Can a foreigner buy a company in Japan? Legal framework and practical Q&A for SME acquisitions

Direct answer: in most cases you can buy a Japanese company or business

• Non-resident individuals and foreign corporations can generally acquire equity interests and businesses of Japanese companies.
• There is no cap on foreign ownership: you can acquire or set up a 100% foreign-owned Japanese company.
• The main constraints come from FEFTA (Foreign Exchange and Foreign Trade Act) restricted sectors and regulated, license-based industries, where you may face prior filings, licensing conditions, and officer/qualification requirements.

In quantitative terms, based on small and mid-cap M&A in Japan (author’s estimate):

• Roughly 10–20% of SME deals require careful review under industry regulations or FEFTA.
• The remaining 80–90% are “normal” sectors (manufacturing, wholesale, retail, IT, B2B services, etc.) where foreign buyers can acquire the business if they follow the standard procedures.

Japan’s statutory rules are detailed on paper, but at SME deal size, a buyer who works with an experienced intermediary and local specialists will usually find that issues fall within a manageable, predictable range.

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What is the basic legal framework for owning a Japanese company?

Companies Act: almost no nationality restrictions on shareholders and directors

The Japanese Companies Act does not impose a general nationality requirement such as “shareholders must be Japanese”. That means:

• Foreign individuals
• Foreign corporations

can both become shareholders of Japanese stock corporations (Kabushiki Kaisha, KK) and LLCs (Godo Kaisha, GK).

Similarly, as a rule there is no Japanese nationality requirement for:

• Representative directors and directors of a KK
• Executive members (gyomu shikkou shain) of a GK

The bottom line is that at Companies Act level, foreign shareholders and foreign directors are allowed. For a foreign buyer, the more important questions sit in regulatory law (industry-specific acts), FEFTA, tax, and immigration.

FEFTA (Foreign Exchange and Foreign Trade Act): prior filing and post-reporting in some sectors

When a foreign investor puts money into Japan, FEFTA can apply.

Typical patterns that count as “inward direct investment”

Under FEFTA, “inward direct investment” includes, among others (see Ministry of Finance guidance):

• A foreign investor acquiring 1% or more of the voting rights of a listed company.
• A foreign investor acquiring any voting shares (even 1 share) of an unlisted company (which covers most Japanese SMEs).
• Certain loans or capital contributions from a foreign investor to a Japanese entity.

Because SME M&A almost always involves acquiring shares of unlisted companies, virtually all such acquisitions formally qualify as inward direct investment. Whether you need a prior filing depends on the target’s business sector.

Sectors requiring prior notification (high-level overview)

Prior notification is required for investments into designated sectors, which broadly include (see Ministry of Finance materials):

• Defense-related businesses
• Nuclear power
• Energy (electric power, gas, petroleum stockpiling, etc.)
• Water supply
• Certain communications and critical infrastructure
• Certain aviation and marine transport
• Certain information processing and cybersecurity businesses

Most SMEs – typical factories, B2B services, restaurants, retail, general IT contractors – fall into non-designated sectors and do not require prior notification. However, manufacturing or IT companies can fall under the rules if they handle defense applications, cryptography, or critical infrastructure systems.

Timeframes:

• If prior notification is required: you must file at least 30 days before closing. In practice, reviews are often shortened to around 10 days when there is no concern.
• If prior notification is not required: you may have to submit a post-investment report, or in some cases no FEFTA report at all.

The main FEFTA trap at SME level is the company that looks like ordinary manufacturing or software but in reality:

• Supplies components to the Self-Defense Forces, or
• Develops encryption or security systems that fall into sensitive categories.

For most cross-border SME buyers, the risk/reward on these edge cases is not attractive; staying away is often the safer portfolio decision.

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Which sectors are relatively easy to buy, and which require more work?

Sectors that are generally straightforward for foreign buyers

From a practical deal perspective, the following sectors tend to be easier to acquire (subject to normal checks):

• Small factories and component processing, excluding defense and critical infrastructure work
• General B2B services (excluding regulated security and cleaning segments)
• IT contract development, SaaS, and web services, excluding encryption, defense, and critical infrastructure
• Restaurants, bars, cafés
• Retail and e-commerce
• General wholesale

For these sectors, the pattern is often:

• FEFTA: no prior notification, sometimes only a simple post-investment report.
• Industry law: only standard permits or notifications, if any.

