Guide to Open a Company in Japan
Japan has realized unprecedented economic growth since the 1950s. As one of the major economic powers in the world, Japan offers promising opportunities to foreign investors.
However, the process of establishing a company in Japan is often intimidating for foreign investors who are unfamiliar with the country’s processes and prohibitions. Further complicating the issue is that separate cities and regions often have different rules. For these reasons, it is recommended to seek assistance from an experienced local expert like New Horizons that can guide you through this process.
Japan Company Setup
Your options for company setup in Japan include:
Limited Liability Company
A limited liability company, or Godo-Kaisha, is the most common type of business entity that is established by foreigners. A subsidiary can be formed by setting up this type of entity. This type of entity can be established by a single shareholder who can be a foreigner. There must be a director appointed for the company who must be a resident of Japan.
The shareholders’ liability is limited to the amount of equity that they contribute to the limited liability company. The foreign company is not liable for the subsidiary’s debts or obligations.
The setup of a company in Japan often takes some time because of the various requirements to establish this type of entity. Physical space must be found and the foreign investor must submit evidence of this to the local authorities.
This type of entity can be established with a minimum capital investment of USD $1. However, the share capital must be increased to JPY 3 million, approximately USD $39,000, within five years of incorporation.
This type of business can conduct most types of business activities in Japan and provides greater flexibility for businesses.
This type of entity is required to prepare and submit financial statements to the Japanese tax authority one year after they are formed. However, if their issued capital is below USD $4.5 million, they may qualify for an audit exception.
Another option is to establish a joint-stock corporation. This entity is known as a Kabushiki-Kaisha in Japan. This option can be used to establish a subsidiary.
To establish a joint-stock corporation, a board of directors must be appointed usually with a minimum of three directors, one of whom must be a representative director who holds the corporate seal and is authorized to bind the company in legal transactions. One of the directors must be a resident of Japan.
This type of entity can be established with a minimum capital investment of USD $1. The incorporation process for joint-stock corporations is similar to that of a limited liability company. This type of entity is typically established when the owners of the company plan to finance their business by raising capital in the Tokyo Stock Exchange.
These entities are not subject to an audit like other types of businesses in Japan if they meet certain criteria, including:
- They are not listed on any stock exchange
- They have less than three directors
- Their issued capital is less than USD $4.5 million
- Their memorandum and articles of association includes restrictions on the shareholders’ power to freely transfer shares
When the companies meet these requirements, they are called closed Joint stock corporations or Kabushiki Joto Seigen Kaisha in Japan.
Free Zone Company
Export oriented manufacturing businesses may establish a free zone company in one of the free trade zones in Japan. The paid-up capital amount is based on the requirements of the free zone authority. Each free zone encourages different types of businesses. For example, the Okinawa free zone is often used for logistic business re-exporting their production to other countries in Asia.
Limited Liability Partnership
Foreigners can register a limited liability partnership. One of the partners must be a resident of Japan. The partners’ liability is limited to their contributions to the company.
This option is usually used by people who already have a partner in Japan.
No minimum capital requirement is imposed.
Limited liability partnerships in Japan are tax transparent entities. Earnings are deemed automatically distributed to the partners, who must claim them in their personal or corporate income tax returns. The partnership must prepare financial statements.
Branch offices provide services in Japan under the direction by the foreign company. A branch office can engage in profit-generating activities, but it is not expected to engage in independent decision-making; it is part of the parent company. The operations that this type of entity can engage in are based on the operations specified in the memorandum and articles of association. Its activities are limited to those of the parent company. A branch office is not technically a separate legal entity. Instead, it is encompassed by the foreign company’s corporation status.
This type of entity must have a base of operations in Japan and must be registered. A resident representative must be authorized to represent the branch.
The parent company is liable for the debts of the branch office. A branch office in Japan can open bank accounts and lease real estate in the branch’s name.
This option is often used when a foreign company wants a simplified process of having a legal presence in Japan but wants to minimize accounting and bookkeeping obligations or when the company provides products or services that are subject to a licensing agreement with a high amount of capital involved.
A representative office is not technically a separate legal entity. It does not need to be registered with the Legal Affairs Bureau and similar governmental entities.
A permanent agent must be appointed who is a resident of Japan. Any legal transactions are signed under the head office of the foreign company. Otherwise, the representative would sign under his or her individual capacity, which would subject him or her to unlimited liability for any such agreement.
This type of business establishment is not able to engage in commercial activities. It is restricted from engaging in sales or commerce activity and cannot open bank accounts, lease real estate under its own name or participate in other for-profit activity that would be taxable in Japan. Therefore, it is not permitted to engage in direct sales.
However, this office can complete the following activities:
- Market research
- Promoting the business of the parent company
- Test the Japanese market
The office does need to register with the tax office and is responsible for withholding taxes from employees.
This type of office is usually established as a preparatory step where a business can obtain important information about the market, conduct market research, begin networking and provide publicity to the business before it makes substantial investments into Japan.
Assistance with the Incorporation Process Every Step of the Way
The local experts at New Horizons can discuss each option with you and weigh the advantages and disadvantages of each one so that you can make a fully informed decision about which entity to establish. We can then guide you through the incorporation process by assisting with steps like:
- Locating physical office space and preparing necessary documents to
- Reviewing articles of incorporation and other corporate documents to ensure that they contain the necessary information and provisions required by the law in Japan
- Notarizing articles of incorporation or other important documents
- Helping to locate a corporate bank account and facilitating the deposit of initial capital
- Preparing documents for the company’s registration
- Preparing the notification of the company’s seal
- Preparing a letter of agreement from the directors accepting their office
- Filing the application for the company registration
- Obtaining the registry certificate
- Obtaining the company’s seal certificate
- Applying for visas and work permits for foreign directors and employees
- Applying for the applicable operating license for the business
- Providing legal advice regarding tax and social insurance matters
Payroll and PEO Services to Aid Your Entity
Whether you wish to establish a separate entity in Japan and participate in the full range of business services or you want to test the market without establishing an entity, New Horizons can assist you on whichever path you choose.
Our employment solutions allow you to delegate employer responsibilities to us by using our PEO platform. This option lets you insulate yourself from employer liabilities while having a highly trained staff at your disposal.
Additionally, New Horizons can provide payroll services for you. We can take care of the following:
- Withholding of taxes and social insurance sums
- Benefit administration
- Compliant payroll distributions
- Reports regarding taxes, distributions and taxes
We also draft compliant employment agreements, manage human resources and provide ongoing advice and guidance on how to remain compliant while operating your business in Japan.
Contact the local experts at New Horizons Global Partners for help with your company setup in Japan.