International Legal and Regulatory Framework for Space Law

UN outer space treaties and soft law

The international legal framework for space activities is of considerable influence on the legal and regulatory environment in Japan. Japan has ratified or acceded to the four United Nations treaties on outer space:

• the Treaty on Principles Governing the Activities of States in the Exploration and Use of Outer Space, including the Moon and Other Celestial Bodies (the Outer Space Treaty);
• the Agreement on the Rescue of Astronauts, the Return of Astronauts and the Return of Objects Launched into Outer Space (the Rescue Agreement);
• the Convention on International Liability for Damage Caused by Space Objects (the Liability Convention); and
• the Convention on Registration of Objects Launched into Outer Space (the Registration Convention).

In contrast, Japan has not ratified or acceded to the Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (the Moon Agreement), under which private ownership of the Moon and other celestial bodies and their natural resources is prohibited.

In addition to these “hard laws”, the Japanese government also respects non-binding principles and declarations (so called “soft laws”) established by international organisations, such as the Space Benefits Declaration, the Space Debris Mitigation Guidelines, and the Guidelines for the Long-term Sustainability of Outer Space Activities. This is on the basis that these contribute to national security and are also beneficial to space activities by the international community.

Bilateral/multilateral frameworks for co-operation in space activities

The Japanese government is also keen to co-operate with other countries advanced in space technology under bilateral or multilateral frameworks. For example, Japan is a signatory to the International Space Station Intergovernmental Agreement (IGA) and has co-operated with the United States, Russia, Canada, and the other participant European countries. More recently, Japan is a signatory to the Artemis Accord and works closely with the United States and other member countries in relation to the Artemis Program – an international lunar exploration programme proposed by NASA. In addition, the Japanese government signed with the United States government the Framework Agreement for Cooperation in the Exploration and Use of Outer Space in 2023, which covers intellectual property rights protection, cross-waiver, scientific data sharing, and the effort to exempt taxes and fees on necessary imports and exports in furtherance of the co-operation. Furthermore, Japan and the United Kingdom signed the arrangement to co-operate in space activities, including information sharing, joint training, and personnel exchange. Dialogue and discussions on co-operation in space activities are also underway with the European Space Agency, France, India, and Australia.

The space industry in Japan has traditionally developed mainly in response to demand from the national government. However, since the 2000s, the importance of commercial space development by the private sector has been recognised, and the government has encouraged the private sector to actively participate in the space industry.

Such governmental policy was materialised by enactment of the Basic Space Act (enacted in 2008), which states that the government shall take measures to promote business activities related to space development and use by the private sector. In addition, the Act on Launching of Satellites, etc. and Operation of Satellites (enacted in 2016, the “Space Activity Act”) and Act on Ensuring Appropriate Handling of Satellite Remote Sensing Data (enacted in 2016, the “Satellite Remote Sensing Act”) established the legal framework regarding the license system for private operators to conduct launch businesses, satellite operation businesses, and businesses using satellite remote sensing devices. Through these acts, the legal framework for private operators to participate in outer space businesses has been established in Japan.

Public demand still accounts for the majority of the domain of space equipment manufacturing. However, in the space utilisation industry, especially in the fields of the satellite communication and broadcasting business, Japan has some of the world’s leading companies. In addition, several private companies have entered the launch service business, and new entrants have emerged in the development of microsatellites, on-orbit services, exploration of space resources, the establishment of lunar economy, and entertainment in outer space. In this way, the movement of private companies to participate in the space industry is now increasing in Japan.

General Legal System

The legal system in Japan is based on civil law. Thus, the statute laws are the basic source of law, and case law is not strictly binding. In Japan, the Supreme Court can accept appeals of cases where decisions conflict with Supreme Court precedents, and thereby the uniformity of the interpretation of laws in courts is to be achieved. However, since appeals are not always filed for all cases, and the Supreme Court may not necessarily accept all appeals of lower court decisions that may be contrary to Supreme Court precedents, Supreme Court precedents only have a de facto binding power.

Legal System regarding Space Law

As for space law in Japan, statute laws are the basic source of law.

The following is a summary of domestic laws regarding space activity in Japan.

Basic Space Act

The Basic Space Act provides the basic principles for the development and use of space, including compliance with international treaties, peaceful use, and promotion of industry, as well as the responsibilities of the government in realising these principles. It also stipulates that the government shall formulate a basic plan for space development and utilisation (the “Space Basic Plan”), and that the Outer Space Development Strategy Headquarters shall be established under the Cabinet to promote national policies on space development and use.

Space Activity Act

The Space Activity Act (i) establishes the license system for launch of rockets and operation of satellites conducted by private entities (see 2.4 Role of the State in the Licensing Process for Space Activities and 2.6 Role of the State in the Launching Process), and (ii) provides the legal structure of compensation for damages caused from space activities (see 2.8 Insurance and State Measures on Liability for Damages). About ten years have passed since its enactment, and a review for amendment of the Space Activity Act is currently underway.

