On 1 January 2026, Japan’s Subcontracting Act was renamed and enacted as the Act Against Delay in Payment of Fees, etc. to Small and Medium-sized Entrusted Business Operators in Manufacturing and Other Specified Fields (hereinafter referred to as the “Act”). This change goes beyond a mere renaming, encompassing an expansion of the scope of regulation and clarification of the obligations involved.
The purpose of this Act lies in rectifying unfair trading practices by businesses in a superior bargaining position and protecting small and medium-sized contractors.
As the Act may impose compliance obligation even on foreign companies that conduct transactions with Japanese businesses, we would like to outline the key aspects in this article.
- Scope of Transactions
The Act now includes “specified transport contract” among regulated transactions, alongside the existing categories of manufacturing contract, repair contract, information-based product creation contract, and service contract.
Many typical transactions outsourced by foreign companies to Japanese companies, such as software development in the IT/SaaS sector, advertising and design production, and logistics outsourcing in e-commerce businesses, were already within the scope of application.
As a result of the current amendments, transactions involving the consignment of transport services to third parties for delivering finished products or information products to customers also fall under the Act’s scope under certain condition.
- “Capital + Employee Count” Criteria
Another key amendment is the addition of an “employee count criteria”.
Whereas the Subcontracting Act previously used capital amount as the sole criteria, from 1 January 2026 onwards, the Act will apply even if the capital requirement is not met, provided the number of employees exceeds a certain threshold.
Specifically, the Act applies when the following criteria are met:
(1) Pattern 1
i. Transaction Content
・Manufacturing contract, repair contract, specified transport contract
・Information-based product creatin contract, service contract (limited to program creation, transport, storage of goods in warehouses, and information processing)
ii. Relationship between the entrusting business operator and the entrusted business operator
(i) Where the entrusting business operator is a corporation with capital exceeding ¥300 million and the entrusted business operator is an individual or a corporation with capital of ¥300 million or less,
(ii) Where the entrusting business operator is a corporation with capital exceeding ¥10 million but not exceeding ¥300 million and the entrusted business operator is an individual or a corporation with capital of ¥10 million or less, or an individual.
(iii) Where the entrusting business operator is a corporation with over 300 regular employees and the entrusted business operator is an individual or corporation with 300 or fewer regular employees
(2) Pattern 2
i. Transaction Details
・Information-based product creation and service contract (excluding program creation, transport, storage of goods in warehouses, and information processing)
ii. Relationship between entrusting business operator and entrusted business operator
・Where the entrusting business operator is a corporation with capital exceeding ¥50 million and the entrusted business operator is an individual or a corporation with capital of ¥50 million or less
・Where the entrusting business operator is a corporation with capital exceeding ¥10 million but not exceeding ¥50 million and the entrusted business operator is an individual or a corporation with capital of ¥10 million or less
・Where the entrusting business operator is a corporation with over 100 regular employees and the entrusted business operator is an individual or a corporation with 100 or fewer regular employees
Furthermore, it is considered that evading the application of this Act by outsourcing to subsidiaries with low capitalisation is not lawful.
- Application to Foreign Companies
While no judicial precedent or guideline explicitly states the application of this Act to foreign companies, it is considered applicable not only to Japanese corporations but also to foreign entrusting business operator.
In cases where a foreign corporation has a subsidiary in Japan, you must pay close attention. Even if the Japanese subsidiary formally acts as the ordering party, if the parent foreign corporation effectively controls the subsidiary and a significant portion of the outsourced work is further subcontracted to another business operator, the parent corporation may be deemed to be the entrusting business operator under this Act.
- Obligations and Prohibited Conducts of the Contracting Entity
(1) Obligations of the Entrusting Business Operator
Where this Act applies, the entrusting business operator is subject to the following obligations: (i) clearly specifying the order details; (ii) setting a payment due date; (iii) retaining transaction records; and (iv) paying interest on late payments. The payment due date is particularly prone to practical issues, as it must be set as a specific date within 60 days of receipt.
(2) Prohibited Conduct for Entrusting Business Operator
Furthermore, the following acts are prohibited, even with the consent of the entrusted business operator:
・Refusal to accept goods or services
・Delay in payment
・Retrospective reduction of the price
・Returns for which the entrusted business operator bears no responsibility
・Setting a price significantly lower than the normal consideration
・Compulsory purchase or use of specified products or services
・Retaliatory measures based on reporting violations of this Act
・Early settlement of payments for materials supplied against payment
・Requests for the provision of unjust economic benefits
・Requests for specification changes or rework without compensation
・Unilateral determination of payment amounts without consultation
- Risk of Violation and Practical Implications
Failure to comply with this Act exposes companies to legal risks including investigation and recommendations, public disclosure of the company name, and fines by the Fair Trade Commission.
Furthermore, there is a risk of suffering for damage in the form of a loss of credibility within the Japanese market. In Japan, compliance violations tend to have a direct and significant impact on corporate value, and the consequences can be more severe than overseas parent companies might anticipate.
For foreign companies conducting business with Japanese firms or maintaining outsourcing relationships through Japanese subsidiaries, understanding and complying with this Act is essential from the perspective of risk management in Japan.
Satoshi Minami
Vilá Abogados
For further information, please contact:
6 February 2026
