How can investment in real estate by an individual/organization/company be set up?
Any individual, organization or company can acquire real estate in Japan. The most common investment structures used by offshore investors are as follows:
Direct acquisition by an offshore investor or an offshore special-purpose company (SPC) is common. In a direct acquisition, an offshore investor either directly or through an SPC acquires the target property or trust beneficial interest (TBI) in Japan. Generally speaking, there are no restrictions on foreign direct investment in Japanese real estate.
Since the investor or SPC is located offshore, incorporation of an on-shore acquisition entity in Japan is not required.
Indirect acquisition through a godo-kaisha (GK), which is an on-shore entity. A GK is similar to a limited liability company under US law. It allows more flexibility in regards to corporate governance and management decisions than a TMK (described below) or a conventional corporation (kabushiki-kaisha, or KK). Please note that a GK is not a pass-through corporation similar to a US limited liability company, which can elect to become a disregarded entity.
No minimum capital is required for establishment of a GK. A GK is established by way of a filing with the Legal Affairs Bureau and may be incorporated within approximately one month after the incorporation documents are executed.
A tokumei-kumiai (TK) is a form of partnership based on an agreement between a silent partner(s) (ie investors), (TK Partner(s) or tokumei-kumiai-in) and a GK (as the TK operator or eigyosha). Under a GK-TK structure, a GK is established as a special purpose company whose sole purpose is normally to hold assets (eg fee property interests or TBI).
The incorporation process for a GK is straightforward as discussed above. The TK agreement may be signed by the TK Partner(s) and a GK any time the parties desire but only after formation of the GK. The TK agreement is not filed or made publicly available.
A tokutei-mokuteki-kaisha (TMK) is a special purpose limited liability company that can only be used for the securitization of assets.
Property rights can be securitized by a TMK through the issue of asset-backed securities (shisan-taio-shoken) to investors, usually in the form of equities or bonds. Profits are distributed to investors by way of dividends on equities or interest on bonds, depending on the nature of the security issued to investors by the TMK. Because of its special role as an investment vehicle for securitized assets and preferential tax features, TMKs are subject to stringent regulatory requirements.
No minimum capital is required. A TMK may be incorporated within approximately one month. However, in order for TMK to acquire target assets or to issue asset-backed securities, an asset liquidation plan must be filed. It usually takes about three months for a TMK to be incorporated and become eligible to acquire assets.