Satellite Remote Sensing Act

The Satellite Remote Sensing Act establishes the license system for the use of satellite remote sensing devices using a domestic radio station and also provides regulations regarding restrictions on the provision of data obtained by satellite remote sensing devices to third parties (see 3.1 General Rules on Space Activities).

Space Resources Act

Act on the Promotion of Business Activities for the Exploration and Development of Space Resources (enacted in 2021, the “Space Resources Act”) provides requirements for obtaining a license for space resources exploration and development by private entities, as the add-on requirements for licenses under the Space Activity Act. It also provides that operators can acquire ownership of space resources by meeting certain requirements (see 4 Ownership of Extraterrestrial Resources).

Case Law regarding Space Activity

There have not been many lawsuits regarding space activities in Japan yet. In addition, when a dispute arises, it tends to end in alternative dispute resolution or settlement in many cases. Therefore, there are not yet many case precedents publicly available in the field of space law.

Public institutions related to space policy in Japan are as follows. Essentially, the Cabinet Office plays a central role in formulating space policy, while Japan Aerospace Exploration Agency (JAXA) plays a role as a player in space activities, such as space-related research and development, launch and operation of satellites, and support for private entities participating in space activities.

Outer Space Development Strategy Headquarter

The Outer Space Development Strategy Headquarter is established in the Cabinet and is responsible for (i) the draft of the Space Basic Plan and its implementation, and (ii) researching and deliberating key policies on space development and use, and promoting the implementation of these policies.

Cabinet Office

The Cabinet Office oversees planning, formulation, and general co-ordination of policies on space development and use. In addition, the Cabinet office is responsible for the development and operation of the Quasi-Zenith Satellite System. The Space Policy Committee is established in the Cabinet Office, which deliberates on important policies related to space development and use.

JAXA

JAXA is established as one of national research and development agencies to realise space-related policies. The Cabinet Office, Ministry of Internal Affairs and Communications (MIC), Ministry of Education, Culture, Sports, Science and Technology, and Ministry of Economy, Trade and Industry (METI) are in charge of JAXA. JAXA focuses on (i) academic research and technological development in space science, (ii) the development, launching, tracking, and operation of satellites, etc, and (iii) assisting research and development by private entities for the purpose of implementing projects utilising outer space. JAXA also focuses on research and development related to aeronautical science and technology. JAXA’s medium- to long-term goals (covering a period of five to seven years) shall be decided by the competent ministers based on the Space Basic Plan. JAXA shall take necessary measures to ensure compliance with international treaties, etc, and to keep international peace, upon requests by competent ministers.

Others

In addition to the foregoing, each ministry responsible for a particular field of space policy is working on space development and use related to its scope.

In Japan, obtaining a regulatory license is required for the launch of rockets and operation of satellites. This section describes the license for operation of satellites, and the license for launching rockets is discussed in 2.6 Role of the State in the Launching Process. Furthermore, additional procedures are required for remote sensing and exploration of space resources, which are described in 3.1 General Rules on Space Activities and 4.2 Granting of Rights to Space Resources, respectively.

License for Operation of Satellites under the Space Activity Act

When operating a satellite using (i) a control facility in Japan, (ii) a control facility on board a ship or aircraft of Japanese nationality or (iii) a control facility on board a satellite over which Japan has jurisdiction, it is necessary to obtain a license for each satellite from the Prime Minister under the Space Activity Act. In relation to the license, a “satellite” is defined as “an artificial object which is used by putting it on the Earth orbit or beyond the orbit, or placed on a celestial body other than the Earth”. Thus, “satellites” include not only normal satellites used on the orbit but also rovers, etc, used on celestial bodies. The operation of satellites, subject to license under the Act, means “to detect the position, attitude and condition of a satellite and to control these using a satellite control facility”. Therefore, while it is only space objects which are subject to this type of controlling that require the license, since the operation of satellites is broadly and generally defined as described above, this license is basically required when an activity using an artificial object is to be conducted in outer space.

Any person who intends to obtain the license has to submit information regarding the location of the satellite control facility, the orbit of the satellite if it is to be used on an orbit, the purposes and methods of use of the satellite, the configuration of the satellite, the details of the measures to be taken upon the termination of the control, and other plan for the operation of the satellite. The criteria for issuing licenses are stipulated in detail in the subordinate regulations, but they include, for example, whether the purposes and methods of the satellite meet the basic principles of the international treaties and the Basic Space Act, and whether the configuration and the control plan of the satellite are sufficient from the perspective of preventing pollution of outer space and ensuring safety. According to the published guidelines, the standard period required for the examination of the license application for the operation of a satellite is about 15 days to three months.

Supervision of Satellite Operators

The Prime Minister may request reports from satellite operators who obtained a license for satellite operations and inspect their offices as necessary. Furthermore, the Prime Minister may give guidance, advice and recommendations, which have no binding power, to satellite operators to the extent necessary to ensure compliance with international treaties and public safety, and may take necessary measures against a satellite operator if the satellite operator does not comply with the plan submitted at the time of obtaining the license. Through these mechanisms, satellite operators are expected to be supervised by the government.

