In 2020, Japan tightened foreign investment rules with the amendments to the Foreign Exchange and Foreign Trade Act (FEFTA). When the amendment entered into force on 7th June 2020, it expanded the scope of foreign investment reviews, lowered the threshold for screening the purchase of listed companies’ shares to acquisitions at 1 percent or more, and introduced a new prior notification exemption scheme for share acquisitions.
Last month the Ministry of Finance (MoF) published the latest list of classifications of listed companies subject to pre-notification requirements. With this in mind, we thought we would take a look at some of the most frequently asked question we receive on the requirements:
Q. What are the FEFTA investor types?
The Foreign Exchange and Foreign Trade Act (FEFTA) defines three different types of investors based on their risks the posed to Japan’s national security. The investor types provided are:
- Eligible Foreign Financial Institutions
- General Investors
- Non-Qualified Foreign Investors
Q. How are companies classified under FEFTA?
The Ministry of Finance has published a list of over 3000 companies of which 518 companies in 12 sectors are deemed important to Japan’s national security.
This list classifies listed companies in Japan into the following categories:
- Companies conducting business activities only in non-designated business sectors (subject to post-investment report only);
- Companies conducting business activities in designated business sectors other than core sectors; or
- Companies conducting business activities in core sectors
Q. What are the applicable threshold under FEFTA?
The table below summaries the applicable thresholds depending on the type of investor:
| Type of Investors | Sector | Prior-notification of stock Purchases | Post-investment report | ||
|---|---|---|---|---|---|
| Initial | Subsequent | Initial | Subsequent | ||
| Eligible Foreign Financial Institutions | Designated business sectors with material implications for national security (Core) | Exemption | Exemption | 10% | Any trade |
| Other designated business sectors (non-core) | Exemption | Exemption | 10% | Any trade | |
| Companies conducting business activities only in non-designated business sectors (subject to post-investment report only) | N/A | N/A | 10% | Any trade | |
| General investors (including SWFs and public pension funds accredited by the authorities) | Designated business sectors with material implications for national security (Core) | 10% | Any trade | 1% | 3%, 10% & any trade |
| Other designated business sectors (non-core) | Exemption | Exemption | 1% | 3%, 10% & any trade | |
| Companies conducting business activities only in non-designated business sectors (subject to post-investment report only) | N/A | N/A | 10% | Any trade | |
| Investors with a record of sanction due to violation of the FEFTA State-owned enterprises (except those who are accredited by the authorities) | Designated business sectors with material implications for national security (Core) | 1 | Any trade | 1% | Any trade |
| Other designated business sectors (non-core) | 1 | Any trade | 1% | Any trade | |
| Companies conducting business activities only in non-designated business sectors (subject to post-investment report only) | N/A | N/A | 10% | Any trade | |
Q. How do foreign investors know which category a listed company falls within?
To assist foreign investors, the Japan Ministry of Finance (MoF) publishes an exhaustive list indicating for all listed companies in Japan, whether their activities fall within non-designated sectors, designated sectors other than core sectors, or core sectors.
The list provides:
- Security Code
- ISIN Code
- Issuer Name
- Classification
The classification number assigned to each issuer allows foreign investors to determine which of the following categories the listed company falls within:
- Companies subject to post-investment report only
- Companies for which prior-notification is required but exemption is applicable
- Companies for which prior-notification is required and exemption is not applicable
Q. Where can I find the latest FEFTA Classification List?
You can download the latest FEFTA Classification List via the following link:
https://www.mof.go.jp/policy/international_policy/gaitame_kawase/fdi/list.xlsx
Q. Are there any exemptions under FEFTA?
The following are the conditions which much be met in order for exemptions to apply:
Exemption Conditions
- Investors or their closely-related persons will not become board members of the investee company.
- Investors will not propose to the general shareholders meeting transfer or disposition of investee company’s business activities in the designated business sectors.
- Investors will not access non-public information about the investee company’s technology in relation with business activities in the designated business sectors.
Exemption Conditions on Core Sectorsʼ Business Activities
- Investors will not attend the investee companies executive board or committees that make important decisions in these activities.
- Investors will not make proposals, in a written form, to the executive board of the investee companies or board members requiring their responses and/or actions by certain deadlines.
Q. How do you make a filing under FEFTA?
Investments that require pre-transactional approval must be notified to the BoJ before the investment is made. The notification must specify the purpose of the investment, the amount, the time and other information as specified by Cabinet Order. Once the notification is submitted, there is a 30-day waiting period during which the investment must not be executed.
Post-investment reports mainly serve statistical purposes and must be filed within 45 days after the respective investment is made.
How we can help!
If you’re worried about keeping track of updates to the FEFTA excel and missing issuers moving from one category to another, get in touch,
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