Hello. My name is Takada, Immigration attorney. With the Corona Disaster over, we have been receiving inquiries from clients who are considering expanding their business to Japan.
Today, I would like to explain what kind of entity should be established for a foreigner or foreign corporation to expand into Japan, and the characteristics of three possible entities.
First, there are three types of business entities that a foreigner or foreign corporation may establish to conduct business in Japan: (1) a representative office, (2) a branch office of a foreign corporation, or (3) a Japanese corporation separate from a foreign corporation.
(1) Representative office of a foreign corporation
The main activities of the representative office are research activities in the Japanese market, advertising and promotion, and procurement and storage of goods for the foreign corporation. It is not allowed to conduct revenue-generating activities or sales activities in Japan.
Advantages
No registration is possible, so costs are not so high, and can be set up by renting an office.
Since the company cannot engage in profit-making activities or business activities, it is not required to pay corporate tax or income tax in Japan.
Disadvantages
Cannot be registered.
Cannot engage in profit-making activities or business activities.
The representative must sign a contract in his/her own name.
It is difficult to open a bank account in the name of the representative office, and the representative must open an account in his/her own name.
Status of Residence
Foreign expatriates working at a representative office are not allowed to engage in profit-making or business activities, and salaries for activities conducted in Japan are remitted from the foreign parent company to the name of the representative of the representative office in Japan. However, depending on the size of the foreign corporation in the home country, it may be possible to obtain permission for "intra-company transfer" or "technical, humanities, or international business".
(2) Japan Branch of Foreign Corporation
As a Japanese branch of a foreign corporation, the Japanese Branch can conduct business activities utilizing the creditworthiness of the foreign corporation in the home country.
Advantages
The Japanese branch can utilize the creditworthiness of the foreign corporation in its home country.
No need to prepare articles of incorporation or transfer capital when registering.
The branch can open a bank account in its own name and rent office space.
Even if the Japanese branch incurs a loss, if the foreign corporation in the home country makes a profit, the loss can be offset by the foreign corporation's profit, thus reducing the amount of tax paid by the foreign corporation.
Disadvantages
A Japanese resident is required as a "representative in Japan.
Approval of the foreign corporation is required when making decisions.
The Japanese branch must pay corporate tax and consumption tax.
When the location of the head office or directors of the foreign corporation in the home country changes, the Japanese branch needs to go through the registration procedures for the change.
In the event of business failure of the Japanese branch, the foreign corporation in the home country may be at risk of incurring liabilities.
When conducting a business that requires a license or permit, many documents must be ordered from the foreign corporation in the home country and translated when applying for the license or permit.
If the capital of the foreign corporation is 100 million yen or more, even if the Japanese branch is a small company, it will be treated as a large corporation instead of a small or medium corporation under the Corporate Tax Law, and the amount of tax payment will be higher.
Status of Residence
Generally, a foreign representative who manages a company may obtain "Business Manager" status, and a foreign employee may obtain "Intra-company Transfer" or "Technical/Humanities/International Services" status, etc. before engaging in activities. If the size of the company is quite large, a foreigner who is in charge of managing the business may obtain the status of "Business Manager".
(3)A Japanese corporation separate from the foreign corporation
(A joint stock company or limited liability company is common.)
This is a more common form of business expansion in that it has fewer disadvantages than (2) above.
Advantages
The company can be registered as a corporation. (Articles of Incorporation and capitalization are required.)
A bank account in the name of the Japanese corporation can be opened.
The Japanese corporation can make its own decisions without the approval of the foreign corporation.
Disadvantages
Capital must be prepared (foreigner must be a representative of the Japanese corporation). (In order for a foreigner to become a representative and engage in management activities in Japan, he/she must have a capital of at least 5 million yen.)
Status of Residence
Generally, a foreign representative who manages a company may obtain "Business Manager" status, and a foreign employee may obtain "Intra-company Transfer" or "Technical/Humanities/International Services" status before engaging in activities. If the size of the company is considerably large, a foreigner who works in the management of the business may obtain the status of residence of "Business Manager.
For more information about work visas in Japan, please refer to this page.
