You own a profitable business outside of Japan and you wish to set up shop in Japan and repeat your success. Perhaps you have an idea for a new business that would be perfect to run from Japan and you want to get started. In either scenario, you are going to need a company. That does not necessarily mean that you will need to incorporate one though. Have you considered the following?
Pros: Does not need to be registered with the corporate authorities because it is simply an employee of an overseas corporation conducting liaison or support functions in Japan.
Cons: Cannot be used directly for profit-making activities or as a profit-center
Pros: Nominal cost and procedure to get registered. As a quasi-legal entity it can conduct business in Japan and is subject to Japanese Corporate Taxes like a normal Japanese corporation
Cons: The overseas parent company is liable for the actions of the Japanese registered branch and the Japanese tax office (NTA) retains the ability to go upstream and audit the overseas parent. Further, it does not look very good to domestic Japanese business partner companies; potentially seeming non-committal to the Japanese market.
If you are not looking to set up the “foreign arm” of your overseas business, or the above do not seem appropriate then you, like thousands of others every year, are going to have to register a legal corporate entity in Japan. First things first though: do you want the “chicken or the beef”? The “Kabushiki-gaisha or the Godo-gaisha”
The Kabushiki-Gaisha (K.K) Vs. The Godo-Gaisha (G.K)
The first difference between the two is a legal one. a KK is a joint-stock company and a G.K is a limited liability company. They will operate on a cost-plus or value-based business method, depending on what is appropriate for your particular business.
The KK is the most commonly encountered form of Japanese company and arguably the most respected. Japanese consumers, business partners and investors will have no trepidation in dealing with a KK as it perceived to be stable, legally sound and reputable. The company is required to have a representative director (a daihyou) and a board of directors. Previously, the representative director had to be a Japan resident but that is not now the case. The company must hold a shareholder meeting at least once a year, three months before the end of its elected fiscal year. KK’s can be fully registered in as quickly as three weeks and can even be ‘taken public’ and listed on the Japanese stock exchange (why not aim big?). The company is obligated to keep a record of accounts and make annual filings to the tax office. The company may also have other obligations depending on the number of full-time employees it has regarding ‘social security’; health insurance and pension premiums. To this effect, the company can also sponsor visa applications for employees. Further, the founder of the company will also be eligible to apply for an “investor/manager visa“, i.e self-sponsor their own Japan investor visa, pending paid-in capital funding requirements are met at the incorporation stage.
The GK is different to the KK in as much as it is a hybrid of a corporation and a partnership. If you invest in a KK you are a shareholder but if you invest in a GK you are a member. It also does not require a board of directors. When there are no individual members then an executive manager is appointed to take responsibility for the management of the company on behalf of its “members”. The duties of the executive manager will be similar to the legal duties of the representative director or directors of the KK. Like its bigger brother, the KK, GK’s are required to keep a book of accounts, and make annual tax return filings. The only ‘save’ is that it is not required to have an annual shareholder meeting (because there are no shareholders). The GK structure may confer tax benefits to US corporations looking to establish an Japanese corporate entity. Linked to elsewhere, it may make the tax situation more complicated. The GK, owing to its relative complexity takes a little longer than the KK to establish and is lesser encountered than the KK due to its somewhat specialist nature.
Registering A Japanese Company
As with most Japanese administrative procedures for legal matters things can be a little nuanced, or even complicated. Many have successfully completed the complex procedure themselves to save some money. Others will hire a financial advisor, accountant or lawyer to do it for them. Despite costing money this is arguably the smart way to go because: A) you will save a lot of time B) having the documents filed by a professional body makes your application more reputable and avoid blunders C) if your business is specialist in nature it will ensure that no mistakes are made regarding your authorised activities, and any potential specialist registrations or licenses you may require to do business legally and compliantly.
If you are going to brave it and throw down the gauntlet yourself you will need to do the following:
1) Rent an office or find another suitable physical location from which to base your business activities. A virtual office is not permitted to be your registered address for your business. If this is problematic, you could always register your home as your office (even publicly traded companies have to start somewhere). Also, be sure to ensure that your chosen property allows corporate registrations.
2) Find your representative director. If that’s you, great. Less time on salary negotiations…
3) Create your company articles of incorporation. You can probably find a template online but it is unlikely that you will find one relevant to the specifics of your particular business model. The “articles” must contain detailed statements about the business activities of the company, the obligations to the shareholders, and relationship with directors. Yes, it’s going to be in Japanese.
4) You need to get your articles of incorporation notarised. Take your completed documents to the notary office and get them made official. Expect to pay around 50,000 JPY. (this is not required if your company is a GK…)
5) Deposit your incorporated capital. As you will not have a company bank account at this stage this money should come from the investor(s) account.
6) Prepare your company registration documents. This will include the application form, the notification of registration for the company’s registered seal (inkan), and letters from the directors confirming their assumption of office.
7) File your registration documents at the registry office. Expect to pay around 160,000 JPY for a KK and 70,000 JPY for a GK.
8) Once the registration is confirmed complete, obtain a registry certificate and a company seal certificate. You will need these when opening the company bank account and for numerous other activities in the future (e.g renting offices moving forward, sponsoring visas, employee contracts etc.)
9) Register all directors and employees with the government tax and social security offices. Apply for visa and visa status updates for staff where necessary. Apply for relevant business licenses where required, as advised.
10) Convince a Japanese bank that you are not a criminal organization or terrorist group and open a company bank account.
Once you are fully set up, legally recognized, capitalised and ready to go all that’s left to do is to do business and make money. Just be sure to meet all of your annual tax filing deadlines. Again, this will mean hiring a competent tax accountant, or spending more of your time (that you probably no longer have now, as a new business owner) to work out how to DIY them yourself. Once you have found the balance between running the business so that it is profitable, and meeting all of your corporate and personal legal obligations to the Japanese government you will have achieved the ethereal state of harmony that the Japanese traditionally refer to as “Wa” (和).
[ Sources ]
– Japan External Trade Organization, Laws & Regulations on Setting Up Business in Japan 2017
– Japan National Tax Agency
– Invest Japan Business Support Center (IBSC) – Open A Japan Office