With its strictly enforced regulatory environment, Japan is thought to be a perfect country to consider for your business expansion. In fact, a tremendous number of companies around the globe are collaborating with Japanese companies to develop innovative products and services, create new technologies and R&D projects. As of today, Japan remains one of the world’s leading industrial powers which makes it appealing for many foreign countries to expand their business to Japan.
This article is aimed at providing you with an insight into company incorporation and will outline the steps and procedures involved.
Disclaimer: *This article is intended to give you a quick overview of the procedure. Whether certain regulations are applicable to your situation or not can only be decided by a professional after careful examination of your documents. For this reason, we are not held responsible for any damages caused by this guide.
Table of Contents
BENEFITS AND DRAWBACKS OF COMPANY INCORPORATION IN JAPAN
It’s not like we’re going to discover the Universe here, but we want to make sure you remember: it is vital to carry out market research before establishing your business in Japan.
Now, there are many benefits of getting incorporated in Japan that depend on a specific business field, among them are:
- Entryway to the rest of the Asian market
Not only does Japan offer an innovative yet stable business environment open to trade and foreign investment, but also gives you an opportunity to expand further to the rest of Asia.
- Top-notch infrastructure
Highly developed infrastructure with an extensive subway system, well-built roads, highways, telecommunication technologies, airports, and harbors make it easier for first-time business travelers to explore the area.
- Better access to a highly-educated workforce
University education is highly praised and is an important quality. When hiring Japanese employees, you will often notice their high level of expertise, knowledge, and attention to detail.
- Hubspot for Innovation and Entrepreneurship
Despite the pandemic and its consequences, Tokyo was commended for the funding activity of investors who recognize the importance of innovation and of what start-up companies are doing.
We’ve asked one of our clients who has been operating in Japan for quite a while about the reasons he chose Japan over other countries:
My motivations to come to Japan weren’t primarily business-related, I just love Japan.
But if I am to name some benefits of doing business here, then the first would be uniqueness. You operate in a unique market and most likely your service and way of handling business stand out. Also, the life quality in Japan is above average. Honestly, Japan is a challenging place to do business as a foreigner, but then at the end of the day, it is very nice to be in Japan.
Unfortunately, it’s not all roses and unicorns, sometimes you may fail due to a very insignificant detail such as business etiquette or attire. Our partner has published some great articles about Business Attire in Japan and Unwritten Rules in Japanese Business, so make sure you check them out.
Pierre Boussard, a representative of Japan Mobility (a company that provides relocation services for foreign individuals/businesses who want to move to Japan), has shared his thoughts about the hurdles that may deter foreign companies & individuals from company incorporation in Japan. ↓
Japan is the country of bureaucracy. The path for your business to be incorporated locally is tortuous, and you will have to navigate through different layers of state offices for the preliminary phase of your incorporation process: communicate with the Ward office, the Legal Affairs Bureau of the Ministry of Justice, the District Tax Office, the local tax office, the Labor Standards Inspection Office, the Japan Pension Service and the Public Employment Security Office.
Besides this big hurdle, the Japanese language/culture mastering would come second. Relationships drive business in Japan, and it is essential to show the right level of respect,politeness and patience at all times.
The fierce local competition would complete the podium, as Japan has many very strong local companies. Moreover, loyalty is a very respected value and most customers are greatly loyal to suppliers they perceive as constant and faithful. This might take a lot of time and resources before being perceived as such.
Overall, company incorporation in Japan requires a deep understanding of the marketplace as well as identifying possible barriers to successful business communication and operation.
Here we’ve gathered some information and transformed it into a nice little SWOT analysis to give you a quick overview of the Japanese market:
INCORPORATION: TYPES OF COMPANIES IN JAPAN
Alright, now that you’ve conducted your market research and are ready for company incorporation in Japan, you might wonder what types of companies are available for you to choose from.
In general, there are three types of companies in Japan. Foreign investors that wish to expand to Japan would need to choose the one that is most suitable for their situation.
Subsidiary Company (G.K. or K.K.)
A subsidiary company is a company that is established under Japanese Law and is independent of its foreign corporation. The foreign company will hold its shares and bear the stipulated by law liability for all the subsidiary company’s debts and loans.
There are two commonly chosen types of subsidiary companies: Godo-Kaisha ( limited liability company) and Kabushiki-Kaisha (joint-stock corporation).