Other Procedures regarding Satellite Operation

In addition to the above procedures under the Space Activity Act, a satellite operator is required to submit a notification to the Cabinet Office regarding the registration of a space object in accordance with the Registration Convention and related UN recommendations when a satellite is placed into or beyond orbit.

A person who intends to install a radio station and use radio waves in Japan must obtain a license from the MIC in accordance with the Radio Act. When using radio waves for the purpose of communication with a satellite, it is necessary to obtain a license under the Radio Act for both the radio station on the ground that communicates with the satellite and the radio station on board the satellite (a “satellite station”). When a person intends to obtain a license for a satellite station, the person shall submit information of the orbit or the position, range of movement, launch schedule and period of use, etc, of the satellite.

International co-ordination of frequencies will be carried out by the MIC with the International Telecommunication Union in the process of granting the licenses above. This international co-ordination shall begin approximately two years prior to the launch of the satellite, which is a high hurdle for doing business with satellites.

The examination of granting licenses under the Radio Act includes the feasibility check of frequency allocation in order to prevent conflicts of frequencies. The MIC publishes the table of frequencies, which shows frequencies to be allocated for each purpose of use, and frequencies will be allocated according to this table.

License for Launch under the Space Activity Act

When launching satellites, etc, from (i) a facility in Japan or (ii) a facility on board a ship or aircraft of Japanese nationality, it is necessary to obtain a license from the Prime Minister in accordance with the Space Activity Act for each launch. The term “satellites, etc” means satellites and a launch vehicle of satellites, and the meaning of a “satellite” here is the same as that described in 2.4 Role of the State in the Licensing Process for Space Activities.

Any person who applies for a license has to submit information regarding the design of the rocket, the location of the launch facility, a plan showing the flight path of the rocket and measures to ensure safety, the number of satellites to be launched and purposes and methods of the satellites, etc. The criteria for issuing a license are stipulated in detail in the subordinate regulations, but they include requirements that the rocket design, flight path and launch facilities have a certain level of safety, and that the methods and purposes of satellite conform to the basic principles of the international treaties and the Basic Space Act. Under the Space Activity Act there is also a certification for launch vehicle models and conformity certification for launch facilities, simplifying the application procedures for a launch license when using a launch vehicle or a launch facility that has been pre-certified. According to published guidelines, the standard period required for the launch license application is usually four to six months, but one to three months when using a launch vehicle model that is pre-certified.

Supervision of Launch Providers

Like the case of satellite operators, there is a supervision mechanism for launch providers. The Prime Minister may request necessary reports from launch providers, persons who have obtained certification for a launch vehicle model, and persons who have obtained conformity certification for launch facilities, and may also inspect their offices. The Prime Minister may provide guidance, advice and recommendations to them, which have no binding effect, to the extent necessary to ensure compliance with international treaties and public safety, and may also take necessary measures against a relevant operator if there is a risk that the launch vehicle or launch facility will no longer meet safety standards.

JAXA’s Role in Satellite Launches

JAXA also plays a role in satellite launches. JAXA not only launches satellites developed by itself, but also provides opportunities to launch small satellites developed by private companies, universities, and other research institutes into space as piggyback payloads.

International Treaties

As described in 1.1The New Space and Space Tech Economy, Japan has ratified or acceded to the Outer Space Treaty, the Rescue Agreement, the Liability Convention, and the Registration Convention, but has not ratified or acceded to the Moon Agreement. As for multilateral agreements, Japan has signed the International Space Station Intergovernmental Agreement (IGA) and the Memorandum of Understanding on International Space Station, and is also a signatory to the Artemis Accords.

Role in COPUOS

Japan has participated in COPUOS since its inception, and at the 60th session of the Legal Subcommittee, Professor Setsuko Aoki became the first Japanese person, and the first woman, to chair the Subcommittee.

Domestic Legal Framework to Implement International Treaties, etc

Under the Basic Space Act, Japan’s space activities are to be conducted in accordance with international treaties, including those regarding the exploration and use of outer space. In addition, pursuant to Article 6 of the Outer Space Treaty, in order to ensure that domestic space activities, including those by private operators, are conducted in accordance with the provisions of the Outer Space Treaty, the Space Activity Act stipulates that the purposes and methods of use of satellites may not interfere with the implementation of international treaties regarding development and use of outer space, as a condition for issuing a license for launch or operation of satellites. This mechanism ensures private operators conduct space activities in accordance with international treaties, including the Outer Space Treaty.

Furthermore, international soft laws are also taken into account in the criteria for issuing these licenses. For example, the criteria for issuing licenses for the launch or operation of satellites require the undertaking of detailed measures to diminish space debris, based on international guidelines for the control of space debris (the relevant guideline under the Space Activity Act clearly refers to the IADC guideline as one of such guidelines). In addition, the license criteria for the operation of satellites include taking measures to prevent the deterioration of the global environment due to materials from other celestial bodies and preventing environmental pollution of other celestial bodies, which must be in accordance with the planetary protection guidelines stipulated by COSPAR.

