Navigating Japan's Regulatory Landscape: Key Insights into the Permit and License System (Kyoninka Gyosei) for Foreign Businesses

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

For any business, domestic or foreign, seeking to operate or expand in Japan, a thorough understanding of the country's permit and license system—collectively known as kyoninka gyōsei (許認可行政)—is indispensable. This system governs a vast array of economic and social activities, and successfully navigating its intricacies is often a prerequisite for market entry and compliant operation. This article provides key insights into the Japanese permit and license system, including the main types of administrative approvals, the application process as shaped by the Administrative Procedure Act, how to respond to unfavorable decisions, and specific considerations for foreign businesses.

Understanding "Kyoninka Gyosei": The Basics

Kyoninka gyōsei is a broad term referring to the administrative processes by which government agencies grant permissions, issue licenses, or provide approvals for specific activities or businesses. The overarching purpose is to regulate various sectors in the public interest, ensuring safety, order, fair competition, environmental protection, or other policy objectives. Obtaining the necessary kyoninka is often a critical step before a business can legally commence or continue certain operations. Examples range from securing a license to operate a restaurant or a financial services firm, to obtaining a permit for construction, to getting approval for importing certain goods.

Key Doctrinal Types of Permits and Licenses in Japan

Japanese administrative law traditionally categorizes these approvals into several types based on their legal nature and effect. While the lines can sometimes blur in practice, understanding these distinctions is helpful as they can influence the scope of agency discretion, the conditions that can be attached, and the consequences of operating without the required approval. The three main doctrinal types are:

  1. Permit/License (Kyoka - 許可):
    A kyoka is an administrative act that lifts a general prohibition on a certain activity, thereby restoring a "natural freedom" to a specific party who meets certain qualifications. The underlying activity is one that individuals or entities would, in principle, be free to engage in, but which is generally restricted by law for reasons of public interest (e.g., public safety, order).
    • Examples: A driver's license (permission to drive, which is otherwise prohibited for public safety), a building confirmation (kenchiku kakunin – permission to build once plans meet standards), a license to operate a restaurant or a hotel.
    • Characteristics: Generally, the administrative agency has less discretion in granting a kyoka if the applicant meets all statutory requirements. The focus is on verifying compliance with objective criteria. Operating without a required kyoka typically incurs penalties.
  2. Patent/Concession (Tokkyo - 特許):
    A tokkyo (often translated as patent, but in this administrative law context, more akin to a concession or special license) is an administrative act that grants a specific individual or entity a special right, legal status, or capacity that they do not inherently possess under general law. It often involves activities that are monopolistic in nature or require close public supervision.
    • Examples: A license to operate a public utility (e.g., railway, electricity, gas), mining rights, a license to operate a public bathhouse (which historically has been treated as a tokkyo due to its public service nature and need for proper distribution).
    • Characteristics: Agencies often have significant discretion in granting a tokkyo, including selecting among multiple applicants based on suitability and public interest. It confers a new, special legal position.
  3. Approval/Validation (Ninka - 認可):
    A ninka is an administrative act by which an agency bestows legal validity upon a legal act (e.g., a contract or corporate act) performed by a third party (or parties). The underlying private act is considered incomplete or legally ineffective until the ninka is granted.
    • Examples: Approval for the transfer of agricultural land under the Agricultural Land Act, approval of a company's articles of association or a merger agreement, approval of fare revisions for public transportation.
    • Characteristics: The agency's role is generally to supplement the legal effectiveness of the private act, often by confirming its compliance with public interest requirements. Without ninka, the underlying private act is typically void or ineffective. A Supreme Court judgment on May 26, 1961, affirmed that an unpermitted (i.e., without ninka-like approval) transfer of agricultural land is invalid.

Why These Distinctions Matter: The type of kyoninka can influence the scope of the agency's discretion (e.g., more discretion in tokkyo than in kyoka), the conditions that can be attached, and the legal consequences of non-compliance. However, it's important to note that the terminology used in specific laws ("permit," "license," "approval") does not always perfectly align with these doctrinal categories. The actual legal nature must be determined by analyzing the purpose and structure of the specific regulatory scheme.

The Application Process: Role of the Administrative Procedure Act (APA)

The Administrative Procedure Act (行政手続法 - Gyōsei Tetsuzuki Hō, APA) provides a general framework for many administrative processes in Japan, including those related to applications for permits and licenses. Its provisions aim to ensure fairness, transparency, and predictability.

Key APA provisions concerning "Dispositions in Response to Applications" (申請に対する処分 - shinsei ni taisuru shobun) include:

  • Examination Standards (Shinsa Kijun) (APA Article 5): Administrative organs are obligated to establish examination standards for applications and, in principle, make them publicly available (e.g., by posting them online or at their offices). These standards should detail the specific criteria used to judge whether an application will be granted or denied. This is a crucial element for businesses to understand the requirements and prepare their applications effectively.
  • Standard Processing Periods (Hyōjun Shori Kikan) (APA Article 6): Agencies must endeavor to establish standard processing periods for applications and make these public. While this is not a strict deadline, it provides applicants with an indication of how long the review process might take.
  • Commencement of Examination (APA Article 7): Once an application formally arrives at the relevant agency office, the agency must commence its examination without delay. The APA effectively did away with the former practice where agencies could exercise discretion in "accepting" (juri) an application for review. If an application has formal defects (e.g., missing information, incorrect format), the agency must promptly request the applicant to make corrections (hosei) within a reasonable period, or formally refuse the application based on those defects. It cannot simply refuse to receive or process a formally lodged application.
  • Reasons for Refusal (Riyū Fuki) (APA Article 8): If an administrative organ refuses an application, it must, concurrently with the refusal, provide the applicant with the reasons for its decision. If the refusal is in writing, the reasons must also be in writing. These reasons should be specific enough to allow the applicant to understand why their application was denied and to consider further action, such as re-application or a legal challenge. The Supreme Court has emphasized that the reasons must be substantial, not merely cursory (e.g., judgment of January 22, 1985).

