Setting up a company in Japan: A quick guide for foreigners

 

Japan is famous for being a very bureaucratic country. Setting up a company in Japan can appear as complicated for foreigners. Hashi Consulting Japan does not explicitly deal with the company registration procedure. Still, relying on our network of qualified accountants and lawyers, we can assist you in the process of establishing your subsidiary in Japan and start selling on the third-largest market in the world in no time. The type of business you envisage to conduct in Japan will define the type of company (or not) you will need when entering Japan. The first mandatory step is to clearly know what you plan to do in Japan. Do you intend to sell a new product or service, support your local distributors and just analyze the market?

The key questions to ask will always be: Do I want to conduct business and generate some turnover in Japan? If the answer is no, then a representative office might be enough and is certainly the simplest way to go.

REPRESENTATIVE OFFICE:

A Representative Office, which is just renting an office space, is the easiest way to establish your presence in Japan. It will allow testing the temperature of the water before diving into the Japanese Market. You will be authorized to purchase assets and conduct services such as market research, marketing, or information collection. You will even be authorized to hire some staff.  Under Japanese Laws, a representative office will not be regarded as a company per se but just as an extension of the parent company. Legally, there is no legal requirement to register a representative office.

Interestingly, a bank account can also be opened for the Representative office. Somehow, to employ people, you will need to have a representative that resides in Japan. To pay your employees and provide them with mandatory social insurance and pension, you will have to prove your existence and submit various documents to the Social Insurance Office of the Ward such as:

• Lease for the Office

• Utility Bill for the Office

• The contract between the local Representative and the Foreign company

If you really plan to sell products or services in Japan, you will then have two choices, depending on whether you wish to have a separate capital in Japan or not. In case you prefer not to have any capital tied up in Japan, a Branch office might be an attractive solution. 

BRANCH OFFICE:

Just as for the Representative Office, a Branch office in Japan is not seen as a company per se but just as a branch of your foreign company operating from Japanese soil. Starting a branch office in Japan in easier than incorporating a “real” company and far less expensive. Somehow when doing business in Japan, it is always critical to show some local commitments in order to attract customers. The branch office will lack this notion of involvement and commitment in the Japanese business world. It can only be recommended for foreign companies willing to provide support to Japanese distributors, customer service, or sales support. The last option is to incorporate a “real” company that will be no different from a pure Japanese company. Starting a company in Japan usually comes in two flavors, depending on the capital invested /required, the number of shareholders, and, ultimately, credibility. In Japan, a company can either be a Godo Kaisha (GK) equivalent to a Limited Liability Company or a Kabushiki Kaisha (KK) or Stock Company.

GODO KAISHA (GK)

For its shareholders, GKs provide limited liability protection. It is an ideal structure for small business owners who are looking for some form of legal firewall to protect their assets. Amazon and Apple started as GK mostly for US tax reasons. If the parent company is in the US, GK may appear as ideal as GK allows you to get flow-through US income tax treatment for the Japanese business income. In a KK, the investors become shareholders, when they are just members or partners of a GK. In the eyes of Japanese clients and partners, GK will somehow lack the prestige of Stock Companies (KK). GK is a relatively new legal entity which only appears legally in 2006 and is still not very well perceived by the Japanese.

KABUSHIKI KAISHA (KK)

As the most predominant type of corporation in Japan, KK companies carry prestige for customers and employees. KK companies protect their shareholders from personal liability and give the ability to raise additional capital through selling shares. A Kabushiki Kaisha must have at least one representative director who is a resident of Japan even though this person does not need to be Japanese. A KK company can have a Board of Directors with three or more directors (including at least one representative director) and a statutory auditor or can ignore the Board and have one or more directors who will all be representative directors.

The other characteristics of a KK are the following:

• must have a registered office address in Japan,

• needs JPY1 paid-in capital, even though JPY1,000,000 is often the recommended amount,

• Interestingly, if the company needs to sponsor any working visa, will it be for an employee’s visa, or the Business Manager visa, at least JPY5,000,000 must have been paid-in capital.

• Social security is mandatory.

The KK is scalable and appropriate for almost any type of business in Japan. KK can even be listed on Japanese stock exchanges. 

PROCEDURES AND COSTS TO ESTABLISH A COMPANY

1. Find an office address and prepare the needed documents

2. Prepare the articles of incorporation

3. Notarize the articles of incorporation

4. Deposit the capital to the bank of one of the director

5. Prepare the various materials required

6. Fill the application for the company registration

7. Get a registry and seal certificate. Open a bank account in the name of the company and transfer the capital.

8. Tax and social insurance-related procedures, etc.

The cost of tp set-up a GK company would be roughly JPY300,000, as compared with KK’s cost of JPY500,000.

CONCLUSION

Each of the KK and the GK corporate structure has its benefits and drawbacks. The choice between them can somehow have a significant impact on the performance of the entity once established. KK’s ubiquity and prestige are high. When trying to establish a long term presence and solid relationships with Japanese partners, KK is perceived as carrying more prestige. It will tend to make this structure the preferred option. Some major US multinationals companies do somehow operate in Japan through a GK as the nature of their business and already established reputation allows them to place a greater emphasis on the US tax flexibility of that entity. To know more about setting up a company in Japan, we invite you to read the guide prepared by the Japan External Trade Organization. Deciding which entity to choose is the first step in entering the Japanese market and it carries potentially a lot of weight for the future. The choice has to be carefully done and we strongly recommend to consult with tax and legal advisors. 

DISCLAIMER: All of the information given is for information purposes only. We recommend that you consult a Qualified Accountant or Lawyer before making any decision.