Starting Business in Japan

Resident representative is not necessary for Japanese corporations

2018-09-07T15:55:00.001+09:00

A resident representative is no longer necessary for Japanese corporations (Note: A resident representative is still necessary for a branch registration in Japan.).

I keep receiving emails regarding this residency requirement and replies that you no longer need a resident representative (except branch registrations). However, one thing you should note is that you will have difficulty in opening a corporate bank account. Most of the Japanese banks request a resident representative as one of the must requirements to open an account.

Once you open a corporate bank account, you may be able to remove the resident representative, but it depends on each bank. First, you should contact your bank regarding this residency requirement before removing the resident representaive. Removing the resident representative without consulting your bank may result in the freeze of the account in the worst case.

How the change and filing of directors are done in Japan

2018-02-05T23:22:00.001+09:00

There are some procedural aspects that should be considered before filing an application for registration regarding the change of representative directors in Japanese companies.

Here I explain the details using a sample case.

Sample Case

- The company is a Kabushiki Kaisha (the most common type of companies in Japan).
- The company has a board of directors.
- There are three directors and one auditor at the company.
    Director A (=Representative director)
    Director B
    Director C
    New Director D (=New representative director)
    Auditor E
- At an annual shareholders' meeting, the term of office of current (representative) directors expire.
- The new representative director takes over the office of current representative director.
- The current representative director leaves the company.

The procedures are as follows:

Option A

1) Annual shareholders' meeting - all the (representative) directors' term of office expires and directors (B, C, and D) are appointed

2) Board meeting - A new representative director D is appointed among from the directors BCD.

Note: Director A's term of office expired at the close of shareholders' meeting, and therefore, he was not present at the subsequent board meeting.

Option B

1) Annual shareholders' meeting - all the (representative) directors' term of office expires and directors (A, B, C, and D) are appointed.

2) Board meeting - A new representative director D is appointed among from the directors ABCD.

3) Director A resigns after the board meeting.

Note: Director A was reappointed at the shareholders' meeting.

In Option B, the term of office of Director A expires once, but he is reappointed at the shareholders' meeting as the director. And he resigns on the same day after the board meeting. Why does he do such a messy affair?

The reason is that you can save troubles of directors. There is a rule that you can omit directors' certificates (except a new director) at the filing of the change of directors, if the current representative director (A) is present at the board meeting to appoint a new representative director (D).

If you choose Option A, you need to submit all the directors' notarized certificates of signature (if a director is a Japan resident, he submits a certificate of seal). The director should go to a notary office and get the certificate notarized. It is difficult for a busy director to do it.

If you choose Option B, the only person who submits the certificate is Director D, and the other directors do not need to submit it. They just need to sign (or put their seals on) the documents. If this is attractive to your company, this option is worth adopting.

Corporate seals in Japan

2015-02-27T18:03:00.000+09:00

In Japan, a seal (stamp) is commonly used on a document to show that it is understood and made in an authentic way. As for the corporate seal, we usually make three types of seals such as:

- Representative seal
- Bank seal
- Kaku-in (square seal)

A representative seal is registered at the Legal Affairs Bureau (Houmu Kyoku) and therefore, you can obtain the certificate of seal impression which is used at important transactions (opening a bank account, executing a contract of a big deal, company/property registration, etc.). Each representative can register his/her representative seal at the Legal Affairs Bureau.

A bank seal is registered at banks and is used for bank transactions.

A Kaku-in is a square seal used rather informally than the other two. It is placed on invoices, or decoratively placed together with the representative seal on contracts.

You can use one seal for all three purposes to save cost.

Keep your seals in a secure place. A person who has the seal (and some other information) can withdraw your fund from your bank account, and change the registration of your company before you know it.

Resident representative requirement for the company registration (follow-up)

2015-01-20T11:58:00.000+09:00

In my previous blog entry, the news article I mentioned seemed to be hastily posted. There has been no follow-up report from the newspaper company. However, it is certain that the Ministry of Justice is still studying the way how they can react on this issue of modifying the rule of resident representative when registering a company/branch.

