Regulatory Framework for "Specified Acquisitions" under FEFTA of Japan
In cross-border investments and M&A transactions, the concept of a “Specified Acquisition” (tokutei shutoku) under Japan’s Foreign Exchange and Foreign Trade Act (“FEFTA”) is a critical issue that must be examined whenever foreign investors transfer shares of a Japanese target company (limited to unlisted companies) between themselves. Below is an explanation of the legal framework and practical process relating to “Specified Acquisitions.”
1. Definition and Significance of “Specified Acquisition”
A “Specified Acquisition” (*1) refers to the acquisition by a foreign investor of shares or equity interests in a Japanese unlisted company from another foreign investor by way of transfer.
Example: This may arise where a European parent company transfers all or part of the shares of its Japanese subsidiary to its Indian group company.
Historically, transfers of shares in Japanese unlisted companies between foreign investors were outside the scope of FEFTA regulation. However, in recent years, concerns have increased regarding the leakage of sensitive technologies and national security implications associated with non-listed companies operating important businesses. In response, the 2017 amendment to FEFTA introduced this regulatory framework.
In other words, the system functions as a safeguard to prevent companies that could affect Japan’s “national security” from being transferred among foreign investors without the awareness of Japanese regulatory authorities.
2. Analytical Process for Specified Acquisitions (Typical Workflow)
In practice, where a Specified Acquisition may arise, the following process is generally followed, from due diligence through post-closing reporting.
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1Verification of the Target’s Business Sectors (Due Diligence)
The first step is to examine whether the businesses conducted by the target company (and its subsidiaries) fall within any “Designated Business Sectors” subject to regulation for purposes of Specified Acquisitions. This assessment is typically conducted through review of:
- The articles of incorporation
- Public disclosures
- Questionnaires or information requests to the target
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2Determination of Whether Prior Notification Is Required
A prior notification filing is strictly required if:
- The target’s business falls within a Designated Business Sector, and
- The foreign investor does not qualify for an exemption.
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3Preparation and Submission of Prior Notification
The prior notification must be submitted to the Minister of Finance and the competent minister having jurisdiction over the relevant business sector, through the Bank of Japan, no later than six months prior to the intended acquisition date.
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4Review and Waiting Period
As a general rule, the acquisition (closing) may not be consummated for a 30-day waiting period from the date the notification is accepted. During this period:
- The authorities may issue questions or requests for additional information.
- The government assesses potential impacts on national security and other public interests.
Note: In some cases, the waiting period may be shortened (e.g., to two weeks).
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5Clearance and Closing of the Acquisition
Once the review is completed and clearance is obtained, the parties may proceed with closing the share transfer transaction constituting the Specified Acquisition.
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6Preparation and Submission of Post-Transaction Report
Within 45 days after completion of the Specified Acquisition, a post-closing report must be submitted to the relevant authorities through the Bank of Japan, thereby completing the regulatory procedures。
3. Industries That Should Be Checked in Connection with Specified Acquisitions
The scope of regulation for Specified Acquisitions is limited to certain “Designated Business Sectors” identified under FEFTA, specifically restricted to those designated from the perspective of “national security.” (*2)
Sectors EXCLUDED from Prior Notification
Notably, some sectors that are designated for ordinary inward direct investment are excluded from the prior notification requirement for Specified Acquisitions:
- Public utilities (electricity, gas, etc.)
- Public safety sectors (e.g., biological pharmaceuticals)
- Sectors vital to the Japanese economy (agriculture, forestry, fisheries, etc.)
Core Sectors Requiring Review (*3)
If the target company (or its subsidiaries) engages in these businesses, the transaction will generally be subject to prior notification requirements:
- Weapons, aircraft, aerospace, and nuclear-related industries
- Manufacturing of dual-use goods capable of military application
- Manufacture of infectious disease pharmaceuticals and advanced medical devices
- Electronic components (including semiconductors) and semiconductor-related equipment
- Software, information processing, and services (including cybersecurity-related businesses)
Exemption Rule: As a general rule, Specified Acquisitions are subject to prior notification requirements. However, exemptions from prior notification may apply if the relevant target business does not fall within a “Core Sector” designated under FEFTA, the investor satisfies the exemption conditions, and post-closing reporting is not otherwise required.
⚠️ Critical Note: Transactions involving companies engaged in Core Sector businesses are generally NOT eligible for exemption treatment.
Footnotes & References
*1 Laws and Regulations Relevant to Specified Acquisitions
Specified Acquisitions are regulated under Chapter 5 of FEFTA (Foreign Exchange and Foreign Trade Act) and are generally subject to a framework similar to that applicable to “Inward Direct Investment.”
- Statutes: Foreign Exchange and Foreign Trade Act (“FEFTA”)
- Cabinet Orders: Cabinet Order on Inward Direct Investment, etc. (“Direct Investment Order”)
- Ministerial Ordinances: Ministerial Ordinance on Inward Direct Investment, etc. (“Direct Investment Ordinance”)
- Public Notices: Public Notice Defining Designated Business Sectors (Specified Acquisition) | Public Notice Defining Core Business Sectors (Specified Acquisition) | Public Notice on Exemptions (Specified Acquisition)
*2 Regarding Designated Business Sectors for Specified Acquisitions, please refer to official PDF links:
*3 Regarding Core Sectors for Specified Acquisitions, please refer to:
About Laexis Advisory
Laexis Advisory provides strategic business consulting services to companies operating in Japan, in cooperation with leading Japanese law firms and accounting firms. We assist foreign‑invested enterprises in navigating Japan's complex regulatory and business landscape, enabling them to establish and grow their business in Japan with confidence while effectively managing related risks.
