Country intelligence • Japan
Japan: market-entry intelligence
Country profile · Critical materials · Demographics · Graph
Three decisions an EU company faces with Japan. Japan has the EU's most comprehensive bilateral EPA (in force since February 2019, 99% EU tariff lines liberalised) and the lowest corruption in the template (CPI 71, rank 18). The world's third-largest economy offers unmatched depth in semiconductor equipment, automotive, materials science, and precision manufacturing. The binding constraints are the effective CIT rate (~31.5%), the extreme labour shortage driven by the world's fastest demographic decline, and informal market barriers (keiretsu relationships, regulatory guidance).
How to read this page: ● measured sourced data · ◐ inferred analyst reading, basis linked · ○ projected anchored to a real starting point. Bracketed citations link to the sources at the foot of the page.
1. Trade with Japan
EU-Japan FTA
In force since 1 February 2019[5]
● measured Japan is the EU's second-largest trading partner in Asia (after China). The EU-Japan EPA eliminated tariffs on industrial goods almost entirely. Remaining barriers are concentrated in agriculture (rice, dairy), non-tariff measures (JIS/JAS standards, food-safety certification), and services (behind-the-border regulation).[5,6]
EU exports to Japan by sector
| SITC section | Latest month (EUR) |
|---|---|
| 7. Machinery and transport equipment | EUR 2.3bn |
| 5. Chemicals | EUR 1.4bn |
| 8. Miscellaneous manufactured articles | EUR 991M |
| 6. Manufactured goods (by material) | EUR 377M |
| 0. Food and live animals | EUR 332M |
| 1. Beverages and tobacco | EUR 222M |
| 2. Crude materials (excl. fuels) | EUR 132M |
| 9. Not classified elsewhere | EUR 31M |
| 4. Animal and vegetable oils/fats | EUR 23M |
| 3. Mineral fuels and lubricants | EUR 8M |
Source: Eurostat COMEXT (ds-059331). [21]
The Nordic lens: Finland's position
Finland's largest export sections: Crude materials (excl. fuels) (EUR 28M), Manufactured goods (by material) (EUR 23M), Chemicals (EUR 13M). Same COMEXT series, Finland as reporter.
Certification gate
● measured Japan operates multiple product-certification regimes: JIS Mark (industrial standards, voluntary but widely expected), PSE Mark (mandatory for electrical appliances under the Electrical Appliances and Materials Safety Act), JAS (agricultural and forest products), and sector-specific approvals (PMDA for pharma, MHLW for food). The EU-Japan EPA includes mutual recognition of GMP certificates for pharmaceuticals.[7,8,13]
- PSE Mark mandatory for 457 product categories of electrical appliances (Category A: diamond PSE for high-risk, Category B: circle PSE for lower-risk)
- JIS Mark is voluntary but effectively mandatory for government procurement and many B2B applications
- Food imports require notification to MHLW quarantine stations; Japanese-language labelling mandatory; additives must conform to Japanese positive list (different from EU approved list)
- PMDA pharmaceutical approval: Japan-specific clinical trials typically required even with FDA/EMA approval ('Japan bridge study' may suffice for some drugs)
- Cosmetics: notification to MHLW with ingredient compliance to Japanese standards (some EU-approved ingredients are not permitted in Japan)
◐ inferred Japan's certification regime is well-documented and predictable but demanding. PSE certification for electrical products takes 4-12 weeks through registered conformity-assessment bodies (some EU-based labs are recognised). The main friction point is Japan-specific standards that differ from international norms, requiring product adaptation.
