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Whether you are relocating your business or establishing a new company, Japan is an exciting place to develop, and a fantastic market to expand into. With the world's third largest GDP, the Japanese economy boasts stability and high growth potential.
In recent years the government has been providing support for startups and improving the visa system for entrepreneurs, meaning that starting a business here has never been easier!
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If you already have a business overseas, the options for establishing a base in Japan are as follows:
Opening a branch office is probably the easiest and most profitable option. It is a very common way for foreign companies to develop business in the Japanese market. Let's take a closer look at each of these options!
As mentioned above, opening a branch is the easiest way to transfer your business to Japan, but it also has its disadvantages. Because a branch is not a corporation, it cannot make decisions on behalf of the company. It can only carry out the decisions made by the head office.
Although you can use a branch to rent real estate or open a bank account, you cannot participate in many all business activities in Japan.
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You can also set up a base in Japan by opening a representative office, but your options are limited.
Representative offices usually help foreign companies with incidental business. Like branches, they cannot make business decisions independently and are not considered corporations in Japan.
Companies usually establish representative offices in Japan as a preliminary step. This is a good way to conduct market research and gather information about the products and services provided by the head office, then use that market research to establish a subsidiary.
Representative offices cannot rent or buy real estate in Japan or open bank accounts in the name of the head office. However, there is a workaround for this. A representative appointed by the head office can sign the rental contract.
Next, let's take a look at the types of corporations that can be established in Japan.
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There are four main types of corporation in Japan.
In addition to these, there is also the form of sole proprietorship. This is not strictly a company, and the owner takes on all responsibility for the business.
If you are setting up a subsidiary in Japan and want to carry out business activities (such as selling products or services), you will need to establish one of these four different types of legal entity.
Most foreign companies prefer to establish either a Kabushiki Gaisha (KK) or a Godo Gaisha (GK). The KK is the most common, followed by the GK.
This is mainly because the owners or shareholders of a joint-stock company or unlimited liability company are liable for the company's debts and obligations. As such, it is not suitable for most founders.
Let's take a look at the limited liability companies, starting with the GK.
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This is a relatively new type of company in Japan. If you are looking for a simple, easy-to-establish company, this is the best option.
Because GKs do not have shares, it is more difficult to buy and sell parts of a GK than a Kabushiki Kaisha (KK). However, GKs are easy to start up.
For example, in the case of a GK, there is no need to have the articles of incorporation notarized, it is sufficient to just have the revenue stamp notarized. GKs also offer tax benefits for overseas investors.
However, there are some disadvantages. Because limited liability companies are relatively new in Japan, investors consider them to be less 'stable' than joint-stock companies. Other businesses—both client and supplier—may not trust your company as much because it is a GK.
There is also another point to note: if you are setting up a GK company in the food, travel, hotel, or pharmaceutical industries, then you will need special permission to register.
Kabushiki Kaisha is easily translated as “joint-stock company,” because it has shares that can be traded between owners. When foreign companies enter the Japanese market, they usually establish a joint-stock company. This is mainly because, like a limited liability company, the liability of shareholders is limited, and it is the ‘default’ company structure in Japan.
Kabushiki Kaisha is well known and trusted by the general public, so it is a good option if you are looking for investors.
While setting up a joint-stock company may seem like the obvious solution, it is more difficult to establish. The process is time-consuming and a little more complicated than the other options.
Another difference is that a joint-stock company requires a board of directors to run day-to-day operations, whereas a limited liability company allows its members to make and implement their own decisions.
The reason these are grouped together is simple: these company forms are not popular with foreign companies. As mentioned above, the main reason for this is that the owners/shareholders of these companies are liable for the debts and obligations of the company without limit.
Next, let's take a look at sole proprietorships.
This is a familiar concept in many other jurisdictions and is not technically a corporation. This is because, like the partnership options mentioned above, it is not a separate legal entity.
A sole proprietorship is personally and fully responsible for all debts and obligations of the business. It is for small business owners such as consultants, restaurant owners, writers, and freelancers.
Sole proprietors may have some tax advantages and can deduct expenses in the same way as a regular business. You can also hire individuals, but you cannot provide company benefits such as pensions or health insurance.
This is a good way to start a business that you can grow at your own pace. However, in sole proprietorships partnerships or joint ownership are not permitted.
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Now that you know your options for setting up a business in Japan, let's take a look at the legal requirements you need to fulfill.
The initial legal requirements for setting up a company in Japan can be divided into four steps:
The most important thing to know about this requirement first is that the office cannot be a virtual office. It must be a physical office that you rent or buy to operate your company from.
You need an address to receive official documents for your business. Fortunately, short-term rentals are available and it is easy to find a short-term rental for your company. You can also rent space in a shared office.
To establish a company in Japan, you will need to provide a detailed business plan to the Legal Affairs Bureau of the local government where your business will be registered.
The business plan should include an overview of the business, how you plan to grow, profit forecasts, and how you will receive funding or investment.
You will need a bank account to deposit the capital for your company. It is quite difficult to open a bank account in Japan due to the bureaucracy involved, and it takes a long time compared to other countries.
In addition, you will need to obtain your visa before you can open a bank account. We will explain the types of visas you can obtain immediately after this section.
Depending on the bank, you may need to deposit a certain amount as a down payment.
Before establishing a company, you will need to prove your investment capital.
Once you have opened a bank account, deposit the capital and obtain a copy or scan of the bankbook. This will be required when you register your company at the Legal Affairs Bureau, along with the articles of incorporation, which we will explain later.
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As we mentioned earlier, foreigners who want to start a business in Japan need to apply for a visa.
Entrepreneurs and people opening foreign subsidiaries usually fall under a Business Manager visa. However, many areas in Japan now offer a specialized Startup visa for those that meet specific requirements. To see which areas offer them and what those requirements are, check out the article we wrote about it:
Once you have decided what type of company you want to set up and understand the requirements, there are some specific procedures that you need to follow in Japan. We have summarized all of these procedures below.
If you haven't already done so, check whether the company name you have chosen is already in use. The Japanese Ministry of Justice has a website you can use for this purpose, but the pages are written in Japanese.
Company names must not include special characters. You can use both English and Japanese characters in your company name.
You will need a company seal in order to begin the registration process. You will need to register your seal at the Legal Affairs Bureau and obtain a certificate. Generally, hand-carved seals cost between 10,000 and 50,000 yen, while machine-carved seals cost around 10,000 yen. Please note that you will also need a separate seal and certificate for each director of the company.
This might seem quite archaic, and in truth… it is! Seals are becoming less and less necessary in other areas (like for opening private bank accounts), but for now they are still a requirement when registering a business.
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