

Process and points to check

1. Confirm whether the investor is a foreign investor
2. Confirm whether the planned transaction counts as inward direct investment
3. Confirm whether the business of the investee (including its subsidiaries and similar entities) falls within a designated sector
4. Decide whether prior notification, the exemption or a post-investment report applies
5. Submit the documents to the Bank of Japan and manage the deadlines

The documents set out details such as the investor’s name and nationality, the shareholder structure, the investee’s business and the number of shares to be acquired. If you are unsure, you can consult the Bank of Japan’s FEFTA filing desk.

The same checks apply when acquiring an existing Japanese company. For the full M&A process, see how to acquire a Japanese company (M&A).

Key points of the 2026 FEFTA amendment

On May 29, 2026, an amendment to FEFTA revising the screening of inward direct investment was enacted, and it was promulgated on June 5. Its main elements are:

• Bringing indirect acquisitions, which strengthen control over Japanese companies through foreign corporations and similar vehicles, within the scope of screening
• Clarifying risk-mitigation measures as items to be included in notifications
• Establishing a cross-ministerial Committee on Foreign Investment in Japan (対日外国投資委員会)

The specific scope of indirect acquisitions and the criteria for deciding whether the new notifications are required will be set by cabinet and ministerial orders. If a foreign group company that holds shares in a Japanese company is planning a change of shareholders or a restructuring, check early, including how the timing relates to the effective date.

Apart from certain provisions, the amendment takes effect on a date to be set by cabinet order within one year of promulgation, and the related cabinet and ministerial orders are being prepared. This article is based on the rules in force as of October 1, 2026. Check the latest guidance from the Ministry of Finance and the Bank of Japan for the effective date and any new forms.

Summary

An investment by a foreign investor in a Japanese company, including setting up a subsidiary, counts as inward direct investment under FEFTA. In a designated sector, prior notification and the 30-day prohibition period apply; outside them, a post-investment report within 45 days may still be required. Because the 2026 amendment is set to widen the scope, it is important to assess each case against the latest rules.

Working with partner administrative scriveners (行政書士) and attorneys, TIMOA helps confirm whether FEFTA filings are needed, prepares prior notifications and post-investment reports, and aligns them with the incorporation timetable. To weigh your entry structure, see branch vs subsidiary in Japan; for our full support, see Japan Entry & Company Setup.