Rules Regarding Responsibility With the Activities of Private Entities, etc

In the event that the space activity of a private entity in Japan causes damage to a person in a foreign country, and Japan compensates the damage in response to a claim for damages from the government of the foreign country against Japan, there is no provision in Japan’s space law regarding the conditions under which the Japanese government may claim for reimbursement to the domestic private entity. Even based on general laws such as the Civil Code, it is not clear what facts can satisfy the requirements for such claims for reimbursement.

The Space Activity Act provides for measures to secure compensation for two types of damages: “Damage Caused by Falling Rockets, etc” and “Damage Caused by Falling Satellites, etc”.

Damage Caused by Falling Rockets, etc

“Damage Caused by Falling Rockets, etc” means damage to human life, body or property caused on the ground surface, water surface, or in a flying vehicle such as an aircraft in flight by the fall, collision or explosion of (i) a satellite and its launch vehicle before satellite separation and (ii) a launch vehicle after satellite separation. From the viewpoint of providing swift compensation to the victims, the Space Activity Act provides that only the launch provider is directly liable for the Damage Caused by Falling Rockets, etc. In other words, the manager of the launch facility, the manufacturer of the launch vehicle, the purchaser of the launch service, and the satellite manager are not directly liable to the third party for such damage; provided, however, that this does not preclude the launch provider from a claim for reimbursement against these parties. The launch provider is subject to strict liability (ie, liable even without negligence) for the Damage Caused by Falling Rockets, etc.

In order to secure the financial resources to pay for such damages, the Space Activity Act provides that the launch provider must obtain insurance as well as enter into a “Compensation Contract for Damages Caused by Falling Rockets, etc” with the government for each launch in an amount determined by the ordinance as satisfactory to protect the victims in consideration of the circumstances of the launch. These measures must be in place in order to obtain a launch license. Under the Compensation Contract for Damage Caused by Falling Rockets, etc, the government will compensate for damages that are not covered by private insurance, such as damages caused by terrorism. Furthermore, as a measure of industrial support, the Space Activities Act provides that private operators may enter into an agreement with the government under which the government will compensate for damages up to JPY350 billion in the event that the amount of actual damages exceeds the amount covered by the aforementioned measures.

Damage Caused by Falling Satellites, etc

“Damage Caused by Falling Satellites, etc” means damages to human life, body or property caused on the ground surface, water surface, or in a flying vehicle such as an aircraft in flight by the fall, collision or explosion of a satellite. The liability of the Damage Caused by Falling Satellites, etc, is also a statutory liability that arises even without fault, but unlike the Damage Caused by Falling Rockets, etc, no system exists for concentration of liability. In addition, unlike the Damage Caused by Falling Rockets, etc, there is no obligation for satellite operators to take particular measures to ensure compensation for damages, and no government compensation system exists.

Damage Caused in Outer Space

Damage caused in outer space in cases where a rocket or satellite collides with another space object in space is not included in the Damage Caused by Falling Rockets, etc, or the Damage Caused by Falling Satellites, etc, and there are no special provisions for such damage under the Space Activity Act. Therefore, there is no obligation for launch providers and satellite operators to take measures to ensure compensation for damages and there is no government compensation system for these damages. In light of the increase in the number of satellites, whether it is necessary to take measures to secure compensation for such damages in outer space is under discussion.

With respect to the licensing system for space activities in Japan, please see 2.4 Role of the State in the Licensing Process for Space Activities for satellite management, 2.6 Role of the State in the Launching Process for rocket launches, and 4.2 Granting of Rights to Space Resources for the acquisition of space resources. This section describes the regulations on obtaining and utilising remote sensing data.

Remote Sensing

Summary

The Act on Ensuring Appropriate Handling of Satellite Remote Sensing Data (the “Remote Sensing Act,” Law No 77 of 2016) sets forth (i) the system of permission for the use of satellite remote sensing instruments using radio equipment in Japan and (ii) the regulations on the provision of certain remote sensing data obtained by satellite remote sensing instruments to third parties.

Scope

While the Remote Sensing Act regulates observations on the earth’s ground or water surface, this Act does not regulate remote sensing instruments to observe outer space or celestial bodies. In addition, remote sensing data that does not reach the specified criteria of distinguishing accuracy is not subject to the Remote Sensing Act. For example, (i) raw data with the distinguishing accuracy of two metres or less for optical sensors and (ii) raw data with the distinguishing accuracy of three metres or less for SAR sensors are subject to the regulation of the Remote Sensing Act.

Obligations

Operators of remote sensing instruments must (i) obtain a certain licence and/or permission under the Remote Sensing Act in advance and (ii) comply with the following disciplines in order to obtain and maintain the said licence and/or permission:

• take measures of security control to prevent leakage, loss, or damage of remote sensing data;
• take measures of, among others, encryption to prevent access by third parties other than persons with the licences and/or permission;
• shut down the remote sensing instruments when the corresponding satellite deviates from the authorised trajectory; and
• keep records of transmission/reception to/from the remote sensing instruments and records in the case of provision of remote sensing data to a third party.

