Starting Business In Japan

Japan is a major consumer center with a market-driven economy ideal for ventures and opportunities. Global economists predict that Japan will have a GDP of US$5.6 trillion, making it the third-largest economy in the world in 2024. It currently accounts for about 10% of the global economy and has the largest stock exchange in Asia. 

Furthermore, the Japanese government has introduced several investor-friendly policies to attract more foreign investments. With a customer base ready to pay a premium for quality products Japan is easily a winning location for all businesses. Moreover, with a highly educated workforce, Japan is a major player in the global tech industry. 

The following article will give meticulous details regarding the company registration process in Japan and how to start a business in Japan.

Japan has the largest stock exchange in Asia and accounts for about 10% of the global economy. As one of Asia’s biggest markets, Japan attracts foreign entrepreneurs worldwide. 

There are many advantages of doing business in Japan, such as – 

• A highly educated workforce that ensures efficient business dealings 
• Supportive government policies to help companies scale up efficiently in keeping with modern requirements
• Developed infrastructure and state of the art facilities along with global outreach
• Accessible company registration along with a stable economy
• Major strength in industry and tech that ensures healthy competition

Foreign Exchange and Foreign Trade Act (FEFTA) is the law that governs all foreign investments in Japan. The Ministry of Economy, Trade, and Industry (METI), Ministry of Finance (MOF), and other relevant Japanese ministries govern all employment and investments. The Bank of Japan reviews foreign investment transactions covered by the FEFTA. Investors must submit all notifications and reports to the government through the Bank of Japan. 

Some of the major eligibility requirements to start a business in Japan are 

Visa/Work Pass:

Entrepreneurs need to get the correct visa or work pass to start a business in Japan legally. 

• Entrepreneurs can opt for a Business Manager Visa, which requires you to prove that you are willing to set up a business in Japan
• Japan also has a remarkable initiative known as the Start-Up Visa. It is valid for six months but can be extended for another six months if required
• Entrepreneurs can opt for the Investor Visa, which has a validity period of 1, 3, or 5 years

Company Name:

‍The next crucial step of setting up a company in Japan is the business name registration in Japan. A corporate name cannot be misinterpreted by other enterprises, but this restriction is only relevant when other establishments are situated at the same address. 

Employers must follow a few guidelines when naming their businesses to get swift approval for the naming application:

• A joint-stock corporation should have ‘Kabushiki-Kaisha’ in its corporate name.
• A Limited Liability Company (LLC) should have ‘Godo-Kaisha’ in its corporate name.

Director:

‍While setting up a company in Japan, every company must appoint a representative director. Enterprises can have multiple directors if required. Recent laws have exempted companies from appointing at least one director of local origins. Non-residents can now become sole representative directors of a company in Japan. However, entrepreneurs are advised to assign at least one regional director to avoid initial complexities for the following reasons:

• Initial company incorporation in Japan demands proof of capital to be shown in a personal Japanese bank account of a director or shareholders. This might create a hurdle for companies with only non-resident representative directors.
• Japanese banking institutions may be reluctant to trade with companies with foreign-only representative directors in the absence of any authoritative local figure who can be held responsible in case of company negligence.

While setting up a business, a company needs to appoint a minimum of three directors on the board.

Shareholder:

‍All enterprises in Japan must have at least one shareholder. A company can have as many shareholders as they want, whether it is a private or a public company. However, public companies listed on the Japanese Stock Exchange need to meet the appropriate provisions of the stock exchange on the number of shareholders.

Company Auditor:

‍Companies opting to appoint a board of directors must designate at least one company auditor to oversee the duties of the board. 

• Large establishments with shares that have no restrictions on the share market are mandated to appoint three board of company auditors. However, companies with an audit and a supervisory or a nominating committee are exempt from this rule. 
• Medium-sized companies can opt for an accounting adviser instead of a company auditor. 
• A public company must have at least one company auditor, while large-sized companies must have a board of company auditors.

Company Secretary:

‍Japanese legislature does not require companies to appoint a company secretary to set up business in Japan. There is no legal position corresponding to a company secretary in Japanese corporate culture. The General Affairs department of a company handles the responsibilities of a company secretary. However, most companies appoint one company secretary to avoid day-to-day operational hassles. 

Beneficial Owner(s):

A beneficial owner is a person directly or indirectly holding more than 25% of the total voting rights in a company. It is not a mandatory requirement for opening a business in Japan. However, a new policy by the Ministry of Justice of Japan urges all listed and private companies to disclose the identities of their beneficial owners after January 2022. 

Registered Address:

‍Japanese law mandates all businesses to have a legal registered address. This address is significant for several reasons, including – 

• The legally registered address of all Kabushiki-Kaisha (KK), Godo-Kaisha (GK), and Japanese branches of foreign companies are present on the publicly accessible certificate of registered particulars. 
• All official correspondence, such as taxes, social security, labor insurance, and legal proceedings (if any), will be sent to this legally registered company address. 

General licenses:

‍Upon completing the company registration process in Japan with relevant authorities such as the tax and social security department and the Trade Register, the Companies Registrar in Japan issues a business license. It is the first permit issued to any business in Japan and often the only one to start operating in Japan. However, industries in specific sectors, such as health, construction, and hospitality, may require additional licenses from relevant Japanese authorities. 

