Frequently Asked Questions
- Do you always have to establish a branch when doing business in Japan?
- Can a foreigner become a representative of a company run in Japan?
- How much should I put in the company’s equity?
- What are Articles of Incorporation?
- Do you have to deposit and keep the equity money in the bank when establishing a company until the company registration is complete?
- In what situations is it required to make reports or notifications under the Foreign Exchange and Foreign Trade Act?
- In what situations would it be better to establish as an LLC?
- What’s the difference between establishing a company and opening a branch office?
- Can I get an Investor/Business Manager Visa without equity in the company?
- Are there any industries that foreigners are limited from doing?
- What countries don’t need a Short-Term Visa?
- On what basis are Investor/Business Manager Visas granted?
- What is “foreigner registration”?
- What if I don’t turn in a company formation notification to the Tax Office?
- What is the labor insurance system like in Japan?
- What is the social insurance system like in Japan?
- Is it necessary to compile a trial balance every month?
- How are Japan’s accounting standards different from other countries’?
- Can foreigners starting a business in Japan receive financing?
- What are the advantages of opening a subsidiary? What are the advantages of opening a branch?
- What does “Z’xent Pro” mean?
Q1. Do you always have to establish a branch when doing business in Japan?
A1. No, another option is a representative office. There is no need to register or do other procedures to set one up. However, although you can conduct market research, collect information, do advertising, and purchase goods at such an office, you can’t conduct business from one. Also this kind of office makes it difficult to open a bank account in the company’s name, lease an office or property, etc.
For most small to medium sized companies though, forming a new subsidiary in under Japanese law is more advantageous both to reduce taxes and to reduce liability exposure. See our page here detailing the different kinds of companies in Japan.
Q2. Can a foreigner become a representative of a company run in Japan?
A2. Yes, foreigners are not restricted from being representatives of companies. However, at least one of the representatives of the company must have a residence in Japan. (Representatives don’t need to be the same people as in the parent company).
Q3. How much should I put in the company’s equity?
A3. There are no limits on equity as long as there is at least 1 yen invested. Companies with 10 million yen or under of equity are exempt from paying sales tax for 2 years after the company is established. However, if you plan to get an Investor/Business Manager Visa, at least 5 million yen must be invested in the company.
Q4. What are Articles of Incorporation?
A4. When you establish a KK in Japan, a notary public must certify the company’s Articles of Incorporation. The Articles establish the company’s basic information such as the company name, address, business nature/items, and representatives. Currently if you do this certification electronically, there is no need to pay the stamp duty of 40,000 yen typically charged.
Q5. Do you have to deposit and keep the equity money in the bank when establishing a company until the company registration is complete?
A5. No, you are free to withdraw your equity funds you deposited and use them for business affairs before the company registration is complete.
Q6. In what situations is it required to make reports or notifications under the Foreign Exchange and Foreign Trade Act?
A6. If you are setting up a new company or just a branch office, under the Foreign Exchange and Foreign Trade Act (FEFT Act), if you use a Japanese bank you have an obligation to send certain notifications to the Ministry of Finance and the Ministry of the industry your company is involved in. These reports differ depending on what kind of company:
＜For newly established companies＞
For some industries pre-notifications are required to be sent. For others post-reports are enough.
＜For chains or branch offices＞
For some industries pre-notifications are required to be sent. For others not post-reports are required.
In situations where pre-notifications are required, these need to be sent at least 6 months before the business is scheduled to be established. You can’t apply to register the company for at least 2 weeks after submitting the notification. For post-reports, you are required to submit them by the 15th of the month following the day the company establishment was registered.
Q7. In what situations would it be better to establish as an LLC?
A7. An LLC’s special qualities are that it can decide freely how profits are to be distributed and make decisions more easily. Also, LLCs are cheaper to establish because they don’t need to pay for certifying the company’s Articles of Incorporation at the time of establishment. An LLC is also recommended when starting a business that has few staff and who share technology and know-how. A corporation is more limited to act on decisions by its rules. LLCs are cheaper and easier to establish.
Q8. What’s the difference between establishing a company and opening a branch office?
A8. A subsidiary has rights as a legal person, while a branch or chain does not as it is just one part of the parent company located in the home country. Responsibilities and obligations arising from contracts do not apply to branches because they become those of the parent company in the home country.
Q9. Can I get an Investor/Business Manager Visa without equity in the company?
