What you need to know
- A bill before the Diet would require almost all Japanese entities, LPS/LLPs and certain foreign entities to identify their beneficial owners (BOs) and file that information with the Minister of Justice.
- A BO is generally a person holding, directly or indirectly, more than 25% of the voting rights, or exercising dominant influence through investment, lending or transactions.
- Filings and change filings are due within 30 days. Existing entities must file within 30 days after the effective date, which will be within 18 months of promulgation.
- This is most relevant to foreign investors and multinational groups, private equity and asset managers, banks and other lenders, and real estate and structured finance participants.
What you need to do
- Map your Japanese entities, funds, SPVs and directly held real estate, and identify their BOs ahead of the 30-day filing window.
- Build BO change filings into transaction closing and post-merger integration checklists.
- Add BO information, notification and cooperation provisions to shareholders’ agreements, LPAs, facility agreements and trust documents.
- Lenders and trustees: update KYC, consent and record-keeping procedures.
Sector-by-sector implications for investors, funds, lenders and structured finance participants
A bill now before the Diet (the “Bill”) would require almost all Japanese entities, and certain foreign entities, to identify their beneficial owners (“BOs”), keep that information accurate and up to date, and file it with the Minister of Justice for recording in a non-public beneficial ownership file (the “BO File”). Trustees of specified trusts would also have to identify related parties and keep records. Japan is currently the only G7 country without a mandatory BO filing regime, and the Bill responds in part to FATF expectations ahead of Japan’s fifth-round mutual evaluation, expected around summer 2028. This article summarises the framework briefly and then focuses on what each sector should look out for.
The framework in brief
Who must file: all Japanese juridical persons other than listed companies and public bodies; investment business limited partnerships (IBLP or LPS) and limited liability partnerships (LLP); foreign companies with a representative in Japan; foreign juridical persons with a Japan office; and foreign entities registered as owners of Japanese land or buildings.
Who is a BO: for share-based entities, a person holding directly or indirectly more than one quarter of the voting rights. Failing that, a person with dominant influence through investment, lending, transactions or other relationships. For other entities (including LPS and LLP), a person entitled to more than one quarter of profit or asset distributions, or with dominant influence. If no one qualifies, the natural person representing the entity is the BO. Listed companies, the State, foreign central banks and international organisations are treated like natural persons, so the chain stops with them.
Timing: the Bill will take effect within 18 months after promulgation. Existing entities must file within 30 days after the effective date, and early filing will be available. New entities must file within 30 days of formation or the other triggering event, and any change must be filed within 30 days of becoming aware of it.
Access and enforcement: the BO File is not public. Government agencies and specified business operators under the AML legislation may access it, and banks may do so without the entity’s consent. False filings and failure to file after a formal demand can attract criminal penalties, and prolonged non-filing can lead to closure of the commercial registration.
What each sector should look out for
1. Foreign investors and multinational groups
Every Japanese group entity is in scope. Japanese KKs, GKs and other subsidiaries of foreign groups must file unless they are themselves listed. Foreign entities are also caught directly where they have appointed a representative in Japan, opened a Japan office, or registered title to Japanese land or buildings.
Check the listing venue of the parent. A foreign listed parent stops the BO chain only if its exchange is in a country or region designated jointly by the National Public Safety Commission, the FSA, the Ministry of Justice and the Ministry of Finance. If the venue is not designated, the analysis must look through to the parent’s own shareholders.
Expect requests from Japan. Japanese entities may ask persons they reasonably believe to be BOs, and shareholders reasonably believed to know the BO, for BO information. The recipients must respond without delay unless they have a justifiable reason not to, and this applies to offshore parents and investors too. BOs must also endeavour to tell the entity when they become, or cease to be, a BO.
Early considerations: inventory Japanese entities, branches, offices and directly held real estate; nominate a group contact for BO information; reconcile the information flow with foreign data protection laws; and plan for early filing.
2. Private equity and asset managers
Fund vehicles file in their own right. An LPS (IBLP) or LLP is itself a filing entity and must file within 30 days of formation. Its BO is tested on rights to more than one quarter of distributions, or on dominant influence; if no one qualifies, the representative is the BO. The position of the GP and of anchor or cornerstone investors needs to be analysed fund by fund.
