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Business form in Japan

In general, there are three ways in which a foreigner or a foreign company can do business in Japan.

Representative Office	・The main purpose is to conduct market research and information gathering as a preparatory stage for business activities. In this case, business activities cannot be performed.
Branch	・A foreign company registers as a branch in Japan and conducts business activities.
Corporation	・A foreigner or a foreign company establishes a corporation in Japan to do business. When doing business in Japan, a corporation is often established. ・The types of companies in Japan are “Stock Corporation”, “Joint Company”, “Partnership company” and “Joint Stock Company”. ・When a foreign company establishes a local corporation in Japan, it is generally established as a “stock company”.

• Limited Liability Business Partnerships, General Incorporated Associations, General Incorporated Foundations, and NPO corporations, etc. are omitted in this chapter.
• Whether to select a representative office, a branch office, or a stock company, the type of doing business will depend on the nature of business and business plan.
• It is possible to start from a representative office or branch and then establish a stock company. It is important to select the type of doing business with an expert advice.

Outline and design of establishment of corporation

Outline of establishment for companies other than a public company or large company (capital of 0.5 billion yen or more, or total debt is 20 billion yen or more) is as follows. (Nominating Committee and an Audit Committee is not a prerequisite):

Minimum capital	・The legal minimum capital under the Companies Act is only 1 yen or more. ・However, in the case of acquisition of Business Administration Visa, it needs the capital of 5 million or more, so according to the needs of the business or the licensing, it is necessary to be considerable for the capital. It is possible to start with a small amount of capital at the beginning and increase the capital later. ・In Japan, tax treatment differs depending on the amount of capital, and if the capital is too large, tax incentives are limited, so it is important from the perspective of taxation how much the capital should be.
Shareholders’ restrictions on foreign investment	・The number of shareholders is one or more, and it is possible to establish a company even if the shareholders are foreigners or 100 % foreign companies. ・there may be restrictions on foreign capital depending on the nature of business, and it may be necessary to notify the Japanese government agency depending on the business nature.
Director	・Only one or more, foreigners are allowed. ・Term is 1 or more, 10 or less years. ※When setting up a board of directors, the minimum number is three.
Representative Director	・A Representative Director can be selected if there are two or more. ・Representative Directors could be a foreigner (in March 16th 2015, for representative directors of domestic company, the previous regulation that at least one person must have an address in Japan has been abolished).
Auditor	・Only one or more, foreigners are allowed. ・Term of office is 4 years or more, 10 years or less. ※Required for a company with board of directors. No obligation for a company without a board of directors.

Institutional design composed of the capital, shareholders, directors, representative directors, and company auditors should be considered based on the business nature and business plan, and it is better to consider above from an early stage of forming. In addition, the design needs to be reviewed as the business grows and changes.

Selection of business form and institutional design of corporation

The points to consider when selecting the above-mentioned form of doing business and considering the institutional design of a stock company are:

• Business nature, investment scale and business plan
• Method and plan for returning profits and funds to the home country
• Legal matters such as permits and applications, notifications in Japan
• Taxation in Japan, taxation in home country
• Social Security Systems such as social insurance and pension in Japan

[Reference: Reports based on the Foreign Exchange Act]

When an individual or foreign investment corporation acquires shares or equity due to the establishment of a company, the foreign investor shall comply with the Foreign Exchange and Foreign Trade Act (Foreign Exchange Act) and the regulations of the Cabinet Order on Inward Direct Investment, etc. By the 15th day of the following month in which the company was established (or the previous business day if the 15th day of the following month is a holiday), It is needed to submit a “report regarding acquisition of shares / equity” via the Bank of Japan to the Minister of Finance and the Minister in charge of business. The report can be submitted by an agent.
For more information about this report, please refer to the Bank of Japan’s website “Forex Law Q & A (Inward Direct Investment / Specified Acquisition)(https://www.boj.or.jp/about/services/tame/faq/t_naito.htm/)” and for the format of the report, please refer to the Bank’s website “Report format and guidance for filling out(https://www.boj.or.jp/about/services/tame/t-redown2014.htm/)”

In addition, when a company receives investment of more than 30 million yen at a time, the company shall pay within 10 days from the date of receipt of payment (if the submission deadline is a holiday, until the day after the holiday). A “report of payment receipt” must be submitted to the Minister of Finance via the financial institution with which the transaction was made.
For details on this report, please refer to the “Outline of Report on Payment or Receipt of Payment(https://www.boj.or.jp/about/services/tame/t-houkoku.htm/)” on the Bank of Japan website.

Back number

• Vol.1 “Strengthening of International Taxation in Japan”

2 May, 2020

Shuji Niwa
Managing Partner, Tax
NihonKeiei Will Tax Corporation

This article makes general comments based on information available at the time of publication. Actual tax and management decisions need to be considered individually, so please consult a tax accountant or other expert before making any decisions. We cannot take any responsibility even if you make a decision based on this article and suffer damage directly or indirectly.