On the other hand, there is a progress on Business Manger visa. Nikkei Newspaper reported that, starting from coming April, the Government will start a new type of Business Manger visa that is valid for four months. Currently, there are Business Manager visa for longer term (1/3/5 years) but it is difficult to obtain such a visa for a regular investor. 4-months Business Manager visa has less requirements.

Currently, foreign nationals/companies wishing to come to Japan and incorporate a company has to have a resident representative and office address beforehand. These are heavy burden for common investors.

With the 4-months Business Manager visa, you can come to Japan without having resident representative and office address. After entering Japan, you can take up your abode, register you as a foreign resident, and complete the incorporation processes. If these processes are done withing the time limit of four months, you will be able to renew the Business Manager visa with longer period of validity.

In short, even if the requirement of resident representative remains, foreign nationals/companies with enough fund to travel to Japan and rent a residence can obtain the 4-months Business Manager visa and start preparation of incorporation/branch registration in Japan.

Resident representative requirement for the company registration to be abolished

2014-12-03T00:53:00.000+09:00

Currently, a company incorporated in Japan and a branch office registered in Japan must appoint a local resident representative, and it has been the problem for the foreign companies considering to enter into Japan market. However, it is reported that the Ministry of Justice will lift this regulation by the end of this year.

This will give a big boost to the foreign companies planning to invest in Japan.

At the same time, the requirements for Investor/Business Manager visa are also to be loosened. The details will come out by the end of March, 2015.

The source is here (sorry, Japanese only).

Basic Requirements and Facts for Japanese Companies

2014-10-13T18:03:00.000+09:00

Company Name - Prior examination of a company name is not required, but an application to form a company with the same name and address with an existing company will be rejected. You can use alphabets, Arabic figures, Japanese Characters (Hiragana, Katakana, and Kanji), and some marks (symbols). The Japanese word to indicate a type of corporation should be included in the company name. For example, "ABC Kabushiki Kaisha".

Directors - Japan requires at least one director, with no upper limit of the number of maximum directors. A company cannot be a director. Only a natural person can be a director. Nationality is not a requirement. There are two types of directors. One is director and the other is representative director. A representative director is a director with representation right of the company and should be appointed from among directors. ~~At least one representative director should reside in Japan.~~ Board meeting for directors can be held anywhere in the world or at multiple places using telephone or video conference system, or even a unanimous written consent of directors can be a replacement for the board resolution if it is included in the Articles of Incorporation of the company. There is no need to have a board at a company. A company with a board should have at least three directors and one statutory auditor. In case of a company without board, there is no such requirement. One director is enough, and the regulations regarding the board meeting do not apply.

Shareholders - Any natural person, judicial person, or non-judicial organization of any nationality can be a shareholder, though those who are going to conduct a certain type of business (ex. defense industry, utility, etc.) or of a certain country should obtain a prior permission. There are no lower and upper limit for the number of shareholders. Shareholder meetings can be held anywhere in the world or at multiple places using telephone or video conference system, or a unanimous written consent of shareholders can be a replacement for the resolution of meeting of shareholders. In contrary to the board meeting, in case to hold a shareholders resolution in the form of unanimous written consent, it is not required to have a related clause in the Articles of Incorporation.

Company Secretary - Unlike many other countries, a Japanese company does not need to appoint a company secretary. It is not in the Japanese legal system.

Share Capital - For Japanese companies, a shareholder is requested to invest at least one Japanese yen. If there is only one shareholder at a company, the minimum share capital is JPY1. If there are two shareholders, the minimum is JPY2. Sometimes, the minimum share capital is stipulated in laws other than the Companies Act. Ex. a company generally has to have at least JPY 5 million or more as the share capital, to apply for a Investor/Business Manager Visa. Share capital should be expressed in the Japanese yen but can be paid in foreign currencies or in the form of contributions in kind. The share capital in cash should be deposited at a Japanese bank account in case you incorporate a Kabushiki Kaisha (KK), but in case of a Godo Kaisha (GK, Japanese LLC), you do not need to use a Japanese bank. You can just pay it to the representative of the company in cash.

