Irrational Game's System Shock 2 is considered by some to be even better than BioShock. There can be no doubt that it's scarier. The sci-fi horror was set on a space ship overrun by all sorts of disturbing beasties, including the terrifying cyborg mid-wives, who murmur: "Babies need fresh meat". Yum.
When the Japanese do horror, they really do horror. In Project Zero, developed by Tecmo, lead character Miku's only weapon is the Camera Obscura, which can damage and capture spirits. Great, isn't it? You're up against countless horrors, and to survive you have to take pictures of them. Say cheese.