Japan's Subcontract Act is now the Toriteki-hō: the application test
1. The Subcontract Act has been renamed
On 1 January 2026, Japan's Act against Delay in Payment of Subcontract Proceeds (the Subcontract Act, Shitauke-hō) became the Act on Optimisation of Transactions with Small and Medium-Sized Contractors, commonly abbreviated as Toriteki-hō. Its full title is the Act on Prevention of Delay in Payment of Proceeds to Small and Medium-Sized Contractors in Connection with Manufacturing and Other Commissions.
The change goes beyond the name. Both the scope of application and the list of prohibited conduct have been widened. The terminology has also changed: the "principal contractor" is now the commissioning business operator, the "subcontractor" is now the small and medium-sized contractor, and the word "subcontract" has disappeared from the statute.
If your Japanese entity is still operating on the pre-amendment assumptions, it may now be in breach. In particular, a company that concluded it was outside the scope by looking only at capital should redo the assessment.
2. Two-step test for application
Step 1: is the transaction one of the covered types?
| Type | Content |
|---|---|
| Manufacturing commission | A business that manufactures or sells goods commissions manufacture to specified standards or specifications |
| Repair commission | A business that undertakes repair of goods commissions that repair |
| Information-based product creation commission | Commissioning creation of programs, video, design, text or graphics |
| Service provision commission | Commissioning to another business the provision of a service the commissioning party has undertaken |
| Specified transport commission (new) | Commissioning the transport necessary to deliver goods sold or manufactured to a customer |
The third category can cover software, design and content development commissions. For a company building a product in Japan with external developers or designers, most of that work sits here.
Specified transport commission is new, and brings certain commissions from shippers to carriers into scope for the first time.
Step 2: do the parties meet the size thresholds?
Previously the only test was stated capital. Under the new Act, even where the capital test is not met, the transaction is covered if the headcount test is met.
| Transaction type | Headcount threshold |
|---|---|
| Manufacturing, repair, specified transport, program creation, transport, warehousing, information processing | Commissioning party over 300 employees / contractor 300 or fewer |
| Other information-based product creation and service provision commissions | Commissioning party over 100 / contractor 100 or fewer |
The practical effect is significant. A Japanese subsidiary capitalised at a low figure but staffed up over time may now be a commissioning business operator. The Japan Fair Trade Commission (JFTC) publishes a simple diagnostic tool that takes capital, headcount and the type of commission, and this is the quickest way to check.
3. Obligations of the commissioning party
- Statement of terms (Article 4): on placing an order, immediately provide the statutory items in writing or by electromagnetic means
- Records (Article 7): create and retain records of the transaction, in writing or electronically, for two years
- Setting a payment date: fix a payment date within 60 days of receipt of the deliverable (or of the service, for service commissions), and as short a period as possible
- Late payment interest (Article 6): pay interest at the rate set by JFTC rules where payment is late
Email, EDI and chat are acceptable channels, provided the recipient is identified and the statutory items are clearly conveyed. The issue is not the absence of a document called a "purchase order" but the absence of the required items. Where an item genuinely cannot be fixed at the time of ordering, the practice of stating everything else, giving the reason and the date by which the item will be fixed, and then supplementing immediately once it is fixed, is accepted.
4. What is new among the prohibitions
The existing prohibitions remain: refusal to accept delivery, reduction of the price, returns, forced purchase, demanding improper economic benefits, unjustified reworking, and retaliation. The amendment adds the following.
Payment by promissory note is prohibited
Payment by promissory note is now prohibited. Payment by electronically recorded monetary claims or through a collective settlement scheme is also a violation if it is difficult for the contractor to obtain the full cash amount by the payment date.
Charging the contractor for bank transfer fees is prohibited
The familiar practice of deducting the transfer fee from the payment is now a violation. This has to be fixed in two places at once: the clause in the master agreement, and the actual transfer settings used by the finance team. Amending the contract alone achieves nothing if the payment run is unchanged.
Unilateral price setting without consultation is prohibited
Where the contractor asks to discuss price and the commissioning party refuses to engage, or sets the price unilaterally without providing the necessary explanation or information, that conduct is prohibited.
The existing "abusively low price" rule targets the outcome. What has been added regulates the process of price formation. Holding a price flat is not in itself unlawful; refusing in substance to engage with a request for discussion is what creates the problem. In practice this means building in periodic opportunities to review terms in light of cost movements, and keeping a record of how each request was considered and answered.
Enforcement
The prohibition on retaliation now extends to reports made to the competent ministry for the sector, in addition to the JFTC and the SME Agency, and those ministries may issue guidance.
5. A further change takes effect in April 2027
A new designation under Article 2(9)(vi) of the Antimonopoly Act — the Payment Designation (JFTC Notification No. 3 of 2026) — has been promulgated and takes effect on 1 April 2027.
It prohibits a business that has placed a manufacturing or similar commission from failing to pay more than 60 days after receipt, subject to exceptions such as where there is a justifiable reason. The key point is that it can reach transactions that do not meet the capital or headcount thresholds of the new Act, although transactions where the contractor's bargaining position is not inferior are excluded.
Separately, with the discontinuation of promissory notes at the end of March 2027 in view, the JFTC and the SME Agency have asked industry bodies and financial institutions to shorten payment terms and move to cash payment across supply chains, including transactions outside the Act.
The conclusion for planning purposes: falling outside the size thresholds no longer ends the analysis.
6. What to fix internally
| Area | What to check |
|---|---|
| Contracts (master agreements, order form templates) | Payment instrument clauses (any surviving reference to promissory notes), allocation of transfer fees, payment dates, price revision and consultation clauses |
| Ordering workflow | Whether the statutory items are complete at the time of ordering (and whether there is a process for supplementing undetermined items), whether work starts on an oral instruction alone, whether chat-based ordering leaves the statutory items clearly recorded, whether records are retained for two years |
| Finance operations | Actual deduction of transfer fees, payment terms, use of promissory notes and electronically recorded claims |
Start by listing your Japanese suppliers and classifying them by transaction type and party size. Until that assessment exists, amending contracts does not tell you where the rules bite.
This article is general information, not legal advice on any specific matter. Japanese legislation and enforcement guidance change; please check the current primary sources before acting. For advice on the application of this Act to your Japanese operations, please use the contact form.