Remote sensing data may, in principle, be distributed only among (i) persons who have obtained licence and/or permission under the Remote Sensing Act or (ii) government agencies in Japan, the United States, Canada, Germany, and France. The Prime Minister of Japan may order the prohibition of the provision of remote sensing data to third parties, otherwise normally allowed, by specifying the scope of data and the period of time. This is the Japanese version of the so-called “shutter control” by the US President by which the sale or provision of remote sensing data of a specific region may be restricted at any time by presidential decree if there is a risk of disadvantage to the country.

Tenure Security for Space Activities

In Japan, there is no regulation on the tenure security or its revocation in general. With respect to cyber security, the establishment of security measures for satellites is considered in the review process of space activity licenses under the Space Activities Act. The Ministry of Economy, Trade and Industry (METI) has published the Guidelines for Cyber Security Measures for Civil Space Systems Ver. 2.0, which is legally non-binding but expected to be complied with.

In Japan, the Space Activities Act sets forth a licensing system for (i) rocket launches and (ii) satellite management. The Act requires, during the licensing review process, that the purpose and method of satellite utilisation comply with the basic principles of the Basic Space Act in Japan and the space treaties, that the following anti-collision and space debris reduction measures be taken, and that it be ensured that there is no risk of interference with public safety.

For rocket launches:

• appropriate measures to prevent debris generation in orbit; and
• appropriate measures during the rocket’s orbital injection stage to prevent debris generation.

For satellite operations:

• mechanisms to prevent accidental scattering of equipment during satellite operations;
• measures to avoid collisions with other satellites; and
• debris reduction measures at the end of the mission, such as de-orbiting and re-orbiting.

Service satellites providing in-orbit services are also subject to the review described above, provided that the satellite management facility is located in Japan. Due to the inherent risk of collision associated with in-orbit services, which often involve approaching or rendezvousing with other satellites, specific licensing guidelines have been established for satellites performing such activities.

The above guidelines (i) indicate the rules of service satellites or on-orbit services using such satellites which the operators must meet, considering the following aspects, and (ii) specify the particular items that an on-orbit service provider must present to prove that these rules have been met in the event of examination for a permit to manage such a satellite:

• prevention of infringement of rights against the target;
• security of measures to be taken against the target as an on-orbit service;
• ensuring necessary information disclosure to countries and other satellite operators;
• technical requirements for the structure and management plan of the service satellite; and
• establishment of an operational system to manage the service satellite

For example, concerning the first aspect, the operator is required to have authorisation or consent from the owner of the target satellite or the other person who has title to the target satellite to perform on-orbit services; the specific items to be presented by the operator include (i) the target satellite’s registration information; (ii) an agreement between the operator and the service recipient in which the service recipient is required to represent and warrant that the service recipient has the necessary title to the target satellite; and (iii) information on the owner and/or manager of the target.

Operators’ General Obligations

Operators are subject to the requirements described in 3.2 Principles of Non-interference and Prevention of Harmful Interference.

ESG Guidelines

There are no ESG guidelines for space activities in Japan.

Lunar Heritage Sites or Scientific Research Zones

Japan is a signatory to the Artemis Accord, which commits to preserving humanity’s outer space heritage, including human or robotic landing sites, artifacts, spacecraft, and other evidence of activity on other celestial bodies.

Intellectual Property Rules

Japan has no specific intellectual property rules applying to space activities and assets.

Article 26 of the Japanese Patent Act provides that “[i]f specific provisions on patents are established by a treaty, those provisions prevail”. However, it has been questioned whether the IGA (Inter-Governmental Agreement) is not included in the “treaty” set forth in Article 26 of the Japanese Patent Act (unlike the Paris Agreement regarding industrial property rights and TRIPs).

The Space Resources Act, which came into effect in 2021, stipulates that a satellite operator who obtained a license for the exploration and development of space resources can acquire ownership of space resources mined in accordance with its project plan by possessing the space resources with the intention of owning them. The person who mined the space resources acquires the ownership of them, and it is not expected that the government or international organisations acquire the ownership of space resources. It is considered possible for the owner to trade or otherwise use the resources in the same manner as ordinary movable property, according to the provisions of the Civil Code in Japan.

The Space Resources Act clearly states that its application should not hinder the implementation of international treaties to which Japan is a party, and that it should not unjustly harm the interests of other countries in the exploration and use of outer space, and is intended to be in harmony with international treaties, including the Outer Space Treaty. Furthermore, the Act stipulates that efforts shall be made to establish an international framework for the exploration and development of space resources, and that necessary measures shall be taken to ensure international alignment with respect to business activities related to the exploration and development of space resources.

