Cecily Zamora
Japan's legal system is based on civil law, and the country has implemented economic sanctions against countries like North Korea, Iran, and Russia, restricting certain trade activities. Japan has tax treaties with 75 countries, including the US, UK, and China, to avoid double taxation. Japanese companies can be sued in other countries for violations committed there, and vice versa. For instance, a Japanese company can be sued in a US court if it violates US copyright law, as it must abide by US laws when selling products in the US. However, there are challenges for non-Japanese speakers in Japan's legal system, as there are no guidelines ensuring effective communication between judges, lawyers, and non-Japanese-speaking defendants.
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What You'll Learn
- Japanese companies can sue and be sued in foreign countries
- Japan has implemented economic sanctions and restricted trading with some countries
- Japan has unique corporate forms with specific requirements
- Japan has a network of double tax treaties with many countries
- Japan has a distinct legal system with some inefficiencies
Japanese companies can sue and be sued in foreign countries
Japanese companies can also be sued in the US for breach of contract, and for violations of US securities laws if they sell American depository receipts or similar instruments in the US. Foreign companies may also be subject to US jurisdiction if they consent to it in a contract.
US courts may also give some deference to Japan's local laws if there is a contract with a foreign Japanese business operator that requires the application of Japanese laws in the event of disputes or injuries that arise. However, if a company is suing under product liability laws in their state, they won't have to refer to any contract.
Japanese companies can also sue in US courts. For example, if a Japanese company sells a product in the US, it must agree to abide by US laws and can therefore enjoy the protections of US law with respect to the US market.
Japanese companies can also choose to sue in their own country, particularly if they could win under Japanese law. This may be more efficient than suing in a foreign venue, particularly if the company would then have to sue in lots of different foreign lawsuits for violations in each country.
The legal system of Japan is based on civil law. Case law does not have a binding effect on subsequent cases, but Japanese courts tend to follow past judicial decisions in similar cases. Japan has implemented economic sanctions against some countries, including North Korea, Iran, and Russia, and there are reporting requirements under the Foreign Exchange and Foreign Trade Act (FEFTA) with respect to payments made by Japanese residents to or from these countries. Japan also has tax treaties with 75 countries and territories, including the US, to avoid double taxation.
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Japan has implemented economic sanctions and restricted trading with some countries
Japan has imposed economic sanctions on countries including North Korea, Iran, and Russia. In the case of North Korea, Japan imposed an import embargo in 2006 and an export embargo in 2009, in response to the country's disruptive and illegal activities, including human rights abuses and breaches of nuclear proliferation agreements. These sanctions carry criminal and civil penalties for non-compliance, with fines of up to 1 million yen and three years in prison for financial activities, and fines of up to 10 million yen and five years in prison for breaches of trade restrictions. Japan has also implemented sanctions in relation to Russia's invasion of Ukraine and has contributed to international sanctions against Iran.
In addition to FEFTA, Japan's sanctions policy is informed by its membership in international organisations and agreements. As a member of the United Nations, Japan often aligns its sanctions with United Nations Security Council (UNSC) resolutions. Japan also cooperates with other countries and organisations, such as the US, the EU, and the G7, to implement sanctions that reflect its international commitments. For example, Japan proposed a Magnitsky-style sanctions program in 2021, aiming to penalise human rights violations, specifically China's treatment of Uyghur Muslims.
To facilitate the implementation of sanctions, Japan has established a detailed inspection system for suspicious items, including onsite inspections. Violations of FEFTA can result in significant criminal penalties, with a statute of limitations of three years for financial and service transactions, and five years for trade in goods. The maximum penalty for violating FEFTA provisions includes up to ten years' imprisonment and a fine of up to JPY ten million or five times the value of the violation, whichever is greater.
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Japan has unique corporate forms with specific requirements
Japan has a unique set of corporate forms, each with its own specific requirements. The country's legal system is based on civil law, and while past judicial decisions do not have a binding effect on future cases, they are often followed in practice. Japan recognises four types of companies: joint-stock company (kabushiki kaisha or KK), limited liability company (godo kaisha or GK), general partnership company (gomei kaisha), and limited partnership company (goshi kaisha).
A key characteristic of joint-stock companies and limited liability companies is the limited liability of their shareholders and members to their capital contributions. In contrast, general partnership companies hold all members jointly and severally liable for the company's debts and obligations without limitation. Limited liability companies are required to maintain records of important decisions made by members, including minutes of meetings on business strategies, financial decisions, and operational policies. Both joint-stock companies and limited liability companies must keep detailed records of their shareholders' meetings, including minutes, decisions, and attendance lists.