When establishing a subsidiary company in Japan, you’ll need to appoint a representative director. Under Japanese Law (on and after March 16, 2015) a representative director of Kabushiki-Kaisha or Godo-Kaisha is not required to be a resident in Japan.
Of course, there are other methods to invest in Japan without establishing a subsidiary company; for example, developing a joint venture with a Japanese enterprise/investment company or becoming an equity participant in a Japanese company.
A branch office is an extended office of a parent company and is the simplest way for a foreign company to establish business operations in Japan.
Establishing a Japanese branch office may be a cost-effective way to provide support or services for Japanese clients as the engagement in commercial activities is made based on the parent company’s capital. The parent company also pays all the expenses, but, at the same time, the profits of the branch office are also collected by the parent company as they need to be integrated into a company’s annual accounting.
A branch office is an ideal variant for those who want to have an officially registered entity in Japan or a Japanese bank account to deal with Japanese clients but wouldn’t like to have a different capital.
It is important to mention, however, that branch office establishment in Japan requires appointing at least one representative director who has an address in Japan and is a Japanese resident.
Japanese representative office might be ideal if you just want to start understanding the Japanese market and business. The process involved is also the easiest and fastest since the establishment doesn’t require official registration.
Note, however, that a representative office is not allowed to engage in any commercial activities or generate profit in Japan; it doesn’t have the capital and is not liable for Corporate taxes in Japan.
Representative offices are only allowed to participate in the following activities:
- Carry out market research;
- Collect and provide information for a parent company;
- Purchase goods for a parent company;
- Perform advertising and publicity.
- Lease Agreement for office space ( in the name of a representative office)
Theoretically, the lease agreement can be signed between a head office in the home country and a building owner in Japan. In reality, however, most building owners in Japan require that the representative office has a guarantor resident in Japan.
- Utility Bill ( in the name of a representative office)
- Copy of the contract between the representative office and a foreign company
Also, the appointed representative director (must be resident in Japan) will be required to prove he/she is compliant with the Japanese Laws ( tax, social insurance, etc.) by providing the following documents:
- Residence Certificate (住民票, “juminhyo”)
- Proof for Social Insurance enrolment (Health Insurance Card & Pension Book)
- Proof for being tax compliant: Tax Certificates (Resident Tax, Individual Tax, Consumption Tax, etc.)
The representative office should also register with the relevant tax office to report and pay the tax withheld from employees’ salaries.
COMPARISON OF COMPANY TYPES IN JAPAN
Much text and new information, not that all helpful, right? Let’s introduce a little visual clue and compare the nuances of every type of company in the table below.
* Establishment of a subsidiary with zero yen capital is theoretically possible. In practice, however, it’s impossible to incorporate a company with no capital-you’ll need at least 5 million yen to satisfy an Investor/Business Manager visa requirements.
^ A representative director will have to file an Individual Income Tax Return as long as he/she earns income
While it is legally not required to appoint a representative director who is resident in Japan to establish a Godo-Kaisha or Kabushiki-Kaisha, in practice it can become a necessity for the following reasons:
- Japanese businesses and financial institutions may be reluctant to deal with a company that only has a non-resident as its representative director: in case company negligence is detected, there is no local authoritative representative to hold responsible for it;
- Capital Proof: initial incorporation procedures require reflecting the capital in a Japanese bank account which can be difficult for a company with only a non-resident representative director.
STEPS AND PROCEDURES NECESSARY TO REGISTER DIFFERENT TYPES OF COMPANIES IN JAPAN
The process of company registration may be quite a red tape because Japan is known for its high level of bureaucracy. It can be exhausting for you as you’ll need to get through different levels of government oversight before you succeed to establish your company in Japan.
Overall, Japan is indeed an attractive country to incorporate your foreign company considering all the advantages and the willingness of the Japanese government to attract foreign investors. It can become a great head start over your competitors and result in new business opportunities and clientele.
Still, it would be wise to first consult with a professional to eliminate unnecessary procedures (you may carry out due to unawareness) and ensure the smooth incorporation process, especially if you don’t speak Japanese.
Hope this article will help you learn the basics of company incorporation in Japan.
Let us know if you have some experience you’d like to share or a question you want to ask by leaving a comment below.