FAQ

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. (Representatives don’t need to be the same people as in the parent company). However, Branches need to have at least one representative who is a resident in Japan. See our page here for more details.

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 a Business Manager Visa, at least 5 million yen must be invested in the company.

Q4. What are the 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/Branch in Japan, you have an obligation to send certain notifications to the Ministry of Finance and the Ministry of the industry your company is involved in, pursuant to the Foreign Exchange and Foreign Trade Act (FEFT Act). 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 Branch offices＞
For some industries pre-notifications are required to be sent. For others reports are not required.

In situations where pre-notifications are required, these need to be sent 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 following month of the day when the company establishment was registered. See our page here for more details.

Q7. In what situations would it be better to establish a LLC?

A7. 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. LLCs are also recommended when starting a business that has few staff and who share technology and know-how. KKs are more limited to act on decisions by its rules. LLCs are cheaper and easier to establish. See our page here for more details.

Q8. What’s the difference between establishing a Subsidiary and opening a Branch office?

A8. A Subsidiary has rights as a legal person, while a Branch does not have as it is just a part of the home company located in the home country. Responsibilities and obligations arising from contracts do not apply to Branches because they become those of the home company in the home country. See our page here for more details.

Q9. Can I get a Business Manager Visa without equity in the company?

A9. Under the law you can incorporate companies with only 1 yen of equity, but in order to get a Business Manager Visa you need to have 5 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

Q11. What countries don’t need to apply for a Short-Term Visa before entering Japan?

A11. The following countries are exempt from needing to apply for a Short-Term Visa:

Q12. On what basis are Business Manager Visas granted?

A12. The main criteria for the Business Manager Visa are:

1. Ensuring that the facility to be used in Japan will be used as a place of business.
2. 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 “Residence Card”?

A13. In order to clarify who foreigners are and where they reside in Japan, a Residence Card is issued by the Minister of Justice in Japan. This card shows basic personal information with the person’s photograph, such as name, date of birth, nationality and home address. For this reason, this Card can be used as an ID card inside Japan.

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. Is it necessary to compile a trial balance every month?

A15. By law, there is no obligation to create a trial balance. Performance management is important to keep obtaining a 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.

Q16. What are the advantages of establishing a Subsidiary? What are the advantages of opening a Branch?

A16. When expanding your business to Japan, you must decide whether you will establish a Subsidiary or open 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 that the company has already created with customers.  Also, with a Branch, the obligation to pay taxes lies with the headquarters of the home 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 Subsidiaries 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.