Free Trade Agreement
● measured The EU-Japan EPA covers 99% of EU tariff lines and 97% of Japanese tariff lines at full implementation (phased over 15 years from entry into force). Approximately 91% of EU agri-food exports enter Japan duty-free or at preferential rates.[5]
2. Establish in Japan
Entity forms
| Type | What it can do | Route / approval | Timeline |
|---|---|---|---|
| Kabushiki Kaisha (KK, corporation) | Standard Japanese corporation with limited liability. The default structure for foreign subsidiaries. Minimum 1 director (no Japanese residency requirement since 2015). No minimum capital requirement (JPY 1 is technically possible). | Legal Affairs Bureau registration. FEFTA screening by MOF/sectoral ministry if prior notification required. | 1-2 weeks (incorporation at Legal Affairs Bureau); FEFTA prior notification adds 30 days (extendable to 5 months for national-security concerns) |
| Godo Kaisha (GK, LLC) | Limited liability company with flexible internal governance. Members can define profit allocation independent of capital contribution. Common for holding companies, joint ventures, and fund vehicles. | Legal Affairs Bureau registration | 1-2 weeks |
| Branch Office | Extension of the foreign parent in Japan. May conduct revenue-generating activities. Must register with the Legal Affairs Bureau and appoint a Japan-based representative. | Legal Affairs Bureau registration + tax registration | 2-4 weeks |
| Representative Office | Non-revenue-generating preparatory or auxiliary activities only: market research, information gathering, advertising. May not sign contracts or conduct transactions. | No government approval; voluntary registration with local ward office | Days (no formal process) |
FDI sectors: automatic vs government route
| Sector | FDI cap | Route | Note |
|---|---|---|---|
| Manufacturing (general) | 100% | Post-notification | No restrictions on foreign ownership. Japan actively seeks inward FDI (target: JPY 100tn stock by 2030). |
| Semiconductor equipment and materials | 100% | Prior notification (FEFTA) | Semiconductor manufacturing equipment designated as sensitive under FEFTA (May 2025 amendment). Prior notification required; screening by MOF and METI. Practical impact is review, not prohibition, for allied-country investors. |
| Automotive and components | 100% | Post-notification | Toyota, Honda, Nissan dominate the market. Tier-1 supplier market is competitive but open. Informal keiretsu relationships remain a barrier to new supplier entry. |
| Pharmaceutical and medical devices | 100% | Post-notification (PMDA approval for products) | Market entry requires PMDA (Pharmaceuticals and Medical Devices Agency) approval. Clinical trials in Japan typically required even with foreign approval. Approval timelines 12-24 months for new drugs. |
| Telecom | 33.3% (NTT), 20% (other carriers) | Prior notification (FEFTA) | NTT (Nippon Telegraph and Telephone): foreign ownership capped at 33.3% by NTT Act. Other carriers: Ministry of Internal Affairs and Communications (MIC) approval required above 20%. |
| Defence and dual-use | Prior notification required | FEFTA prior notification | Arms, aircraft, nuclear, space, cybersecurity designated as core sectors. Prior notification required; review period 30 days (extendable). Foreign investment not prohibited but closely scrutinised. |
| Agriculture | 100% | Post-notification | No foreign-ownership cap, but market access is protected by extremely high tariffs (rice: 778%, butter: 360%) and non-tariff barriers (JAS standards, phytosanitary requirements). Practical entry is as a food processor or importer, not as a primary producer. |
| Financial services | 100% | Prior notification + FSA licensing | Banking, insurance, and securities: 100% foreign ownership allowed but Financial Services Agency (FSA) licensing required. Established regime with predictable timelines. |
Corporate tax rates
| Scenario | Basic rate | Effective rate | Note |
|---|---|---|---|
| Standard (income > JPY 8m) | 23.2% | ~30.6% | National CIT 23.2% + local corporate tax (10.3% of national CIT) + enterprise tax (~7%) + special local corporate tax. Effective rate depends on municipality. |
| SME (income ≤ JPY 8m) | 15% | ~23% | Reduced national rate for qualifying SMEs (capital ≤ JPY 100m) |
| Post-defence surtax (from Apr 2026) | 23.2% + 4% surtax | ~31.5% | 4% surtax on national CIT liability to fund defence spending increase. Raises effective rate by ~0.9pp. |
MAT: . Foreign company PE rate: .[4,3,15]
Consumption tax (VAT equivalent)
10%[4]
10% standard rate (national 7.8% + local 2.2%). Reduced rate of 8% (national 6.24% + local 1.76%) for food and beverages (excluding alcohol and eating out) and newspaper subscriptions.
Transfer pricing
Aggressive[4]
Japan follows OECD Transfer Pricing Guidelines. The National Tax Agency (NTA) ha...
