The foreign investment regime in Japan is months ahead of the UK in enhancing safeguards from hostile investment.
There are some major differences between the Japanese foreign investment regime and the proposed new UK regime: (i) notification/report system; (ii) designated business sectors as to mandatory prior notification; (iii) threshold for mandatory notification and exemptions, including accreditation system; and (iv) targets of call-in power.
Currently, a significant number of countries are introducing new rules on foreign direct investment to strengthen measures of screening from the national security viewpoint – most recently China, as detailed in our previous alert.
In the UK, the government published the National Security and Investment Bill (the Bill) in November 2020, and it has been under discussion in Parliament. In Japan, the Foreign Exchange and Foreign Trade Act (FEFTA), its regulations, and public announcements (collectively, FEFTAs) took effect in May and June 2020 and have been implemented respectively. This client alert analyses the differences between the regimes and discusses whether the UK should adopt any of the Japanese exemptions.
Both the UK and Japanese systems have mandatory prior notification for designated business sectors.
The UK has a voluntary regime for mergers generally and a high filing fee of up to £160,000, which means that filings are not expected unless there is a potential competition issue. The proposed UK foreign investment regime introduces a mandatory notification regime for those sectors which pose the greatest risk, with a voluntary notification regime for all other sectors with an enhanced call-in power, with no filing fees. The exact scope of the mandatory sectors is yet to be defined.
On the other hand, while Japan has no official voluntary notification system in the FEFTAs, it requires foreign investors to submit a mandatory post-notification report in certain situations. If required, foreign investors shall submit the report within 45 days after their transactions made.