Under the Space Resources Act, ownership of space resources can only be acquired by an entity that has obtained a license for the exploration and development of space resources. This license is not an independent license but is in addition to the license for the operation of satellites. When a person who intends to explore and develop space resources applies for this additional license for the operation of satellites under the Space Activity Act, the person must submit, in addition to the project plan required for normal operation of satellites, a plan describing the purpose, the period, the place and method, and other details of the activities regarding the exploration and development of space resources. In the examination of the application, the following points will be considered in addition to the points considered for the license for the operation of satellites: (i) whether the plan for the exploration and development of space resources is consistent with the basic principles of the Basic Space Act and international treaties, and (ii) whether the applicant has sufficient capability to carry out the plan. As in the case of license for the operation of satellites, license for the exploration and development of space resources is granted by the Prime Minister, but the Prime Minister has to consult with the Minister of Economy, Trade and Industry in advance as to whether the plan meets the above license criteria.

For the purpose of (i) promoting business activities related to the exploration and development of space resources under international co-operation and (ii) contributing to the prevention of conflicts related to the exploration and development of space resources, when the license for the exploration and development of space resources is granted, in principle, the name of the operator, the contents of the plan, etc, will be made public through the internet, etc.

In November 2022, ispace Inc. obtained the first license for exploration and development of space resources under the Space Resources Act, intending to collect regolith on the Moon and transferring it to NASA. Unfortunately, however, communication with the lander was lost during the landing towards the Moon surface, preventing the project from proceeding to resource collection.

The Basic Space Act stipulates, as a basic principle, that space development and use must be conducted in consideration of its impact on the environment. The act also stipulates that it is the responsibility of the government to take necessary measures to promote space development and use in harmony with the environment, and to endeavour to ensure international co-operation for the preservation of the space environment.

The license system under the Space Activity Act is considered to ensure that space activities in Japan are appropriate from the perspective of protecting the space environment. An operator who intends to launch a satellite or operate a satellite is required to obtain the license under the Space Activity Act, and the criteria for issuing the license include that the purposes and methods of the use of satellite to be launched or operated should not interfere with the implementation of international treaties, by which it is required that satellites used for space activities conform to the regulations for space environment protection in the international treaties, including Article 9 of the Outer Space Treaty.

Furthermore, taking measures to protect the space environment is specifically incorporated into the examination criteria for space activity licenses. For example, regarding license criteria for launch, appropriate measures should be taken to diminish on-orbit debris and the rocket booster should be removed from the protected area of the orbit. Regarding license criteria for the operation of satellites, appropriate measures should be taken:

• to diminish debris generation, such as prevention of unintentional release of objects and prevention of crushing of satellites;
• for termination; and
• to prevent global environmental deterioration due to materials originating from other celestial bodies and to prevent environmental pollution of other celestial bodies.

These debris minimisation measures and termination measures for launch vehicles and satellites are based on the COPUOS and IADC guidelines, and the measures required to prevent the deterioration of the environment of the Earth and other celestial bodies are in accordance with the planetary protection guidelines established by COSPAR. The protection of the space environment is being pursued by requiring adherence to international treaties and soft law on space environment protection as a prerequisite for participation in space activities.

For the purpose of taking necessary measures such as formulating plans for adaptation to climate change and providing information on climate change, the Climate Change Adaptation Act has been enacted in Japan. The Act stipulates that, in order to promote adaptation to climate change, the government must make efforts to promote the observation, monitoring, prediction, and assessment of climate change and its effects, as well as the development of technologies to adapt to climate change, and the “observation” is interpreted to include observations using satellite remote sensing technology.

The Space Basic Plan formulated in June 2023 based on the Space Basic Act mentions as one of the goals for the next ten years to contribute to solving global issues such as climate change, etc, and to drive the achievement of Sustainable Development Goals through methods using data from remote sensing and the Quasi-Zenith Satellite System, etc.

As an example of government efforts to tackle climate change, several earth observation satellites aimed at addressing climate change and other issues, are being operated by JAXA and other public organisations. For example, GOSAT-2, launched in 2018, which can observe global carbon dioxide, carbon monoxide, and methane, is operated to monitor long-term changes in greenhouse gases. GCOM-C, launched in 2017, is operated to improve the accuracy of future climate change predictions through long-term observations of various physical quantities that influence the Earth’s climate, such as the impact of aerosols on the amount of solar light reaching the Earth’s surface and the ability of organisms to absorb carbon dioxide.

In principle, space activities are taxed in the same manner as normal business activities in Japan.

In general, corporate income tax (or the income tax in the case of a natural person) and the consumption tax (VAT) are imposed on space activities as described below.

Corporate Income Tax

The corporate income tax is levied on the profits (revenues less expenses) earned during the fiscal year (or the calendar year in the case of a natural person). The effective tax rate of the corporate income tax is approximately 30%.

Consumption Tax (VAT)

When goods are transferred (typically sold) or services are rendered, 10% of the consideration is charged as the consumption tax. However, it should be noted that:

• no consumption tax is imposed on export transactions; on the other hand, consumption tax is imposed on import transactions; and
• to facilitate co-operation in space activities between Japan and the USA, such as the Artemis Accord, the consumption tax on imports of goods and other items necessary for Japan-US space co-operation is exempted from taxation under Article 5 of the Framework Agreement on Space Cooperation between Japan and the USA.