In a large share of such cases, a foreign buyer can operate the company with 100% ownership, provided the company and its officers meet the usual Japanese requirements.

Sectors with more constraints and structuring issues

The following sectors typically involve additional hurdles:

• Finance (banking, securities, insurance, consumer finance, funds transfer services, etc.)
• Real-estate business, especially brokerage (takuji-tatemono torihiki-gyo)
• Hotels and ryokan (under the Inns and Hotels Act)
• Healthcare and long-term care (hospitals, clinics, nursing care services)
• Construction (under the Construction Business Act)
• Staffing and recruitment (worker dispatch and employment placement)
• Transport and logistics (trucking, passenger transport, taxi, bus, etc.)
• Infrastructure and energy (electricity, gas, water utilities, etc.)

In these industries you must analyze:

• Whether there is any foreign ownership cap or additional regulatory screening.
• Whether license renewal requires Japan-resident officers or qualified managers.
• How you will secure Japan-based management (who may also hold a Business Manager visa) on the ground.

Even here, the number of cases that are absolutely closed to foreign buyers is limited. In practice, deal structures often use combinations like:

• Hiring a Japan-resident, licensed manager or director.
• Bringing in a Japanese co-investor and adjusting shareholding ratios.
• Assuming that licenses will be reapplied for under the new ownership and structuring around that.

Designing this is exactly where an experienced M&A intermediary or advisor adds value.

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Foreign individual vs foreign corporation: who should be the buyer?

Legally, both can acquire Japanese companies

Under FEFTA, “foreign investor” includes, among others:

• Individuals whose main residence is outside Japan.
• Corporations established under foreign laws.

So both a foreign individual and a foreign corporation can be the direct owner of Japanese shares.

In practice, many buyers set up one Japanese company first

A common pattern for cross-border buyers is:

1. Establish a Japanese entity (GK or KK).
2. Have that Japanese entity acquire the target’s shares or business.

Reasons include:

• Tax handling is often clearer when using a Japanese entity.
• It is easier to open and maintain bank accounts, access bank loans, and qualify for subsidies as a Japanese corporation.
• For licensed industries, regulators may be more comfortable with a Japanese legal entity.
• Sellers, employees, and key counterparties often feel more secure dealing with a “Japanese corporation” as their direct counterparty.

However, for smaller, one-off investments, or where tax treaties and home-jurisdiction planning favor direct ownership, it can also make sense to acquire directly via a foreign corporation. The optimal structure shifts with deal size (e.g. tens of millions vs. several billions of yen) and your longer-term plan for Japan.

For buyers from the US, EU, Singapore, Hong Kong, and Australia

Compared with many home jurisdictions where PE funds or holding companies are standard, Japanese counterparties are often less familiar with multi-layer SPV structures and Cayman or Luxembourg vehicles. You may get smoother execution if you:

• Use a single-tier Japanese GK or KK as the onshore acquirer, and
• Keep the offshore structure “behind” that Japanese vehicle.

Unlike US or UK-style deals, it is still relatively rare in Japanese SME M&A to have complex offshore holding and finance stacks documented in detail in the SPA. You can still do it, but you should budget more time for explanation and education of the seller and their advisors.

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Owning vs living in Japan and running the business yourself

You can own the business without a Japan residence visa

Legally, two different questions are involved:

• Being a shareholder of a Japanese company.
• Residing in Japan and working full-time in that company’s management.

You can:

• Become a shareholder while on a short-term stay (tourist) status or even entirely from overseas, using online processes and local agents for closing and funds flow.
• But to stay in Japan long-term and actively manage the business, you need an appropriate residence status, typically the Business Manager status.

That creates room for investment styles such as:

• Leaving operations with the existing owner or a Japan-resident manager for a defined transition period.
• Monitoring and influencing the business remotely at board level, rather than as day-to-day management.