Registered Address - Japanese companies must supply a local Japanese address as their registered company address. Registered addresses cannot be a PO Box, they are required to be a physical address.

Public Information - The Japanese Companies Act requires that details about directors (representative directors should provide their personal addresses), auditors and other officers (if any) are public information. A Company must file details with the Legal Affairs Bureau in its district. KKs and branches of foreign companies are required to supply the method of public notice (ex. announcements of financial results) in the company registry. Shareholders are not public information in the case of KKs. On the other hand, operating members (=shareholders) in GKs (LLC) must disclose their names. Representative members of GKs must disclose their names and addresses.

Taxation - There are many kinds of taxes in Japan such as corporate tax, corporate resident tax, withholding tax, consumption tax and so on. It would be better to consult an Japanese accountant before you start forming an entity or registering a branch in Japan. One thing I would like to point out here is a company should pay corporate resident tax of JPY70,000 per year (the amount is for the company with the share capital below JPY 10 million), regardless of the profit you make in Japan.

Ongoing Compliance - Companies including branch offices or other entities in Japan are required to prepare and maintain accounts. Small companies do not need to undergo an audit on their accounts and operations.

Every company is required to file an annual tax return with the tax authorities (for a bigger company, more than once a year). The commercial registration of a KK needs to be renewed at least once in ten years. An annual general meeting must be held once a year, soon after the close of annual accounts. These two regulations do not apply to a GK.

Others - I wrote this article based on the regulations on Kabushiki Kaisha, the most common form of company in Japan. Therefore, different rules apply to other entities such as Godo Kaisha (Japanese LLC) or branch registration. It is recommended to take a professional's advice before registering your company/branch in Japan.

*Requirement of residency of representative was abolished on March 16, 2015, and you no longer need to have a resident as representative of companies (KK/GK). However, you still need to appoint a resident representative if you register a branch office in Japan.

Japan's regulation on bitcoin

2014-05-14T14:09:00.000+09:00

It is reported that the Japanese government is considering not to control the transactions using bitcoins but just to introduce a system where bitcoin exchangers are requested to file a prior notification to the government before they do business.

Article from Mainichi

==
Additional information on Jan. 26, 2018.
Since Oct. 2017, the Japanese government launched the cryptocurrency exchange regulation, making the exchange completely legal when a company obtains the license.

Tokyo's Special Zone for Asian Headquarters

2013-05-22T13:32:00.002+09:00

Starting from April 1, 2013, Tokyo began to assist foreign companies to establish their headquarters in Tokyo. Foreign companies which registered their headquarters in this special area can enjoy the following benefits:

- Effective corporate tax rate shall be cut down to 28.9%, compared with the normal rate of 38%.
- Local government subsidizes half of company establishment cost such as fees related to obtaining "status of residence", fees for registering the establishment of the headquarters/R&D center and other relevant filing procedures and recruitment costs.

There are some conditions to apply for these subsidies. Please contact us for details.

Update your company registration of officers

2013-03-27T11:42:00.001+09:00

Don't forget to update your company register of officers of your company regularly.

A KK (Kabushiki Kaisha) is the most popular form of corporation in Japan, and it should stipulate the term of office of directors (and auditors, if any) in the Articles of Incorporation. You can decide the term of directors from one year up to ten years, and once stipulated, you are requested to follow the rule.

Suppose you stipulate the directors' term of office as two years, the Articles of Incorporation usually have the following phrase:

Article XX The term of office of directors shall expire at the close of the ordinary general meeting of shareholders for the last business year that will end within two years after their election.

To conform with this article, you are requested to biyearly elect directors at the ordinary general meeting of shareholders, and register it.