Responding to a Denial or Unfavorable Conditions

If a business receives a denial of its application for a permit or license, or if the approval is granted with overly burdensome conditions, several courses of action can be considered:

  1. Informal Channels:
    • Seek Clarification: Request a detailed explanation from the agency regarding the reasons for denial or the problematic conditions.
    • Negotiation/Discussion: In some cases, it may be possible to discuss the issues with the agency and explore whether modifications to the application or proposed activity could lead to a favorable outcome.
    • Re-application: If the denial was based on rectifiable issues, the business might choose to amend its application and re-submit it.
  2. Formal Remedies:
    • Administrative Complaint Review (under ACRA): As discussed in a previous article, a business can file a Request for Administrative Review (shinsa seikyū) with the relevant administrative authority to challenge the denial. This allows for a review of both the legality and the impropriety of the decision.
    • Revocation Litigation (under ACLA): A business can file revocation litigation (torikeshi soshō) in court to seek the nullification of the denial, arguing that it was illegal. This typically focuses on whether the agency correctly applied the law and its own examination standards, whether it abused its discretion, or whether there were significant procedural flaws.

Supervisory Actions: When Permits/Licenses are Revoked or Suspended

Once a permit or license is granted, businesses must continue to comply with its terms and applicable laws. Failure to do so can lead to supervisory actions by the administrative agency, which may include warnings, orders to improve, suspension of operations, or even revocation of the permit/license. These are categorized as "Adverse Dispositions" (不利益処分 - furieki shobun) under the APA.

Chapter 3 of the APA provides important procedural protections for parties facing such adverse dispositions:

  • Disposition Standards (Shobun Kijun) (APA Article 12): Similar to examination standards for applications, agencies must endeavor to establish and make public the standards they use for making adverse dispositions (e.g., what level of violation triggers a license suspension versus a revocation).
  • Prior Procedural Rights (APA Article 13): Before an agency issues a significant adverse disposition (such as a license revocation or a business suspension order), it must generally provide the affected party with an opportunity to defend themselves. This takes the form of either:
    • A formal Hearing (聴聞 - chōmon): For more severe adverse dispositions, involving oral proceedings.
    • An Opportunity for Explanation (弁明の機会の付与 - benmei no kikai no fuyo): Often a written procedure for less severe cases.
      These procedures allow the business to understand the alleged grounds for the adverse action, present evidence, and make arguments in its defense.
  • Reasons for Adverse Dispositions (APA Article 14): Similar to application refusals, the agency must provide clear reasons for any adverse disposition it issues.

Specific Considerations for Foreign Businesses

Foreign businesses navigating the Japanese kyoninka system should be mindful of several additional points:

  • Language and Documentation: Applications and all supporting documents must typically be in Japanese. Accurate, professional translation is essential. Complex legal or technical documents may require specialized translation services.
  • Understanding Agency Jurisdiction: Identifying the correct administrative agency (national ministry, prefectural government, municipal office, or specialized agency) with jurisdiction over the specific permit or license can sometimes be challenging. Different aspects of a single business operation might require approvals from multiple authorities.
  • Use of Local Experts:
    • Administrative Scriveners (Gyōsei Shoshi - 行政書士): These licensed professionals specialize in preparing and filing applications for various permits and licenses with government agencies. They are often invaluable for navigating the paperwork and procedural requirements.
    • Lawyers (Bengoshi - 弁護士): For complex legal interpretations, challenging denials, or dealing with potential adverse dispositions, consultation with a lawyer specializing in Japanese administrative law is crucial.
  • Cultural Nuances: While formal procedures are key, understanding Japanese business and administrative culture—which may value thorough preparation, clear communication, and sometimes informal consultations prior to formal application—can be beneficial.
  • Key Sectors and Regulations: Foreign businesses frequently encounter kyoninka requirements in areas such as:
    • Investment: Notifications or approvals under the Foreign Exchange and Foreign Trade Act (外為法 - Gaitame-hō) for certain inward direct investments.
    • Industry-Specific Licenses: Many sectors are heavily regulated, requiring specific licenses (e.g., financial services, pharmaceuticals, medical devices, telecommunications, construction, transportation, food and beverage, hospitality).
    • Employment: Visas and work permits for foreign national employees.
    • Environmental Regulations: Permits related to emissions, waste disposal, and land use.

Notifications (Todokede) vs. Permits/Licenses

It's useful to briefly distinguish kyoninka from a simpler procedure known as "notification" or "filing" (届出 - todokede). For certain activities, the law may only require a business to notify the relevant administrative agency, rather than obtain explicit permission. In such cases, the legal obligation is generally fulfilled simply by submitting the notification in the prescribed format. The agency typically does not conduct a substantive examination or issue a formal approval for a todokede; the procedure often concludes upon proper filing (APA Article 37). However, failure to file a required notification can still lead to penalties.

Conclusion

The permit and license system (kyoninka gyōsei) is an integral part of Japan's regulatory environment. For foreign businesses, successfully navigating this system requires a clear understanding of the different types of administrative approvals, diligent preparation of applications in accordance with published examination standards, awareness of the procedural rights afforded by the Administrative Procedure Act, and a strategic approach to addressing any unfavorable decisions. While the system can appear complex, leveraging local expertise and understanding the underlying legal principles can significantly enhance the predictability and success of obtaining and maintaining the necessary permits and licenses for operating in Japan.