Business operators may credit the consumption tax imposed on their purchase of goods or services against the consumption tax on their sales with certain conditions (as a result, business operators pay the net tax amount to the government).

While not exclusive to or specifically designed for space activities, the R&D tax credit rules and open innovation tax incentives can be leveraged to encourage investment in space-related businesses. Additionally, the angel investor tax system is available for individual venture investments in this sector. However, it is important to note that these tax incentives are temporary measures.

R&D Tax Credit Rules

This R&D tax credit rules allow a company to credit a certain tax credit ratio (1% to 14%) of the amount of its expenses relating to research and development against its corporate income tax amount. Under this system, the greater the research and development amount, the higher the applicable tax credit ratio, thereby encouraging companies to increase their R&D investment. However, there is a ceiling on the amount of tax credit that can be claimed, determined by the company’s corporate income tax.

Open Innovation Tax Incentives

A company may, subject to certain conditions, deduct 25% of the amount invested in start-ups from its corporate income tax (with a minimum and maximum limit). Previously, the deduction was limited to the acquisition of newly issued shares (the New Investment type), but the tax reform in 2023 made the acquisition of outstanding shares from existing investors (the M&A type) also eligible.

Angel Taxation

This programme is available only to individual investors. In general, investors can choose from the following three types of preferential treatment.

Preference Type A

At the time of investment, the amount invested is deducted from the amount of income for the same year (up to JPY8 million or 40% of income, whichever is lower). However, since the acquisition price of the stock is reduced by the amount of deduction, the amount equivalent to the deduction is also subject to income taxation when the stock is transferred in the future. As a result, this tax incentive is no more than tax deferral.

If a loss is incurred at the time of transfer, the amount of loss can be offset against the gains arising from other stock transfers over the following three years.

Preference Type B

At the time of investment, the full amount of the investment is deducted from gains on transfers of other stocks in the same year (without an upper limit). However, since the acquisition price of the acquired stock is reduced by the amount of deduction, the amount equivalent to the deduction is also subject to income taxation when the stock is transferred in the future. As a result, this tax incentive is no more than tax deferral. Just as with Preference Type A, if a loss is incurred at the time of transfer, the amount of loss can be offset against the gains arising from other stock transfers over the following three years.

Special Type for Pre-Seed or Seed Investment

At the time of investment in companies in the pre-seed or seed stage, the amount invested is deducted from the gains on transfer of other stocks in the same year (up to JPY2 billion). Unlike the above, the acquisition price of the stock is not reduced, so the amount of deduction is effectively tax-free.

Income Tax

As with other goods, if a profit is made on the sale of space assets, the profit is subject to income taxation; on the other hand, if a loss is incurred, the amount of income on which the income tax is imposed is reduced by the amount of loss.

Consumption Tax (VAT)

Consumption tax is imposed at 10% of the consideration for the sale of assets or other goods or provision of services in Japan.

Consumption tax is not imposed on transactions for exporting space assets. On the other hand, a consumption tax is imposed on the importation of space assets.

If the transfer of space assets is made in outer space after the launch, the consumption tax would not be imposed since the transfer of assets occurs outside of Japan.

“New Space” as a Growing Industry

“NewSpace” – space start-ups – is a growing industry in Japan and attracting attention from both public and private sectors. The Japanese government has set an ambitious target to double the size of the private space business market from JPY4 trillion in 2020 to JPY8 trillion by early 2030s (JPY0.6 trillion in the space equipment industry and JPY7.4 trillion in the space solutions industry).

Large investments are flowing into the Japanese space industry from domestic and overseas venture capital funds.

Finance Sources for Space Activities

Both the private and public sectors are actively investing in space activities in Japan.

Private funds

Private funds can be categorised into equity and debt investment. Equity is a main funding resource particularly for start-ups at the early stage. Not only venture capital funds but also “sogo-shosha” (ie, Japanese trading companies) and financial institutions are important fund providers in the space business. In addition, there have been some cases where Japanese space business companies succeeded in initial public offerings and listing on stock markets. Regarding debt fundings, some late-stage start-ups have raised funds through loans from financial institutions, including the largest Japanese commercial banks.

Public funds

The Japanese government actively supports the space industry through significant subsidies, particularly to start-ups, to encourage the space industry as a growing industry. One of the main subsidies is the “Space Strategic Fund” established in 2024, which targets space business companies, start-ups, universities, and national research institutes. The government plans to allocate JPY1 trillion over the next ten years, and included JPY300 billion in the budget for FY2023. Another subsidy, focused more on start-ups generally, is the Small/Start-up Business Innovation Research Scheme (the “SBIR Scheme”), which promotes R&D-type start-ups, including the space industry, that contribute to solving social problems.