If you take an active management role, consider the Business Manager visa

If you want to be on the ground in Japan and involved in running the business, you will usually look at the “Business Manager” residence status. According to Immigration Services Agency guidance, key points include:

• Having a business base in Japan (such as an office; a pure virtual office is typically not enough).
• A certain level of investment – in practice, many professionals treat around JPY 5 million as a reference point.
• A credible business plan and evidence that the business can continue sustainably.

You can potentially satisfy these conditions by acquiring an existing business rather than setting up from scratch. But immigration decisions involve significant case-by-case discretion, and this is an area where a specialist immigration lawyer or consultant should take the lead.

For buyers from the US, EU, Singapore, Hong Kong, and Australia

Compared with E-2 (US), EU investor visas, or various “entrepreneur” and “global talent” visas in your home markets, the Japanese Business Manager status is tightly tied to a specific operating business with premises and headcount. You should not assume that a passive shareholding plus a PO box will support residence. Plan the M&A timeline and immigration strategy together, not in isolation.

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How heavy is the FEFTA filing and review burden in practice?

For typical SME deals, FEFTA is “no filing or light reporting”

For many SME M&A transactions in Japan – with enterprise values from the tens of millions up to several billions of yen – the pattern is:

• Target is unlisted.
• Target operates in a non-designated sector.

In this case, the investment typically proceeds with no prior notification, and sometimes just a simple post-investment report.

From ministry-level discussions and market practice, stricter FEFTA scrutiny tends to concentrate on:

• Defense and near-defense sectors.
• Operators in or near critical infrastructure.
• Larger, often listed, corporations.

Those are generally outside the usual succession and owner-exit SME deal flow.

Even with prior notification, it is mainly a scheduling issue

If your target falls into a designated sector and prior notification is required:

• The content of the filing is largely template-based if your intermediary and advisors are accustomed to FEFTA.
• The formal review period is up to 30 days, but there are many cases where the authorities shorten this to about 10 business days when they see no issues.
• At SME scale, outright rejection of the investment is rare in practice.

So while FEFTA can look intimidating on paper, for SME-level deals it is more often a matter of timeline and paperwork management than an existential risk to the transaction.

For buyers from the US, EU, Singapore, Hong Kong, and Australia

FEFTA plays a role broadly comparable to CFIUS (US), FDI screening in EU member states, or foreign investment review regimes in Singapore, Hong Kong, and Australia. Two notable differences at Japanese SME level:

• The thresholds (e.g., “any share of an unlisted company”) look stricter in the statute, but the practical enforcement on normal SMEs is relatively predictable.
• Japanese authorities are generally approachable for pre-filing discussions. Your local agent can often clarify classification and documentation points by simply speaking with the relevant office.

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Banking, financing, and counterparties: what are the real-world friction points?

Beyond the legal regime, foreign buyers often face practical questions around:

• Opening and maintaining bank accounts.
• Continuation or refinancing of existing bank loans.
• Maintaining trust with key customers, suppliers, and employees.

Banks are not “no” to foreign owners, but you must explain more

Japanese regional banks and credit unions are under strict obligations for:

• Anti-social forces checks (organized crime exclusion).
• AML/CFT (anti–money laundering and countering the financing of terrorism).

For foreign-controlled companies, this tends to translate into more detailed questions around:

• Purpose of the investment.
• Source of funds.
• Your existing business record in your home jurisdiction.

From actual deal experience, if you can:

• Present a clear investment rationale and business plan, and
• Document the origin of funds and the buyer’s track record,

then account maintenance and even new loans can be approved. This is largely a question of presenting coherent numbers and documentation, not of nationality in itself.

Managing fears among employees and key counterparties

When ownership changes, especially if:

• The new top management is foreign, and/or
• The company name or brand changes,

employees and trading partners can become uneasy.

At the same time, in the current Japanese environment, many counterparties view succession solutions favorably, because they prefer continuity over a supplier or partner shutting down for lack of a successor.

In successful transitions, foreign buyers typically:

• Communicate early, with clear explanations and future plans.
• Offer a defined handover period with the former owner.

Intermediaries and financial advisors can support by preparing:

• Transition explanation materials for customers and suppliers.
• Agendas and scripts for kickoff meetings with staff and key accounts.
• A communication plan across the handover period.