Withholding tax / TDS (key rates for EU parent)
| Type | Rate | Note |
|---|---|---|
| Dividends to foreign parent | 20.42% (domestic law) | Japan-Finland DTA: 10% if beneficial owner holds 10%+ of voting shares; 15% otherwise. Most EU DTAs: 5-15%. |
| Interest | 20.42% (domestic law) | Japan-Finland DTA: 10%. Government bonds and certain bank deposits may be exempt. |
| Royalties | 20.42% (domestic law) | Japan-Finland DTA: 10%. |
Payment and currency
● measured Freely convertible. No capital controls. The JPY is a major reserve currency and a safe-haven asset. The Bank of Japan does not maintain capital-account restrictions on foreign investment.[14,1] Dividends, branch profits, royalties, interest, and capital proceeds are freely repatriable without any approval or notification. Japan has no restrictions on profit repatriation.
◐ inferred Japanese B2B payment practice is exceptionally reliable. Standard terms are 30-60 days, frequently honoured precisely. Promissory notes (tegata) were historically common but are being phased out (government target: eliminate by 2026). Bank transfers are the dominant payment method. Cash-on-delivery remains significant in consumer commerce.[9,1]
Production-Linked Incentives
● measured Japan's investment incentive regime combines R&D tax credits, regional-revitalization incentives, and sector-specific programmes. The government's stated goal is to attract JPY 100tn in inward FDI stock by 2030 (from JPY 50tn in 2024). JETRO provides free advisory services, office space, and regulatory-navigation support for foreign investors.[1,9,3]
| Sector | Status |
|---|---|
| Semiconductor manufacturing | METI allocated JPY 3.9tn (approx. EUR 23bn) in subsidies for semiconductor investment (2021-2025). TSMC Kumamoto fab (JPY 1.2tn, operational 2024), Rapidus Hokkaido (JPY 920bn for 2nm), and Samsung Yokohama R&D centre. Additional rounds expected. |
| Green transformation (GX) | JPY 20tn GX transition bond programme (2023-2032). Covers hydrogen, ammonia, CCS, next-gen nuclear, offshore wind, and EV infrastructure. Associated tax benefits for qualifying investments. |
| Automotive and EV | EV subsidy programme: up to JPY 850,000 per BEV purchase. Battery manufacturing: METI supports domestic gigafactory development through loans and grants. |
| Pharmaceutical and biotech | JPY 1.1tn biopharmaceutical strategy (2024). PMDA fast-track designations for innovative therapies. Tax credits for pharmaceutical R&D expenditure. |
| Regional revitalization | Tax credits for establishing or expanding operations outside the three major metropolitan areas (Tokyo, Osaka, Nagoya). Credit of 7% for building costs + 15-30% for increased payroll in designated regions. |
Japan's incentives are generally available to foreign-owned companies on the same terms as domestic companies (national treatment). The main barrier is navigating the application process, which requires Japanese-language documentation and typically benefits from JETRO or local-government advisory support.
Labour framework
● measured Japan's labour framework is governed by the Labor Standards Act, the Labor Contract Act, the Act on Promotion of Labor Policies, and the Act on Securing Equal Opportunity and Treatment. The 'work-style reform' legislation (effective Apr 2019 for large enterprises, Apr 2020 for SMEs) imposed overtime caps and equal-pay requirements. [12,9]
The opportunity
Japan's opportunity for EU companies rests on four pillars: the EU-Japan EPA (the most comprehensive EU bilateral FTA by coverage), the world's third-largest consumer market, globally leading positions in semiconductor equipment and materials, and the lowest corruption score in the template (CPI 71).
EU-JP EPA
Since 2019[]
99% EU tariff lines liberalised
EU-Japan EPA: comprehensive liberalisation
● measured In force since February 2019. 99% of EU tariff lines and 97% of Japanese tariff lines liberalised at full implementation. The most comprehensive bilateral FTA by coverage.[]
Semiconductor equipment and materials
● measured Tokyo Electron, SCREEN, Disco, and Shin-Etsu dominate critical semiconductor-manufacturing equipment and materials segments. US export controls on China have increased demand for Japan-origin equipment as an alternative.[9]
Weak yen: cost advantage for local production
● measured JPY at ~155-165/USD creates a cost advantage for production in Japan targeting export markets. Japanese labour costs, once prohibitive, are now competitive with South Korea in EUR terms due to yen depreciation.[9]
Lowest corruption in the template
● measured CPI 71 (rank 18) is the strongest governance score across all 12 template countries. Institutional predictability is Japan's key advantage over every Asian alternative.[10]
3. Dangers register
6 entries across 4 categories. Each states the mechanism (how it bites an EU company), the evidence (sourced), the mitigation, and what evidence would change the assessment.