If you don't do this or filing is delayed, the representative of the company shall be punished by a non-penal fine. The amount of fine is usually around JPY100,000.

Corporate Auditor in Japan

2012-09-18T22:32:00.001+09:00

Many people ask me the roles and liabilities of corporate auditors in Japan. The following article of Japan Corporate Auditors Association replies to such questions from various points of view.

About Corporate Auditor

Please note that there are a (corporate) auditor (Kansa-yaku) and an accounting auditor (Kaikei-kansa-nin) in Japanese companies. The names are similar, but the role of the two institutions are different. The article I introduced here is about the former one.

An accounting auditor should be a licensed Japanese accountant or an accounting corporation. Therefore, if you are asked to be an auditor, it is usually the corporate auditor.

Increase of Consumption Tax

2012-06-27T20:19:00.001+09:00

Japan parliament passes sales tax rise; ruling party splits (Reuters)

A historic bill to raise the consumption tax passed the Diet. Currently, the Japanese consumption tax (sales tax) rate is 5%. The rate will be increased to 8% in April of 2014, and reach 10% in October of 2015.

I agree to the idea that the direct-indirect tax ratio should be rectified in the long run, but increasing the rate at this economically tough time will undermine the unstable Japanese economy.

Downloading illegal contents are subject to punishment

2012-06-17T16:21:00.001+09:00

On June 15, amendment to the Copyright Act was approved at the The House of Representatives, and is expected to pass the Diet soon.

Downloading illegal contents had been illegal from before, but there was no punishment.

By this amendment, an act of downloading the illegal contents such as illegally uploaded music files shall be punishable by imprisonment with work for a term not more than two years or by a fine of not more than two million Yen.

The amendment also made ripping a copy-protected DVD beyond the scope of reproduction for private use.

Punishment for ripping has not been introduced yet, while providing software to rip copy-protected DVDs became punishable.

Edit (June 22):

This change will be effective from October 1, 2012.

Opening a bank account becoming difficult

2012-06-02T23:24:00.000+09:00

Due to regulations to prevent money laundering, opening a bank account in Japan has become increasingly difficult, especially for a dummy company.

Of course, Japan has to comply with FATF recommendations, but the recent tightening of regulations made it very tough to open a bank account, even for the companies doing legitimate business.

The banks usually request the evidence of actively doing business such as the office lease contract, utility bills paid by the company, and so forth.

If you do have such a document, it is an effortful task, though you can still do it after enduring hardships.

New website for those who start a business in Japan

2011-02-27T21:22:00.000+09:00

Our office launched a new website as below for those who start a business in Japan.

Ando Legal Office

It consists of flow charts to establish a company, branch, etc., and information useful for beginning/operating your business in Japan, such as outline of Japanese visa and fee schedule of our services.

I would appreciate your your comments and requests to make this site more beneficial to you.

Japan considering reduction of corporate tax on foreign companies

2010-11-01T15:04:00.001+09:00

Nikkei Newspaper reported, on October 21, 2010, that the Japanese government is considering a tax reduction for foreign companies. The overall tax break will be 5% reduction, but on specific sectors like high-tech and medical companies with foreign capital may receive favors of 10%-15% reduction, to attract investment from overseas.

The idea is under consideration, and I am personally pessimistic about the possibility.

Anyway, I will post another article when it is realized in the coming year.

Recruitment Business in Japan

2010-08-19T11:49:00.001+09:00

I received several inquiries on recruitment business since the start of this year.

In Japan, you have to have the license to start a recruitment business. The license can be obtained by a company or by an individual. There are two types (these can be subdivided into four) of licenses on human resources business as below.

1) Employment placement service (job-search, headhunting)
a) Fee-charging employment placement
b) Free employment placement

2) Worker dispatching service (temporary staffing)
a) General worker dispatching (Ippan Haken)
~~b) Specified worker dispatching (Tokutei Haken)~~

The main requirements to start the fee-charging employment placement business are as follows:

- Amount of net assets

An applicant is required to have net assets of JPY 5 million x number of offices or above.