A governmental organisation can be a player in equity investments. Equity investment in private companies by JAXA was legalised in 2021. JAXA has invested in projects, such as satellite data businesses and spaceplane developments.

Some municipal governments use the “Furusato Nozei” (hometown tax) programme to encourage the space industry in their municipals. This allows taxpayers to contribute to any municipalities (other than where they live) in return for a tax credit from income tax and residence tax, which is expected to provide additional income to sparsely populated areas. Taiki Town in Hokkaido, for example, successfully utilised this programme to crowdfund its spaceport project.

Reform to Attract Investment for Space Activities

The Japanese government is dedicating efforts to increase investment in start-ups, including the space industry. Prime Minister Kishida declared “the first year of start-up creation” in 2022 and various frameworks to support start-ups have been launched. Below are examples that facilitate fundraising by start-ups in various stages.

Pre-seed/seed stage

• establishment of a credit guarantee framework that does not require a personal guarantee by managers; and
• tax exemption for reinvestment in start-ups.

Early/middle stage

• expansion of investment in venture capital by public funds;
• support in research and development of deep tech;
• improving stock option regulations; and
• expansion of public procurement from start-ups.

Later stage

• promotion of M&A through the open innovation tax incentives to expand opportunities to co-operate with large companies and diversify exit strategies; and
• development of secondary markets for unlisted shares.

Separately, as a support measure specific to the space industry, the Ministry of Economy, Trade and Industry (METI) and Organization for Small and Medium Enterprises and Regional Innovation (SME Support, JAPAN) have organised annual business matching programmes for the aerospace industry since 2014.

FDI Regulations in Japan

Prior filing requirement

Under the Foreign Exchange and Foreign Trade Act of Japan (FEFTA), a foreign investor who intends to conduct a restricted investment is obliged to complete a prior filing with the Minister of Finance and the relevant competent national authority where a target company’s business falls under a designated business sectors.

Restricted investments subject to such prior filing requirement include:

• the acquisition of 1% or more of the shares of a listed company or one or more shares of an unlisted company;
• consent to the appointment of a foreign investor or a related person as a director or auditor; and
• a proposal for or consent to the transfer or abolition of a business in an industry that requires prior notification.

Designated business sectors subject to such prior filing requirement are categorised into two types: core designated business sectors and non-core designated business sectors. Space-related manufacture, such as a rocket development, and the relevant software development, are classified as a “core designated business sector”, to which more stringent restrictions regarding the exemption from the filing requirement apply, as explained below.

Exemption from the prior filing requirement

Exemption from the prior filing requirement may be available in certain circumstances. If the foreign investor is a foreign financial institution, the prior filing requirement is fully waived. If the foreign investor falls under a general investor or qualified sovereign wealth funds (SWF), the following rule will apply.

Non-listed targets

Where the target company is not a listed company and is in a designated business sector, the exemption is available only when the target company is in the non-core designated business sector and the foreign investor complies with all the following requirements:

• The foreign investor and its closely related person(s) will not serve as directors or audit and supervisory board members.
• The foreign investor will not propose the transfer or abolition of a business in the relevant designated business sector to the target company’s shareholders meeting.
• The foreign investor will not access sensitive confidential information relating to a business in the relevant designated business sector.

Given that emerging space business companies are usually non-listed start-ups in a core designated business sector, foreign investors interested in the Japanese space industry should note that the prior filing requirement will be applicable in most cases.

Listed targets

Where the target company is a listed company and is in a non-core designated business sector, the prior filing requirement is fully waived. Where the target company is a listed company and is in a core designated business, a foreign investor who acquires less than 10% of the issued shares of the target company is eligible for the exemption if they further comply with the following requirements: (i) they will not participate in the target company’s board meeting regarding their business; and (ii) they will not make a written proposal requesting any response from the target company with a time limit.

Sanctions

Non-compliance with the prior filing requirement (eg, closing a deal before a stipulated waiting period expires, misrepresentation in a prior filing, non-compliance with an order by the government) leads to enforcement actions to rectify the violation. Criminal charges, including fines and imprisonment, may also be imposed.

Securities Markets and Space Industry

Securities markets are key venues where later-stage start-ups raise funds from a wider range of investors. In 2023, iQPS (development and manufacture of satellite and sale of satellite image data) and ispace (development of rovers and landers for lunar exploration) listed on the Growth Market of the Tokyo Stock Exchange (TSE). Astroscale (in-orbit servicing, including life extension and active debris removal) received approval in May 2024 to be listed on the Growth Market.

In addition, the Financial Services Agency and the TSE have made reforms to the venture funds market so that start-ups can have wider access to funding. This market was originally established in 2001 as a market for investment corporations mainly investing in unlisted venture companies. However, the excessive regulatory burden has prevented venture funds from being listed on the market. In 2023, the TSE relaxed the market rules, including the portfolio restrictions in relation to listed shares, share buybacks and disclosure obligations. Japan Growth Capital Investment Corporation invested in Astroscale and plans to apply for the TSE venture funds market in the future.