FEFTA investment screening tightening
Japan's FEFTA regime requires prior notification for foreign investment in designated sensitive sectors. The May 2025 amendment expanded coverage to include minority stakes in listed companies and added semiconductor manufacturing to the core-sector list. An EU investor acquiring even a small stake in a listed Japanese company with exposure to designated sectors must file a prior notification and wait 30 days (extendable to 5 months).
● measured The 2019 FEFTA amendment lowered the prior-notification threshold from 10% to 1% for core sectors. The May 2025 amendment added semiconductor manufacturing equipment and expanded the definition of 'sensitive technology.' The number of prior notifications processed has increased from ~100/year (2019) to ~400/year (2025).[2,9]
JPY structural depreciation
The JPY has depreciated significantly against the EUR and USD since 2022, driven by the interest-rate differential between Japan and other major economies. An EU company with JPY-denominated revenues or an unhedged Japanese subsidiary sees the EUR value of those earnings erode on repatriation.
● measured JPY/USD moved from ~115 (Jan 2022) to ~155-165 (2024-2026). JPY/EUR similarly depreciated. The BOJ exited yield-curve control (Mar 2024) and raised rates incrementally, but the policy rate remains far below the ECB's. Government-bond yields are structurally constrained by the BOJ's 50% ownership of outstanding JGBs.[14,19]
FEFTA investment screening tightening
Mechanism: Japan's FEFTA regime requires prior notification for foreign investment in designated sensitive sectors. The May 2025 amendment expanded coverage to include minority stakes in listed companies and added semiconductor manufacturing to the core-sector list. An EU investor acquiring even a small stake in a listed Japanese company with exposure to designated sectors must file a prior notification and wait 30 days (extendable to 5 months).
Evidence: The 2019 FEFTA amendment lowered the prior-notification threshold from 10% to 1% for core sectors. The May 2025 amendment added semiconductor manufacturing equipment and expanded the definition of 'sensitive technology.' The number of prior notifications processed has increased from ~100/year (2019) to ~400/year (2025).[2,9]
Current status: Active and expanding in scope. Japan is aligning with US and EU investment-screening trends (CFIUS, EU FDI Screening Regulation). For allied-country investors, the screening is typically a review rather than a prohibition, but it adds time and uncertainty.
Mitigation: File pre-consultation with MOF before formal notification. Engage Japanese legal counsel with FEFTA experience. For portfolio investments, use the 'exemption for portfolio investors' route (available for passive investors who meet the criteria). Plan 2-6 month timelines for screening-sensitive transactions.
What would change the assessment: A streamlined fast-track for allied-country (EU, US, UK, Australia) investors. Not currently under formal consideration but politically plausible given the focus on Chinese and Russian investment.
Extreme labour shortage and aging workforce
Mechanism: Japan's population has been declining since 2008 and the working-age population is shrinking at approximately 1% per year. Unemployment has been below 3% since 2017. An EU company establishing operations in Japan faces difficulty recruiting qualified staff, particularly in engineering, IT, and manufacturing. Labour costs are rising as competition for workers intensifies.
Evidence: IPSS projects Japan's population falling from 125m (2024) to 87m (2070). The working-age population (15-64) will shrink 30% by 2050. The Specified Skilled Worker visa programme admitted ~200,000 foreign workers by 2025, far below the government's target. The job-opening-to-applicant ratio has remained above 1.2 since 2018.[16,12,9]
Current status: Structural and accelerating. The demographic trajectory is locked in for decades. Automation and robotics adoption (Japan has the third-highest robot density globally) partially offsets the impact in manufacturing but not in services.
Mitigation: Invest in automation from the outset. Use JETRO's hiring-support services. Consider locations outside Tokyo (lower competition for talent, regional-revitalization tax credits). Leverage the English-speaking talent pool in Osaka and Fukuoka tech hubs.
What would change the assessment: Large-scale immigration policy reform. Japan has historically been restrictive but the SSW programme and 2024 reforms signal incremental opening. A sustained fertility recovery is not projected.