Paid-up capital:

‍Paid-up capital refers to the total amount of funds of a shareholder. Setting up a new private limited company in Japan requires a minimum paid-up capital of 1 JPY. Although establishment with a capital of 1 yen is possible under the Companies Act of Japan, you need to invest 5 million yen or more if you are entitled to a “Business Manager” visa status.

Taxation:

Japan has varying tax burden rates depending on the size and taxable income of the businesses. There are many different taxes, such as the corporate tax, local corporate tax, corporate inhabitant taxes (Prefectural & Municipal), enterprise tax, and special corporate enterprise tax. The total tax rates imposed by the Japanese government on different businesses are:

• 22.46% on taxable income less than 4 million JPY
• 24.90% on taxable income between 4-8 million JPY
• 36.81% on taxable income more than 8 million JPY

Foreign companies operating in Japan are liable for corporate income taxes only for the income generated from within Japan.

The main business structures commonly used by foreign enterprises to set up a business in Japan are:

Subsidiary company

‍A foreign company founding a subsidiary company in Japan can opt for a Limited Liability Company (LLC) known as Godo-Kaisha or a joint-stock corporation known as Kabushiki-Kaisha, or any similar entity stipulated by the Corporate Law of Japan

Branch office

‍A branch office of any foreign company set up in Japan, providing services in the country. It does not possess any legal corporate status, and the services provided are determined by an organization permitted by the foreign company.

Limited liability partnership (LLP)

‍Entrepreneurs can form a Limited Liability Partnership (LLP), an entity started only by the equity participants having limited liability. LLPs are not liable for taxation but on the profits allocated to equity participants. Equity participants can freely determine the internal rules and regulations of LLPs. 

Representative office

‍Foreign companies establish representative offices to carry out preparatory and supplemental tasks to engage in full-scale business operations in Japan.

A detailed breakdown of the procedure for incorporation of company in Japan has been provided below:

Pre-registration process:

After entrepreneurs have completed the preparatory stage and met all the requirements, they need to register their business authority with the Legal Affairs Bureau. Foreigners need to follow the stepwise process to begin the company registration process in Japan:

• Searching and reserving company name 
• Preparing the Articles of Incorporation (teikan)
• Deposit of capital
• Notification of the company’s seal (inkan)
• Preparing a letter of agreement from the directors assuming their office

Registration process:

‍Entrepreneurs need to submit specific documents and register their company name with the Legal Affairs Bureau. The following documents are required for the company incorporation in Japan:

• Seal certificate (inkan shomeisho), which has been issued within three months of all investors and director(s)
• The Representative Director’s personal bank accounts and their passbook (tsucho), and bank statement for the deposit of capital
• Declaration of compliance
• Company seal
• Registry certificate of the parent company issued within three months 
• Notarized Signature attestation of the parent company’s representative

Post-registration process:

The post-registration process is the final step involving satisfying the specific obligations and requirements by the entrepreneurs after successful company registration in Japan. The main criteria to satisfy in this stage are:

• Opening a corporate account with a local bank
• Getting the required business operating licenses 
• Signing business or employment contracts in the company’s name
• Appointing auditors for the company
• Finding out the required tax obligations 
• Registering for employee provident fund

Entrepreneurs must obtain the correct visa or work permit to start a business in Japan. For the last few years, Japan has been trying to introduce new processes to simplify the process of foreign investment. As a part of that initiative, Japan allows foreign companies to operate without any local directors and has introduced new work permits and visas.

• A Business Manager Visa is an employment eligibility status for foreigners to commence new businesses in Japan, manage already established companies, or act as a representative director on behalf of parent corporations. This visa is valid for four months only but can be extended for a year. Entrepreneurs holding a different type of visa can apply for a change of residence status to a 1-year Business Manager Visa.

• A Start-Up Visa is valid from 6 months to a year and is granted post-approval of the submitted business plan in Japanese to the relevant local authorities. It is only applicable in some cities, which can be found on the website of the Ministry of Economy, Trade, and Industry (METI). It acts as a temporary residence permit for entrepreneurs who lack sufficient funds to apply for a Business Manager Visa.

• The Investor Visa has a varying validity period of 1, 3, or 5 years which can be prolonged depending on the business’s profitability and other performance metrics. To obtain an Investor Visa, entrepreneurs need to establish their company and apply for a Certificate of Eligibility (COE). Upon receiving the COE, they can exchange it for the investor residence status at any Japanese consulate.

Apart from several grants for starting a business in Japan, the Japanese government has set up ‘Invest Japan’ offices in relevant ministries, which help them set up business in Japan and act as single contact points for foreign entrepreneurs looking for information. Entrepreneurs can utilize the wide domestic and foreign network of the Japan External Trade Organisation (JETRO). It has more than 70 overseas offices and 50 offices in Japan. 

Setting up a new business can pose quite a challenge in a new country. Failing to comply with the tax laws and other rules and regulations can get your business proposal rejected by the foreign government. Hence, Multiplier can act as a PEO to ensure that the smaller details of establishing a company are taken care of.

The in-house expert team of Multiplier is well-versed with the local regulations, registration process, and taxation process of any country you aim to set up your business in.