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Common deal structures and timelines: how long will it take to buy?

Main structures: share deal vs business transfer

Japanese SME M&A typically uses two core structures:

Structure	What transfers	Main benefits	Main drawbacks
Share transfer	Shares of the existing company	Simple process; contracts, employees, and licenses usually stay with the company	You inherit off-balance sheet risks and historical liabilities
Business transfer	Specific assets and liabilities of a business	You can pick and choose assets and liabilities; easier to leave non-core or legacy business behind	Individual transfer of contracts, permits, and employees can be administratively heavy

Foreign buyers have access to the same toolkit as Japanese buyers; the choice of structure depends on risk allocation, licensing, and tax – not on buyer nationality.

Typical timing: roughly 3–6 months for simpler deals, 6–12 months for complex ones

In practice, common timeframes are:

• 3–6 months for simple, non-regulated sectors with a straightforward share transfer.
• 6–12 months for regulated sectors or more complex structuring (e.g., carve-outs, multiple entities).

Even if FEFTA prior notification is required, its impact on the total schedule is often around one month. For SME deals, the more frequent bottlenecks are:

• Negotiating terms with the seller (price, earn-outs, transition roles).
• Findings from financial, tax, legal, and HR due diligence.

For buyers from the US, EU, Singapore, Hong Kong, and Australia

Compared with your home markets, you may notice:

• Lighter documentation around representations and warranties.
• Less frequent use of escrow, W&I insurance, and detailed closing conditions in smaller deals.

These features can compress timelines, but they also mean you must be disciplined about:

• Independent due diligence.
• Clear written records of what you believe you are buying.

An experienced Japanese-side advisor can bridge the gap between your home-market expectations and local norms.

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Typical concerns and how to view them pragmatically

“What if the company had past tax or labor issues?”

Among Japanese SMEs, it is common to see issues like:

• Loose time-card and overtime management.
• Expense treatments colored by the owner’s preferences.
• Minor tax positions that are not fully optimized or documented.

This reflects, in part, how detailed Japanese laws and record-keeping obligations are. Finding a few issues in diligence does not automatically mean the company is “bad” or uninvestable.

In practice, buyers usually:

• Use tax, accounting, and labor due diligence to identify issues.
• Quantify each item by annual cash impact and whether it is likely to recur.
• Address the findings with pre-closing clean-up, price adjustments, or, where available, representation and warranty insurance.

The realistic goal is not to eliminate all risk, but to quantify and price it in.

“What if a regulated business has not followed every rule perfectly?”

In licensed sectors like hospitality (ryokan/hotels), construction, and staffing, diligence may reveal:

• Late notifications or filings.
• Occasional activity at the margin of the licensed scope.

In these situations, deals often proceed by:

• Consulting the relevant ministry or local government in advance.
• Presenting a remediation plan (e.g., updating filings, adjusting operations).
• In some cases, planning to reapply for licenses under the new structure.

Japan’s government offices tend to respond constructively when you come with a clear plan to bring operations in line with the rules. Many foreign buyers are positively surprised by how practical and reasonably fast this process can be, especially with a local agent handling the interface.

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Summary: legally “possible”, practically “manageable with the right team”

• As a matter of law, foreign buyers can in principle acquire and own Japanese companies across a broad range of sectors, with a relatively small number of heavily constrained industries.
• FEFTA, sector regulations, tax, and immigration considerations are real, but at SME scale they are usually manageable through deal design and timeline control.
• The main execution risks often lie in:
  • Negotiating terms with the seller.
  • Quantifying and allocating legacy risks through due diligence.
  • Managing the transition with banks, counterparties, and employees.

These are exactly the areas where an experienced Japanese SME M&A intermediary can sit between you and the local system, handling filings, speaking with authorities, and designing structures so you can focus on whether the business makes sense at the price, earnings, and downside you have in mind.

If you are considering an acquisition in Japan, the practical starting point is to quantify three items: target investment size in yen, industries you are open to, and how actively you want to manage the company. With those numbers on the table, you and your advisors can quickly narrow down realistic options, screen for FEFTA and licensing risks, and move into concrete deal discussions.

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