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Expats Owning and Operating a Business in Japan

Author: Jim Newham
Submitted: March 2015

Overall, Japan is a good country to do business in. It was ranked 29th out of 189 countries in the World Bank’s 2015 Ease of Doing Business Survey. The rank for starting a business was lower, however, at 83rd, with the complicated taxation system making things difficult for foreign entrepreneurs. However, help is available, from government agencies such as the Small and Medium Enterprise Agency and business associations such as Venture Japan. For best results, make sure to do thorough research and start planning well in advance!

 

Immigration Matters

If you want to run a business in Japan, you must first ensure you have the legal right to live and work in the country. You will generally need to obtain the correct type of working visa before you can operate a business in Japan. For more information on working visas and immigrating into Japan in general, see our Immigration section. Note that the requirement for at least one member of the company to be resident in Japan has recently been abolished.

 

Business Plan

Before starting your own business, you should create a business plan that gives you the best possible launch into the competitive Japanese market. First, make sure you have a clear view of what it is you want to do, and how feasible this business idea is. You will need to research the businesses that already operate in your field in the local area, and determine your potential customers and partners. Additionally, you should think through your financing options.

Based on your research, you can then develop a full business plan of around 3-5 pages. This should set out your business objectives, target market and commercial strategy, and include potential obstacles and financial projections.

 

Legal Structure

Another important step is to decide which legal structure your business will adopt. A legal structure determines the benefits you enjoy and the nature of your legal, financial and tax obligations. The  most common business types in Japan are given below.

Self-Employed

The advantage of setting up your business as a self-employed person is that it is cheap and easy to set up. Furthermore, you have full ownership and control over the business, and that all after-tax profits are yours. On the other hand, you are personally liable for all the losses your business makes, and have additional responsibilities, such as keeping business records.

Partnership

There are two different business structures with the name ‘partnership’ in Japan. In a voluntary partnership, each partner has unlimited liability, though they are taxed personally and the partnership is not subject to corporation tax. A limited liability partnership (LLP) requires at least two members (this can include companies), one of whom must be resident in Japan. Though this is not considered a legal entity, it can conduct most forms of business. None of the partners is fully liable for debts and liabilities the partnership may incur.

GK Company

A gōdō kaisha (literally ‘amalgamated company’), normally known in English as a ‘GK company’ or simply ‘GK’) is similar to the US limited liability company and the German GmbH. The GK is deemed a legal entity, and limited liability is extended to all investors. The GK company can undertake all regular business practices and has a more flexible structure than the KK does. Full financial reporting is not required.

Joint-Stock Company KK)

The main other legal structure in Japan is the joint-stock company or corporation (kabushiki kaisha or KK). This is for those who want to set up a major operation in Japan under the auspices of their existing company. This is generally done by existing large businesses; the Japanese corporation is set up as a subsidiary of the parent corporation and has limited liability. The company must have at least one shareholder, but there is no minimum start-up capital.

Other Structures

Existing companies intending to expand into Japan can choose from two legal structures. A representative office does not give a company the right to trade in Japan and is mostly used to establish a presence in the country and conduct market research. Setting up a branch in Japan enables your business to operate as a normal company, though in this case registration is required, so setup takes longer. Furthermore, the branch has unlimited liability.

Setup and Registration

Once the above stages are complete, you should be ready to set up your company. At this point you should consider hiring a lawyer, unless you happen to be an expert of Japanese business law. Clearly it is an advantage if the lawyer is bilingual. You will need to register your business at the Civil Affairs Bureau. Next, all businesses have to register for corporation tax and in some cases other taxes at the National Tax Agency. To read more about tax for expats in Japan, see Taxation. For more information about setting up a business in Japan, see the guide from Baker Tilly International.

 

Employing Staff

If you want to employ someone (including yourself) to work in your business you will have to register as an employer at the local tax office. As employer, you will have to ensure that your business complies with Japanese labour regulations. You should familiarise yourself with different types of contracts, minimum wage requirements, equal opportunity policies, work permits, insurance payments and recruitment options. Note that if you employ freelance workers, you will not have so many legal obligations as they will be liable to pay tax and insurance themselves.

 

 

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