All companies must also keep accurate financial records and submit annual financial statements to the relevant authorities, ensuring compliance with tax regulations and financial reporting standards. Japan's corporate tax is levied on company profits, while its consumption tax is similar to VAT, applied to the sale of goods and services. Withholding tax is deducted from payments to employees, contractors, and certain transactions, and employers must contribute to employees' social insurance.
There are no restrictions on expanding business operations in Japan, and entities are free to work with trade or commercial agents. However, imposing restrictions on transactions may be prohibited under applicable laws, such as the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade. Japan has implemented economic sanctions against countries like North Korea, Iran, and Russia, restricting certain trading activities. The country also has various treaties on customs duties, including the World Trade Organisation Agreement and the Free Trade Agreement.
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Japan has a network of double tax treaties with many countries
The provisions of these tax treaties supersede those of domestic law in Japan. This means that in the case of a non-Japanese corporate shareholder without a permanent establishment (PE) in Japan, they would typically be subject to a withholding tax of 20.42% on dividends from a Japanese corporation. However, if Japan has a tax treaty with the shareholder's country of residence, this treaty may reduce the maximum withholding tax rate or even exempt them from Japanese withholding tax altogether. Similarly, when a Japanese company receives dividends from a non-Japanese affiliate, 95% of the dividends received are typically exempt from taxable income under certain conditions.
Japan has also signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS, which aims to prevent overlaps in social security enrolment. This agreement has two main effects: first, it prevents double enrolment by coordinating social insurance systems, and second, it establishes tax treaty-related measures to prevent Base Erosion and Profit Shifting (BEPS).
Through its extensive network of double tax treaties and participation in multilateral agreements, Japan seeks to provide legal stability and predictability for businesses and individuals with international operations or investments. These treaties help to reduce the tax burden, prevent double taxation, and foster economic cooperation between Japan and its treaty partners.
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Japan has a distinct legal system with some inefficiencies
Japan has a distinct legal system, with a variety of laws and regulations that govern business operations, criminal justice, and family matters. The legal system in Japan is based on civil law, with the "Six Codes" governing the legal framework. While past judicial decisions do not have a binding effect on future cases, Japanese courts tend to follow precedent, giving significant importance to case law in practice.
One notable aspect of Japan's legal system is the importance of contract law, which is primarily based on the Civil Code. This code defines the rights and obligations of parties in general contracts and certain specialised types, such as commercial transactions, which are governed by the Commercial Code. The Commercial Code takes precedence in cases where both the Civil and Commercial Codes apply. Contracts are considered juridical acts and require an offer, acceptance, and good faith from both parties.
Japan's criminal justice system has undergone significant transformation since 1868, with the introduction of publicly promulgated legal codes based on French models, such as the Napoleonic Code. The Penal Code of 1880 and the Code of Criminal Instruction of 1880 specified offences and set punishments, treating all citizens as equals. However, certain traditional attitudes towards authority were reflected in these codes, such as the elevated position of the prosecutor relative to the defendant and defence counsel.
The nation's criminal justice system has been criticised for violating the Constitution of Japan and international human rights. Critics point to prolonged detention, interrogations to force confessions, and the lack of presumption of innocence as issues within the system. Despite criminal justice reforms implemented in the 2000s, these issues persist, and foreign detainees face additional challenges due to language barriers.
In terms of corporate law, Japan imposes few restrictions on expanding business operations, and entities are generally free to work with trade or commercial agents. However, imposing certain restrictions on transactions, such as resale price, may be prohibited under laws like the Act on Prohibition of Private Monopolization. Additionally, Japan has implemented economic sanctions against countries like North Korea, Iran, and Russia, restricting certain trading activities.
Japan's legal system also covers family law, with matters consolidated under the Civil Code. For example, the Civil Code currently does not allow for dual or joint custody after divorce, which can impact access or visitation rights for non-custodial parents. Japan's accession to the Hague Convention on Abductions in 2014 was a significant step in recognising the jurisdiction of the child's place of habitual residence in custodial determinations.
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Frequently asked questions
A Japanese company can choose to follow another country's laws if it is selling products in that country. For example, if a Japanese company sells products in the US, it must agree to abide by US laws.
Yes, a Japanese company can be sued in a foreign court if it violates copyright in that jurisdiction. For example, if a Japanese company violates copyright in the US, it can be sued in a US court.
Yes, a Japanese company can be sued in Japan for a violation that occurred anywhere in the world, in addition to the place where the violation occurred, under the concept of "general jurisdiction".
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