No. 

Act No. 100 of 1954, as amended ("Interest Rate Restriction Act") sets the following interest rate ceilings:

• 20% per annum for loans with a principal amount under JPY 100,000
• 18% per annum for loans with a principal amount of between JPY 100,000 and JPY 1 million
• 15% per annum for loans with a principal amount of JPY 1 million or more

Interest rates that are higher than these rates are void.

In addition, any loan with an annual interest rate above 20% may trigger criminal sanctions under Act No. 195 of 1954, as amended ("Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates").

In principle, there are no significant restrictions imposed in relation to foreign currency exchange in Japan. However, there is a requirement that an after-the-fact report is filed with the relevant minister. Moreover, if the remittance amount is less than JPY 30 million or its equivalent, this requirement may be set aside.

Generally, a loan (whether in foreign currency or JPY) with a term that exceeds one year made to a company with a principal office in Japan must be reported to the minister of finance. However, there are two exceptions: if the loan is not an inward direct investment (as defined in Article 26 of the Foreign Exchange and Foreign Trade Act) or if it is provided by a financial institution.

Payments or transfers of money (whether in foreign currency or JPY) also generally require an after-the-fact report to be filed with the minister of finance through the Bank of Japan under the Foreign Exchange and Foreign Trade Act.

Interest paid to a foreign lender providing loans to borrowers in Japan is subject to a withholding tax of 20.42%, which may be reduced or exempted under tax treaties between the relevant lender's country of tax residence and Japan.

In addition to the transfer pricing rules, which restrict the tax deductibility of the intercompany interest expenses, if the interest rate is not in accordance with the arm's length principle, there are two rules to limit the interest payment deduction.

One is thin capitalization rules limiting interest payment deductions for companies in Japan that are leveraged in excess of certain thresholds. The rules apply only to foreign-owned Japanese companies that raise funds from foreign controlling shareholders or third parties related to foreign controlling shareholders.

Under the rules, interest payments are excluded from a company's deductible expenses to the extent that those interest payments relate to debt owed to its foreign controlling shareholders and/or third parties related to its foreign controlling shareholders and to the extent that the debt exceeds three times the company's net equity. Therefore, the deduction of interest payments will be denied to the extent those interest payments relate to a taxpayer's debt that exceeds the maximum allowable level.

Another rule is the earning stripping rule that limits the interest payment deductions for companies with higher interest rate costs. Very briefly, if the net interest expense amount paid to foreign corporations and individuals (i.e., the net interest expense paid to not only a foreign shareholder and affiliates that directly or indirectly own 50% or more of the shares of the Japanese corporation but also the foreign third party) exceeds 20% of the adjusted income or equivalent to EBITDA (defined as taxable income, adding back interest expense and depreciation expense but excluding extraordinary income or loss), the net interest paid by the Japanese corporation to them in excess of 20% of the adjusted income is not deductible for Japanese corporate tax purposes. This legislation does not apply if the net interest expense to related parties in the fiscal year is JPY 20 million or less or if the total of the domestic group companies' interest expenses is 20% or less of the total of the domestic group companies' adjusted income. 

If both the Japanese earnings stripping rules and thin capitalization rules apply in the same fiscal year, the total disallowed interest for the fiscal year is the larger of the disallowed interest as calculated under each rule.

No. 

The execution of a loan document in Japan triggers Japanese stamp duty. The amount of stamp duty depends on the aggregate principal amount of the loan, as set out in the table below.

The stamps must be affixed to the loan documents and canceled by a signature or seal. Technically, parties to a loan document are jointly liable to pay the stamp duty when the document is executed. In practice, however, the borrower usually bears the stamp duty pursuant to costs and expenses provisions in the loan document.

The nature of the contractual subordination determines whether it will be recognized by a court or insolvency administrator. There are three forms of contractual subordination that may be applicable as explained below.

Contractual subordination under insolvency acts

Act No. 75 of 2004, as amended, Act No. 225 of 1999, as amended, and Act No. 154 of 2002, as amended, ("Corporate Reorganization Act") provide for contractual subordination under an agreement between a creditor and a debtor by which the claims of that creditor are subordinated to the claims of the general unsecured creditors of the borrower in the event of insolvency proceedings. This type of contractual subordination will be recognized by a court or insolvency administrator. The effect of this type of contractual subordination is that the priority of the subordinated creditors' claims will fall between the general unsecured creditors' claims and the equity holders' claims.

Contingent claims

Under this type of contractual subordination, the loan agreement stipulates that if a certain trigger event occurs (e.g., an event of default or acceleration), the claims of the mezzanine and/or junior lenders are contingent on the payment in full of the claims of the senior lender. A court or insolvency administrator will, in effect, recognize that under this type of contractual subordination, the claims of the mezzanine and/or junior lender do not exist (or exist contingently) at the time of the insolvency. This arrangement is sometimes used in Japan for effectively securing the priority of the senior lender, but it is not popular among mezzanine and/or junior lenders as it may yield unacceptable results for them.

Contractual subordination under intercreditor agreements

Where the claims of the mezzanine and/or junior lender remain but are contractually subordinated to the senior lender under an intercreditor agreement, a court or bankruptcy administrator will set aside the contractual subordination and, in the case of secured creditors, distribute the proceeds from the secured assets in accordance with the order of registration or, if registered simultaneously, pro rata among the secured lenders. While a senior lender may rely on the clawback provisions of the intercreditor agreement, where the court or insolvency administrator has made payments to a mezzanine and/or junior lender prior to the satisfaction of the senior claims, the senior lender will then be taking on both the performance risk and credit risk of the mezzanine and/or junior lender.

Generally speaking, tax claims have first priority among unsecured and unsubordinated claims. Claims arising out of certain matters, such as money to be collected by public entities, social insurance premiums, expenses for the common benefit, salaries, funeral expenses and expenses for the supply of daily necessities, have second priority. These two categories of claims would rank equally with, or above, the claims of the debtor's other unsecured and unsubordinated creditors.

In Japan, there are several laws that provide consumer protection. For example, the Money Lending Business Act, the Interest Rate Restriction Act and the Act Regulating the Receipt of Contributions, Receipt of Deposits and Interest Rates (which protects consumers from excessive interest or excessive use of credit).

These laws are based on the principle of territoriality, and their applicability depends on whether the relevant lending business is conducted in Japan. The governing law of the finance documents is not the decisive factor in determining the applicability of these laws.

In Japan, there is no concept of “financial assistance” as is typically seen in some Western countries. However, the giving of financial assistance by a company may be considered a violation by the directors of the company of the duty of care or duty of loyalty that those directors owe to the company.