5 Things To Look Out For When Setting Up A Business In Japan

To register company in Japan is a popular option as Japan has always been an attractive jurisdiction to set up a company in due to the country’s political and economic stability, strong work ethic, easy access to the Asian market, well-established transport and communication infrastructure and global competitiveness in specific industries such as the IT, electronics and automobiles industry. Currently, Japan is the third-largest economy in the world based on nominal GDP. Before you begin with setting up a business in Japan, you should look out for the following things:

5 things to look out for when setting up a business in Japan

#1 There are 6 main types of business entities in Japan

Sole Proprietorship (kojin jigyo)

• A sole proprietorship is a business entity that is established by a single individual. An individual may choose to start a sole proprietorship business to gain better control over his or her business. An individual in a sole proprietorship will own all the profits and assets in the business and be held personally liable for the debts and liabilities incurred by the business. Only Japanese citizens or individuals who hold certain visas such as the Working Holiday visa or Dependent visa will be allowed to establish a sole proprietorship in Japan.

Limited Liability Company (Godo kaisha)

• A limited liability company is a private company limited by shares and is regarded as a separate legal entity from its shareholders. In other words, shareholders and directors will not be held liable for any debt and liability incurred by the company. Instead, they will only be held liable for the amount of investment they hold the company. A limited liability company must be incorporated with at least one director and one shareholder.

Joint Stock Company (Kabushi Kaisha)

• A Joint Stock Company is another popular type of subsidiary company. Like a limited liability company, the liability of the shareholders will be limited to the value of the shares they hold. A Joint Stock Company is managed by a Board of Directors and is allowed to raise capital by selling shares. A Japanese joint stock company requires at least 3 directors.

Partnership

• A partnership is formed when two or more partners work together in setting up a business in Japan. There are 2 types of partnerships in Japan, namely a General Partnership (Gomei Kaisha) and a Limited Partnership (Goshi Kaisha). In a general partnership, all partners will be in charge of running the business and be held personally liable for all the debts and liabilities incurred by the business. In a limited partnership, however, there are two types of partners: a general partner and a limited partner. A general partner will be in charge of overseeing the business’s daily operations and will be held liable for all the debts and obligations incurred by the business. Meanwhile, a limited partner will not have control over the operations of the business and will only be held liable for the liability incurred by the business by the amount of investment they hold in the partnership. In essence, a general partner has unlimited liability, but a limited partner has limited liability.

Branch Office (Shiten)

• A branch office refers to an office that is established as an extension of the parent company. Foreign companies incorporated outside of Japan can choose to set up a branch office to conduct business activities in Japan. The parent company and the branch office will not be regarded as a separate legal entity. In essence, the parent company will be held responsible for all the debt and obligations incurred by the branch office. However, a branch office is still required to file annual financial statements and pay corporate income tax. Foreign business owners may choose to set up a branch office instead of a limited liability company because of the reduced level of paperwork and cost in terms of accounting, management and set up.

Representative Office (Chuzaiin Jimusho)

• Alternatively, foreign companies incorporated outside of Japan can choose to incorporate a Japanese representative office. A representative office is also an extension of the parent company but unlike a branch office, it cannot conduct any commercial activities that generate revenue. Generally, foreign investors may choose to set up a representative office to conduct market research, promote advertising campaigns, purchase goods and collect information. Unlike a branch office, there is no requirement for a representative office to register under the Japan Registry Office.

#2 A Japanese company is not required to appoint a resident director

• Before 2015, Japan company registration required at least one resident director. However, this rule was abolished in 2015 to make it easier for foreign business owners to establish their companies in Japan. Currently, there is no resident director requirement for a limited liability company and joint stock company in Japan. However, branch offices will still be required to appoint a local representative. Partnerships will also be required to have at least one partner who resides in Japan.

#3 There is no minimum capital requirement for setting up a business in Japan

• In Japan, there is no minimum capital requirement for a limited liability company, joint stock company or branch office. A Japanese company can be established with JPY1. This also applies to partnerships – a partnership that has two partners can be started with JPY2. 

#4 There are multiple types of corporate taxes a Japanese company must file

• All Japanese companies are required to file an annual tax return on corporate tax, local corporate tax, corporate inhabitant tax, enterprise tax, and local corporate special tax. All companies in Japan are required to pay a fixed national local corporate tax rate of 4.4% and those with share capital above JPY 100 million will be subjected to a corporate tax rate of 23.2%. The corporate inhabitant tax, enterprise tax and local corporate special tax will depend on the location and size of the company. Considering all the forms of corporate tax, the effective corporate tax rate for a company in Japan is usually around 30%.

#5 There are 3 main free trade zones (FTZs) in Japan

• Business owners can start a business in Japan by setting up a Free Zone Company in a Free Trade Zone. Currently, there are 3 main FTZs, namely the Okinawa SFTZ, Naha FTZ and Nigata Free Port. The Okinawa FTZ specialises in the processing, stocking and manufacturing of electronics such as semiconductors and circuit boards while the Naha FTZ specialises in manufacturing, transport, storage and shipbuilding activities. Businesses that set up in either FTZ in Okinawa can enjoy low rental charges for warehouses and other factory facilities. Nigata Free Port, on the other hand, is meant to cater to businesses that engage in sea freight activities and international trade. All FTZs in Japan offer numerous tax incentives and income deduction schemes for companies that are set up in a free trade zone. As such, it may be ideal to set up a Free Zone Company if your company is operating in an industry supported by the FTZ.

How we can assist you with setting up a business in Japan

Setting up a company in Japan may be difficult because of the language barrier. The business language in Japan is Japanese and all corporate documents must be written in Japanese. Even though there is no requirement for a resident director for a company in Japan, it is recommended to hire a nominee director who is fluent in Japanese and able to communicate with governmental and financial institutions to register for the required services. 

Tetra Consultants provides you with a fast and easy way to register company in Japan through our service package which includes company registration with the Japan Registry Office (Houmukyoku); provision of Japan nominee director, local company secretary and registered office; opening of a corporate bank account; tax registration; and annual accounting and tax services. Tetra Consultants will also recommend the type of business entity suitable for your company, based on your long-term goals and business model.

Contact us and our team of experts will revert within 24 hours.