A9. Under the law you can start a corporation with only 1 yen of equity, but in order to get the Investor/Business Manager Visa you need to have five million yen or more of equity invested in the company to satisfy the requirements for the new company to be stable and to have continuity.
Q10. Are there any industries that foreigners are limited from doing?
A10. As a general rule there are no industries foreigners are forbidden from working in. However there are some kinds of work that require a permit or clearance.
List of Permits & Clearances
|Construction||Construction Business Permit|
|Real Estate||Real Estate Business License|
|Money Lending||Money Lending Business Registration|
|Transportation Carrier||General Goods Ground
Transportation Business Permit
|General Labor Dispatch Business (aka Temp Agency)||General Labor Dispatch Business Permit|
|Specified Worker Dispatch Business Registration|
|Recruitment Business||Recruitment Business Permit|
|Food/Beverage Business||Restaurant Business License|
|Hotel/Inn||Hotel Business Permit|
|Pharmacy||Pharmacy Establishment Notice|
Establishment (doing business late at night)
|Late Night Alcohol Serving Food & Drink Business Notice|
|Used goods store (aka recycle shop)
Used book store
|Second Hand Dealer Permit|
|Security||Security Services License|
|Travel Agency||Travel Agency Registration|
|Private Taxi||General Passenger Carrying Vehicle
Q11. What countries don’t need a Short-Term Visa?
A11. The following countries are exempt from needing to apply for a Short-Term Visa:
|Visa Exemption Country/Region||Term of Stay||Visa Exemption Country/Region||Term of Stay|
|America||Under 90 days||Iceland||Under 3 months|
|Canada||Under 3 months||Ireland||Under 6 months|
|Australia||Under 90 days||Italy||Under 3 months|
|New Zealand||Under 90 days||Austria||Under 6 months|
|Argentina||Under 3 months||Netherlands||Under 3 months|
|Uruguay||Under 3 months||Greece||Under 3 months|
|Costa Rica||Under 3 months||Croatia||Under 3 months|
|Chile||Under 3 months||Switzerland||Under 6 months|
|Under 3 months||Sweden||Under 3 months|
|The Bahamas||Under 3 months||Spain||Under 3 months|
|Mexico||Under 6 months||Slovak Republic||Under 90 days|
|Visa Exemption Country/Region||Term of Stay||Slovenia||Under 3 months|
|Singapore||Under 3 months||Czechoslovakia||Under 90 days|
|Brunei||Under 3 months||Denmark||Under 3 months|
|South Korea||Under 14 days||Germany||Under 6 months|
|Taiwan (note 1)||Under 90 days||Norway||Under 3 months|
|Hong Kong (note 2)||Under 90 days||Hungary||Under 90 days|
|Macau (note 3)||Under 90 days||Finland||Under 3 months|
|(note 1) only for holders of passports that have their ID number printed on their passports
(note 2) only for passport holders of Hong Kong Special Administrative Region or British Citizen Overseas (living in Hong Kong)
(note 3) only for Macau Special Administration Region passport holders
|France||Under 3 months|
|Bulgaria||Under 90 days|
|Belgium||Under 3 months|
|Poland||Under 90 days|
|Portugal||Under 3 months|
|Monaco||Under 90 days|
|Romania||Under 90 days|
|England||Under 6 months|
Q12. On what basis are Investor/Business Manager Visas granted?
A12. The main criteria for the Investor/Business Manager Visa are:
- Ensuring that the facility to be used in Japan will be used as a place of business.
- If the business will be a new one, showing that the amount of equity invested in the business is at least 5 million yen.
Q13. What is “foreigner registration”?
A13. In order to clarify who a foreigners are and where they reside in Japan, registration is done of several items at the local government office. After registering such things as name and address with the local government office within 90 days of coming to Japan, the foreigner is given a card called the “Certificate of Alien Registration” which has all the person’s registration information on it. You can use this card as ID or use it to receive other forms of picture ID issued by public agencies in Japan (such as a driver’s license).
Note that this system is being fazed out in 2012 and replaced with a slightly different one. See our page here for more details.
Q14. What if I don’t turn in a company formation notification to the Tax Office?
A14. When a company is established you must turn in formation documents to not only the tax office but also prefecture government offices. There are two kinds of reporting under the Japanese tax code: “Blue filing” and “White filing” statuses. If an approval request form for Blue filing is not submitted, then the company automatically becomes White filing status. The submission deadline is within 3 months after the formation of the company. Blue filing status is best because of the preferred tax treatment those companies enjoy such as the carry-over of losses, corporate tax exemptions, and special depreciation. Companies receive tax reporting forms by mail before the yearly books are closed. However, because these forms are very complicated, most companies hire tax accountants to take care of all the reporting requirements.