Dismissal rigidity (abuse-of-right doctrine)
Mechanism: Japanese courts apply a strict 'abuse of right' doctrine to dismissals, making it effectively impossible to dismiss regular employees for poor performance alone. An EU company must demonstrate that it exhausted all alternatives (retraining, reassignment, voluntary retirement) before a court will uphold a dismissal. Litigation risk is high.
Evidence: The Supreme Court's established four-factor test for 'reasonable dismissal' requires: (1) economic necessity, (2) employer effort to avoid dismissal, (3) fair selection criteria, and (4) good-faith procedures. In practice, courts side with employees in the majority of contested dismissal cases. Settlement amounts of 6-24 months' salary are typical.[12,9]
Current status: Deeply embedded in case law. No legislative reform is under consideration. The government's work-style reforms focused on overtime and equal pay, not dismissal flexibility.
Mitigation: Implement robust performance-management systems with documented improvement plans. Use fixed-term contracts where legally permissible (note: 5-year rule converts fixed-term to permanent upon employee request). Voluntary-retirement programmes with enhanced severance are the standard corporate restructuring tool.
What would change the assessment: Legislative introduction of a monetary-settlement dismissal system (discussed in reform councils since 2015 but not adopted). Union and opposition resistance make passage unlikely in the current political environment.
JPY structural depreciation
Mechanism: The JPY has depreciated significantly against the EUR and USD since 2022, driven by the interest-rate differential between Japan and other major economies. An EU company with JPY-denominated revenues or an unhedged Japanese subsidiary sees the EUR value of those earnings erode on repatriation.
Evidence: JPY/USD moved from ~115 (Jan 2022) to ~155-165 (2024-2026). JPY/EUR similarly depreciated. The BOJ exited yield-curve control (Mar 2024) and raised rates incrementally, but the policy rate remains far below the ECB's. Government-bond yields are structurally constrained by the BOJ's 50% ownership of outstanding JGBs.[14,19]
Current status: Ongoing. The BOJ is normalising monetary policy but the pace is constrained by government debt (255% of GDP) and fragile domestic demand. A rapid rate-hiking cycle is not expected.
Mitigation: Hedge JPY exposure through forward contracts or options (the JPY FX market is one of the most liquid globally). For manufacturers: the weak JPY makes Japan a cost-competitive production base for export. Structure pricing in EUR or USD for export-oriented operations.
What would change the assessment: BOJ rate normalisation closing the interest-rate differential with the ECB. A sustained Japanese current-account surplus reversal (unlikely given structural trade patterns). US rate cuts narrowing the JPY/USD differential.
Informal market barriers and keiretsu relationships
Mechanism: Despite Japan's formally open regulatory environment (CPI 71, WTO-compliant), foreign companies face persistent informal barriers: keiretsu procurement networks that favour incumbent suppliers, bureaucratic administrative guidance (gyosei shido), Japan-specific standards that differ from international norms, and a preference for relationship-based business development that disadvantages new entrants.
Evidence: Japan's inward FDI stock as a share of GDP (~5%) is the lowest among major economies (US ~50%, EU average ~60%, Korea ~15%). The OECD, ACCJ (American Chamber of Commerce in Japan), and EBC (European Business Council) consistently flag implementation gaps in regulatory reform, particularly in agriculture, healthcare, and professional services.[17,9,20]
Current status: Structural. Successive Japanese governments have launched regulatory-reform initiatives (Abenomics 'third arrow,' Suga deregulation, Kishida 'new capitalism') but foreign business communities continue to report similar barriers. Japan's formal regulations are among the most transparent globally; the friction is in practice, not in law.
Mitigation: Invest in relationship-building (12-18 months of business development before expecting contracts). Hire senior Japanese staff with industry relationships. Partner with a Japanese company for market entry where possible. Join the EBC, ACCJ, or sector-specific industry associations.
What would change the assessment: Japan's inward FDI reaching the government target of JPY 100tn (currently ~JPY 50tn). Measurable increase in foreign-company procurement share in government and quasi-government contracts.
Natural disaster risk (earthquake, typhoon)
Mechanism: Japan is one of the most seismically active countries globally and lies in the Pacific typhoon belt. An EU company with fixed assets in Japan faces physical-damage risk, supply-chain disruption, and business-interruption losses from earthquakes, tsunamis, typhoons, and volcanic eruptions.
