Thai Companies Expanding into Japan, Part 2: Inward Direct Investment and FEFTA — The Prior Notification Thai Investors Often Miss

This is Part 2 of our six-part series on Thai companies expanding into Japan. In Part 1 we surveyed the four entry vehicles — subsidiary, branch, representative office, and joint venture. The next wall every Thai investor meets is Japan’s inward direct investment regime under the Foreign Exchange and Foreign Trade Act (FEFTA). An amendment effective 1 May 2020 lowered the prior-notification threshold for listed-share acquisitions from 10% to 1%, introduced the core / non-core sector split, and created a new prior-notification exemption. This article reflects publicly available information as of April 2026.

Why FEFTA Matters Early

Japan has generally liberalised inward direct investment, but carves out a screening track for transactions that may affect national security, public order, public safety, or the smooth operation of the Japanese economy. The logic parallels CFIUS in the United States, the FDI Screening Regulation in the EU, and the UK’s National Security and Investment Act.

Thai investors fall squarely within FEFTA’s definition of a “foreign investor”, so the regime applies to substantially every Japan-bound deal. A breach exposes individuals to up to three years’ imprisonment or a fine of up to JPY 1,000,000 (or both), with corporate joint liability; the Minister of Finance can issue a recommendation to stop, an order to modify, or a restoration order. Beyond the legal penalty, a public finding of breach carries real reputational damage. It pays to load this analysis into the deal model on day one.

The Two-Layer Structure

The regime has a principle–exception shape.

Track	Trigger	Timing	Review	Penalty
Prior notification	Designated sector + foreign investor	Before closing (30-day statutory review)	Yes	Heavy (Art. 70 FEFTA)
Post-transaction report	Direct investment in non-designated sector	Within 45 days after closing	No	Light (fine ≤ JPY 300k)
Exemption	General investor etc. + 4 commitments	Post-report only	No	Light (heavy if breach)

The working order for any deal is: (1) is the target in a designated sector, (2) is the investor a “foreign investor”, and (3) can the exemption apply.

Who Is a “Foreign Investor” (FEFTA Art. 26)

A party is a foreign investor if any of the following applies.

A non-resident individual (including Thai nationals and Japanese nationals residing in Thailand);
A legal entity or organisation established under foreign law (Thai-law companies fall here);
A deemed foreign investor — a Japanese legal entity in which foreign investors together hold 50% or more of the voting rights, directly or indirectly, or hold a majority of directors, reflecting substantive foreign control.

The deemed-foreign-investor rule closes the SPV loophole: even where a Thai parent invests through a Japan-incorporated SPV, if the economic substance sits with the Thai side, the SPV is treated as a foreign investor.

What Counts as “Inward Direct Investment, etc.”

Article 26 FEFTA captures, among others:

Acquisition of 1% or more of a listed company’s shares (10% → 1% from 1 May 2020, counted per issuer). The draft reform proposal published by the Ministry of Finance on 10 February 2025 is expected to expand the scope of listed-share notifications further and to broaden the definition of “specified foreign investors” (including persons under cooperation duties to a foreign government’s intelligence activities and entities in which such persons hold 50%+ voting rights or one-third or more of officers); Thai investors targeting listed Japanese shares should track the latest version;
Acquisition of shares or equity interests in an unlisted company (generally all such acquisitions are covered, subject to narrow intragroup exceptions);
Acquiring 25% or more of voting rights in an existing Japanese company;
Consenting to a substantive change in the company’s business purpose;
Starting or taking over an individual’s business;
Establishing or expanding a branch or factory;
Granting a loan of more than one year (above certain thresholds) to a Japanese company.

Every entry vehicle other than a representative office touches one of these triggers. And a representative office that drifts into sales activity is liable to be treated as an unnotified branch establishment.

Designated Sectors (as of April 2026)

Designated sectors are listed in notifications issued by the Minister of Finance. The 2020 reform split them into core and non-core sectors, with stricter exemption conditions for core.