For a more detailed summary, see our page here.
Q15. What is the labor insurance system like in Japan?
A15. Labor insurance is a combination of worker’s accident compensation insurance and employment insurance. Worker’s accident compensation insurance covers medical expenses workers incur from injuries on the job or during their commute to work. Employment insurance provides living and job-search assistance for when workers lose their jobs. Companies are required to enroll if they only have one employee. This applies to foreign workers as well, regardless of anyone’s nationality.
Q16. What is the social insurance system like in Japan?
A16. Social insurance in Japan is a combination of health insurance and employee pension insurance. Social insurance includes insurance covering medical treatment for illnesses or injuries that occur outside of work. The insurance provides a safeguard for maintaining a decent standard of living after reaching retirement age. Companies are required to enroll whether they have employees or not.
Q17. Is it necessary to compile a trial balance every month?
A17. By law, there is no obligation to create a trial balance. However, a trial balance is a compilation of all transactions that occur during the period. By creating a trial balance, missed journal entries can be discovered, income can be forecasted, and management decisions can be made. Also, in most cases when borrowing money from a financial institution a trial balance is required to be submitted. Performance management is important because it is possible that while on an Investor/Business Manager Visa, if the company’s performance is significantly worse than the business plan that was submitted at the time the visa was obtained, it may become impossible to obtain the same visa again when it comes time for renewal.
Q18. How are Japan’s accounting standards different from other countries’?
A18. Japan’s accounting standards are different from International Accounting Reporting Standards (IFRS). Notable differences are income recognition standards, how research and development costs are treated, and how financial products are treated. Starting from March, 2010, a certain number of publicly-listed companies in Japan started applying IFRS standards on a voluntary basis. Mandatory application of IFRS standards for publicly-listed companies’ consolidated financial statements starting from 2015-2016 is currently being considered. It is important for the parent company or foreign investors to know whether or not financial statements prepared under Japanese standards need to be translated into English and what other kinds of rules.
Q19. Can foreigners starting a business in Japan receive financing?
A19. At the Japanese government connected bank Japan Finance Corporation, anyone including foreigners can borrow the necessary funds for starting a new business in Japan. The requirement is having an Alien Registration Card. Aside from that, screening on an individual basis is done to evaluate such items as having a fixed residence and a business plan that shows an ability to pay back loans. However, since opening a branch office or establishing a subsidiary is not the same as starting a new business, the above items would make this kind of financing not possible.
When applying for a loan it is necessary to create and submit the company’s business plan as well as a copy of the company’s corporate register and other documents the bank determines. Our company knows what kind of business plan financing institutions are looking for, so please consult with us and let us help. We can also introduce you to friendly financing institutions.
Also local governments also have low-interest financing programs available.
Q20. What are the advantages of opening a subsidiary? What are the advantages of opening a branch?
A20. When expanding your business to Japan, you must decide whether you will create a subsidiary or establish a branch of your already existing company. However we cannot say that one is always better than the other. With a branch you have the advantage of starting the business backed by the trust the company has already created with customers. Also, with a branch the obligation to pay taxes lies with the headquarters of the company. On the other hand, if the company’s capital exceeds 100 million yen, there are cases where the subsidiary may have to pay taxes even if there is no profit. (Taxes that apply after the company exceeds 100 million yen in capital are called “dual corporate taxes”, or “size-based corporate taxes”.)
For a subsidiary, even if the parent company has more than 100 million yen and the subsidiary has no profit, taxes are not imposed like they would be for a branch. Also subsidiary can receive preferential tax treatment for being a small-medium business in Japan, even if the parent company is a large company, as long as the subsidiary passes certain prerequisites.
Branches and subsidiary both have their advantages, but it’s really case-by-case to determine which is best. Our staff of legal professionals are ready to answer your questions, so please feel free to consult with us before making the decision on which type of business you will expand with.
Q21. What does “Z’xent Pro” mean?
Our name Z’xent Pro comes from the Japanese four-character idiomatic phrase 前途洋々 (zento-yoyo), which can be roughly translated as “a bright and promising future”. We strive to provide services that meet and exceed our client’s expectations, and we hope that in doing so they can realize their each of their own bright and promising futures.