Evidence: Japan experiences approximately 1,500 earthquakes of magnitude 4+ per year. The 2024 Noto earthquake (M7.6) caused JPY 2.6tn (EUR 16bn) in damage. The 2011 Tohoku earthquake/tsunami caused JPY 16.9tn in damage and triggered the Fukushima nuclear disaster. Typhoon season (June-October) brings 2-3 major landfalling storms per year on average.[18]
Current status: Permanent structural risk. Japan has among the world's best disaster-preparedness infrastructure (building codes, early-warning systems, evacuation procedures), which reduces casualties but does not eliminate economic losses.
Mitigation: Business-continuity planning with multi-site redundancy. Earthquake insurance (available through domestic insurers and the Japan Earthquake Reinsurance Company). Site selection considering seismic hazard maps (NIED J-SHIS). Supply-chain diversification away from single Japanese suppliers for critical components.
What would change the assessment: Nothing changes the geological and meteorological risk. Mitigation is the only strategy.
21 primary sources.
- [1] JETRO (Japan External Trade Organization), Investing in Japan: entity forms, FEFTA notification, sector restrictions
- [2] Foreign Exchange and Foreign Trade Act (FEFTA): prior notification required for sensitive sectors; amended May 2025 to cover minority stakes in listed companies
- [3] Ministry of Finance / National Tax Agency, Corporation Tax: effective rate ~30.6% (national 23.2% + local + business tax); defence surtax from Apr 2026
- [4] PwC, Japan Corporate Taxes on Corporate Income (tax year 2026)
- [5] European Commission, EU-Japan Economic Partnership Agreement (EPA): in force 1 Feb 2019; 99% EU and 97% Japan tariff lines liberalised at full implementation
- [6] WTO, World Tariff Profiles 2025: Japan simple average MFN applied tariff 3.8%, 53.9% of tariff lines duty-free
- [7] Japanese Industrial Standards Committee (JISC), JIS Mark certification for industrial and consumer products
- [8] Ministry of Economy, Trade and Industry (METI), PSE Mark for electrical appliances and materials (Electrical Appliances and Materials Safety Act)
- [9] US Department of State, 2025 Investment Climate Statement: Japan
- [10] Transparency International, Corruption Perceptions Index 2025: Japan score 71/100, rank 18/182 (very strong)
- [11] Finland-Japan Double Taxation Agreement (Convention for the Elimination of Double Taxation, in force)
- [12] Japan Labor Standards Act / Act on Promotion of Labor Policies: work-style reform enforcement, overtime caps, equal-pay rules
- [13] Ministry of Health, Labour and Welfare (MHLW): food safety (Food Sanitation Act), pharmaceutical approval (PMDA), cosmetics regulation
- [14] Bank of Japan: JPY freely convertible, no capital controls; JPY/USD trading ~155-165 range (2024-2026); structural depreciation from interest-rate differential
- [15] FY2026 Tax Reform: defence surtax of 4% on corporate tax liability from Apr 2026, raising effective CIT to ~31.5%
- [16] National Institute of Population and Social Security Research (IPSS), Population Projections for Japan (2023): population declining from 125m (2024) to 87m (2070); working-age population shrinks 30% by 2050
- [17] OECD, Japan Economic Survey 2025: keiretsu relationships and informal market barriers continue to inhibit foreign market penetration despite open formal regulations
- [18] Cabinet Office of Japan, Disaster Management: Japan experiences ~1,500 earthquakes/year (magnitude 4+); typhoon season Jun-Oct; 2024 Noto earthquake (M7.6) caused JPY 2.6tn in damage
- [19] IMF, Article IV Consultation Japan (2025): gross government debt ~255% of GDP, highest among advanced economies; BOJ holds ~50% of outstanding JGBs
- [20] Japan Revitalization Strategy / Regulatory Reform Council: successive reform packages since 2013; foreign business community (ACCJ, EBC) continues to flag implementation gaps in agriculture, healthcare, and professional services
- [21] Eurostat COMEXT (ds-059331): EU27 and Finland trade with Japan by SITC section, monthly, 2015-present
As of August 2026. Statutory facts verified against primary sources; practice claims cite the basis.