Category	Principal sectors
Core	Weapons and weapons manufacturing; aircraft and aircraft parts; nuclear; space; cybersecurity; critical infrastructure (parts of electricity, gas, oil, heat supply, telecoms, broadcasting, rail, passenger transport); core pharmaceuticals (certain infectious-disease responses); advanced-class medical devices; semiconductors and batteries; machine tools and industrial robots; land in designated watch / special-watch zones
Non-core designated	Information-processing equipment manufacturing; software; information-processing and information-provision services; broadcasting; maritime transport; passenger transport; security services; agriculture, forestry, fisheries; leather products, etc.
Non-designated	Most food and beverage, retail, general real estate, hotels, and general manufacturing

Additions have been frequent: certain pharmaceuticals in November 2021, semiconductors / batteries / machine tools / industrial robots from 2023 onward. A material recent change came on 16 August 2024, when an amendment notification published for supply-chain protection added semiconductor-related equipment manufacturing and other sectors, applying to inward direct investments made on or after 15 September 2024 and broadening the core-sector list. According to the Ministry of Finance’s published list of FEFTA prior-notification applicability for Japanese listed companies, as of September 2024 around 24% of all listed companies were classified as core-sector and roughly 50% as designated overall.

This works alongside the Economic Security Promotion Act of 2022 and its concepts of “specified critical materials” and “critical infrastructure services”, and the Act on the Protection and Use of Critical Economic Security Information, enacted on 10 May 2024, promulgated on 17 May 2024 and effective 16 May 2025, which establishes Japan’s new security clearance regime. Leakage of critical economic security information carries imprisonment or a fine, and the FEFTA prior-notification review increasingly looks at how investors handle such information, particularly in M&A in manufacturing, supply-chain investments, data centres, and advanced semiconductors.

The sectors most common for Thai outbound targets — food service, retail, hospitality, general manufacturing — are typically non-designated. But logistics infrastructure, parts of food processing, and some software businesses can fall on the designated side, so sector classification should be checked against the latest Ministry of Finance notifications on every deal.

The Prior Notification Flow

Filed with: the Minister of Finance and the sector minister, routed via the Bank of Japan;
Window: any time within six months before the intended closing, and at the latest before closing;
Statutory review: 30 days from receipt, typically reduced to around two weeks via a shortening request that is routine in practice;
Sector ministers: METI for semiconductors and batteries; MIC for broadcasting; MHLW for pharmaceuticals; MLIT for transport;
Outcomes: (i) clearance through the lapse of the waiting period, (ii) a recommendation to stop, or (iii) an order to modify.

Closing before the waiting period expires — “transactions during the prohibition period” — is a standalone breach that attracts both a stop order and criminal penalties. Work the filing date back from the intended closing with a real cushion.

The Prior Notification Exemption (Art. 27-2)

The 2020 reform created an exemption to ease the burden on passive investors, but only in exchange for behavioural commitments.

Type	Scope	Conditions
General investor exemption	Private foreign investors	Four commitments plus additional conditions for core sectors
Financial institution exemption	Regulated institutional investors	Four commitments
State-connected investors	Sovereign wealth funds, state-owned enterprises, etc.	Ineligible for exemption — prior notification required

The four commitments are: (i) no board seats for the investor or its close affiliates; (ii) no shareholder proposals on major items such as transfer or discontinuance of business or amendment of the articles; (iii) no access to non-public technical or security-sensitive information; and (iv) for core sectors, no participation in board or key committee proceedings.

For Thai investors, the practical map is:

Private family businesses and operating companies may use the general exemption;
Thai banks, securities firms, and asset managers may use the financial institution exemption;
Thai sovereign wealth or state-owned investors (subject to shareholding structure) are typically ineligible;
Control-oriented M&A and JV deals cannot satisfy the four commitments, so operating companies normally proceed through prior notification rather than the exemption.

Even under the exemption, the post-transaction report within 45 days remains mandatory. A breach of the commitments after closing can trigger retrospective stop recommendations or modification orders — exemption use therefore requires ongoing governance discipline, not just a one-time filing.

Post-Transaction Report (Art. 55-5)

Transactions that do not require prior notification — including non-designated sectors and exempted deals — still need a post-transaction report within 45 days via the Bank of Japan. The fine caps at JPY 300,000, but repeated omissions affect creditworthiness on later filings, so internal compliance flows should bake it in.

The Thai Side — Bank of Thailand Outbound Direct Investment

Japan is not the only track. The Bank of Thailand (BOT) regulates outbound flows under the Exchange Control Act B.E. 2485 (1942).

As of April 2026, the general framework is (verify current thresholds with BOT or your Authorized Agent):

Annual quota: Thai legal entities may make outbound direct investment up to a per-year amount without BOT prior approval; BOI-promoted companies and listed companies enjoy separate, larger quotas;
Reporting channel: through an Authorized Agent (a licensed foreign-exchange dealer bank) to the BOT;
Shareholding test: the ODI characterisation requires a holding of 10% or more of voting rights or equivalent substantive control in the target; below that, the flow is treated as a portfolio investment under a different quota;
Supporting documents: purpose, amount, remittance destination, source of funds, target business description.