Calculate portfolio company holdings carefully. The 25% voting test applies on a direct or indirect basis, using a calculation method to be set by Cabinet Order. Shares with no vote on director elections and amendments to the articles are excluded. Voting rights restricted by the cross-shareholding rule under the Companies Act are included. Persons who simply follow voting instructions under money trust or similar arrangements are excluded. Preferred share, ratchet and co-investment structures will need careful modelling.
Deals will trigger filings. Acquisitions, capital increases, reorganisations, exits and secondary transfers that change a BO require a change filing within 30 days of awareness, at both portfolio company and fund level.
Early considerations: map BOs across fund vehicles and portfolio companies; add BO filings to closing and post-merger integration checklists; and include information-provision and notification undertakings in LPAs, subscription documents, SPAs and shareholders’ agreements.
3. Banks and other lenders
New access, new duties. Deposit-taking financial institutions may access the BO File for customer due diligence without the customer’s consent; other specified business operators need prior consent. Access will initially be by inspection only, as online provision will begin within five years after promulgation.
Discrepancy reporting and use limits. Banks must report discrepancies between what they know and the BO File to the Minister of Justice without delay, unless that would impair their business. BO File information may be used only for AML/CFT measures, so its use for credit decisions or marketing should be ring-fenced.
The bank as a filing channel. With the customer’s informed consent, a designated bank may pass the customer’s BO information to the Minister of Justice, and the customer is then deemed to have filed. This route is also available before the effective date and could become a client service. A customer that provides false information through this route is exposed to the same liability as for a false filing.
Could a lender be a BO? “Lending” is expressly listed as a source of dominant influence. Lenders and mezzanine providers with step-in rights, tight covenants or cash sweeps should follow guidance on whether those rights could make them BOs. This limb applies only where no person holds more than 25% of the voting rights. On the borrower side, KYC information should be kept consistent with the BO File, because inconsistencies are likely to be reported.
Early considerations: revise onboarding procedures and consent forms; build discrepancy-reporting workflows and data-use controls; and review control rights in financing documents.
4. Real estate and structured finance
GK-TK, TMK and orphan structures. Entities that become share-based only because of their articles are excluded from the share-based category, so on our reading a GK is tested on distribution rights or dominant influence. That limb does not contain the “directly or indirectly” language used for share-based entities. Where a general incorporated association is the sole member, the fallback rule may therefore make the representative (often an individual from an accounting firm) the BO. This needs to be confirmed in the implementing ordinances, and engagement terms for seconded representatives may need to be revisited.
Foreign SPVs and economic security. Foreign SPVs holding Japanese real estate directly must file within 30 days of first registration of title. BO information on landholding entities will be provided to the Prime Minister under the legislation regulating land around important facilities and remote islands, and related licensing procedures are also being amended. Inbound investors should assume their ownership chains will be visible to the authorities.
Trusts and trust beneficial interests. Trustees of specified trusts (trusts under the Trust Act and foreign-law trusts accepted in Japan by a foreign trust company, other than those excluded by Cabinet Order) must identify the settlor, beneficiaries and any natural person with dominant influence, together with the BOs of related parties that are share-based entities. They must keep records until seven years after the trust is wound up and produce them on request. For existing trusts, records must be prepared within 30 days after the effective date. Trust banks are therefore likely to ask beneficiaries for BO information.
Early considerations: analyse the BO outcome for each vehicle; agree mechanics with trustees for updating information on transfers of trust beneficial interests; and review direct landholdings by foreign entities.
Points common to all sectors and matters to watch
Across all sectors, BO information, notification and cooperation provisions, together with related representations, should be built into shareholders’ agreements, LPAs, facility agreements, SPAs and trust documents. Key details are left to Cabinet Orders and Ministry of Justice Ordinances, including the method for calculating indirect holdings, the persons excluded from BO status, the filed items, the trusts excluded from the trust regime and the specified business operators entitled to access the BO File. We expect draft ordinances to be published for public comment.
This article is based on the Bill as submitted and is not legal advice.
Author: Chihiro Ashizawa, Partner.