Announced relaxations (2025): The BOT and the Ministry of Finance of Thailand have published proposals to materially relax outbound FX rules. The headline items are: (i) the threshold for the offshore-income repatriation obligation is to be raised from USD 1 mn-equivalent to USD 10 mn-equivalent (small inflows fall outside the obligation); (ii) outbound portfolio investments will move from BOT notification / certificate issuance to a simple acknowledgment form filed with commercial banks; and (iii) the documentation-free threshold for outbound remittances will rise from USD 50,000 to USD 200,000-equivalent. Together these expand banks’ autonomous handling and materially simplify Thai outbound-investment workflows. Implementation is staggered, so when designing a Japan investment, confirm the current applicability with your Authorized Agent in Thailand.

The Japanese prior notification and the BOT ODI report are independent obligations — clearing one does not cure the other. What matters is timing alignment: the BOT report and remittance need to land in sync with Japan-side clearance on the closing date. BOI Thailand’s Thai Overseas Investment Support Center (TOISC) can support structuring and documentation.

A Core-Sector Timeline

D-180  Prior notification window opens
D-45   Japan-side filing via Bank of Japan
D-30   Ministry of Finance and sector ministry begin review
D-14   Review complete (with shortening request)
D-7    Clearance confirmation received
D-3    Thai-side BOT filing prep with Authorized Agent
D-0    Closing: share acquisition and remittance (Japan / Thailand synchronised)
D+45   Japan-side post-report ／ Thai-side BOT final report

For non-core and non-designated deals, the “prior notification” steps collapse into the 45-day post-report, but the D-0 / D+45 anchor stays the same.

Common Pitfalls

Assuming small or unlisted means no filing — 25%+ acquisitions or consent to a business-purpose change in unlisted companies still trigger the regime;
Losing track of foreign-investor status through an SPV — a Japan-incorporated SPV with Thai substantive control is still a foreign investor;
Sector misclassification — what looks like a plain IT service can fall under cybersecurity and land in core sectors;
Taking exemption commitments lightly — seating a director post-closing converts an exempt deal into a breach exposure;
Misreading the waiting period — scheduling closing without the statutory 30 days is a “prohibition period transaction” breach;
Forgetting the Thai side — clearing Japan but missing the BOT ODI report is a Thai exchange-control breach;
Missing the 1% rule — after 2020 a 2–3% stake in a listed Japanese company is already notifiable, yet this is still the most common oversight.

Operational Reality Since 2020

Six years on, practice has settled. Filings multiplied after the 1% threshold came in, and two-week review turnaround via the shortening request has become the working default. Stop recommendations and modification orders remain rare — a handful per year — with most issues resolved in negotiation. That said, core-sector deals with state-connected investors can stretch to three to six months, and deal calendars should budget for that.

General investor exemptions are used mainly by passive institutional investors. Thai control-oriented M&A and JV deals continue to go through full prior notification. Additions since 2023 — semiconductors, batteries, machine tools, industrial robots — directly reach Thai automotive-parts and electronics acquirers, making early sector triage the difference between a clean timeline and a late-stage scramble. Since the August 2024 amendment, notification volumes in semiconductors, data centres and supply-chain-related sectors have risen, and combined with the Economic Security Sensitive Information Protection Act (effective May 2025), the depth as well as the breadth of review on sensitive-information sectors has increased.

Next in the Series

Part 3 turns to the practical mechanics of incorporation once the filing or exemption is locked in — articles of incorporation for Kabushiki Kaisha and Godo Kaisha, capital injection, registration at the Legal Affairs Bureau, bank account opening, and the timeline from signing to day-one operations, read alongside the decisions made in Parts 1 and 2.

Contact

For Thai companies and Thai-capital investors going into Japan, JTJB’s Bangkok office (Thai-law and BOT practice) and the Kosada law firm in Tokyo (Japanese corporate / FEFTA practice) work together as a single team on FEFTA notification triage, exemption analysis, and BOT-synchronised deal calendars. Early-stage sector and filing assessments are welcome.

This article is for general informational purposes about Japan’s and Thailand’s legal systems as of April 2026 and does not constitute legal advice. Designated-sector notifications, exemption criteria, and BOT ODI quotas are revised from time to time. For specific matters, please check the latest statutes, notifications, and BOT circulars and consult qualified professionals. Thai-law matters are handled in collaboration with JTJB International Lawyers’ Thai-qualified attorneys.