- Amount of cash or bank deposits

An applicant has to have JPY1.5 million + (JPY600,000 x (number of office -1)) or above by cash or bank deposits.

- Appointment of employment placement manager

- Office space
The office space for employment placement business should be more than 20m². But if the business is only done in the Internet and there is no need to have an interview/meeting with the potential employee, the size of office is not important.

The main requirements to start the general worker dispatching undertaking are as follows:

- Amount of net assets

An applicant's net assets must be JPY20 million x number of office or above, and such net assets should be more than one-seventh of total debt.

- Amount of cash or bank deposits

An applicant's cash or bank deposits must be JPY15 million x number of office or above.

- Appointment of responsible person acting for dispatching undertaking

- Office space

The office space for general worker dispatching undertaking should be more than 20m².

Regarding 1) b) free employment placement, I skip the explanation because commercial companies are not interested in this business (usually done by non-profit organization such as school or university).

Specified worker dispatching in the above 2) b) is worker dispatching undertaking in which the dispatched workers (limited to those who become the objects of worker dispatching carried out in the course of trade) are composed solely of regularly employed workers. There is no assets requirement for specified worker dispatching.

There are other requirements and some of them vary according to the situation of each case. Please contact us for details.

=====
Updated on Oct. 20, 2016.
Tokutei Haken license was abolished. You will no longer be able to obtain it. But currently, there is a special measure for small companies so that they can start the temporary staffing business from a small capital.

SHAKAIHOKEN-ROUMUSHI (Certified Social Insurance and Labour Consultant)

2010-07-25T16:00:00.002+09:00

SHAKAIHOKEN-ROUMUSHI handles the consulting and paperwork on pension, labor and social insurance.

If they pass a certain examination, they can mediate a dispute between labor and management.

The typical issues one may need their assistance will be:

- notification to relevant authorities when a company hire/fire employees
- preparation of employment regulations
- seeking for government subsidies regarding hiring/keeping employees
- payroll calculation

If you look for SHAKAIHOKEN-ROUMUSHI, I encourage you to take note of:

- The experts on pension are rare. If you would like to have a consultancy service on pension, you should look for pension experts among SHAKAIHOKEN-ROUMUSHI's.
- If you are a owner of a business and ask only payroll calculation, it is all right to select SHAKAIHOKEN-ROUMUSHI only by their fees. But their true existential value is on the skill of solving labor-management dispute. This skill owes much on experience. I recommend you to hire good SHAKAIHOKEN-ROUMUSHI even if his fee is a little bit expensive.

GYOSEI-SHOSHI (Administrative Scrivener, Immigration Lawyer)

2010-06-19T14:28:00.000+09:00

Practice areas of GYOSEI-SHOSHI focus on the business licenses and Japanese visa. For example, they will help you:

- to obtain the certificate of parking space (when you own a car in Japan, you need to have this certificate to prove that you have the parking space for the car.)
- to open a restaurant or game hall
- to start industrial-waste disposal business, scrapper, construction business or estate agency
- to obtain Japanese visas or Japanese nationality
- to draft a contract

There are a lot more business licenses they can handle.

There are so many business licenses they can handle but they are not always experts for every area. If you ask a GYOSEI-SHOSHI lawyer to get a governmental license/approval, confirm he/she is an expert for the specific business area.

SHIHO-SHOSHI (Judicial Scrivener, Solicitor)

2010-06-13T18:16:00.000+09:00

SHIHOSHOSHI will represent you on the registration at the Legal Affairs Bureau (Houmu Kyoku) such as real estate registration, incorporation, change of company structure, renewal of directors. Their work includes the preparation of documents for court trials, and if the amount is below JPY1.4 million, they can represent you on litigation and contract negotiation.

If you are planning to set up a company or register a branch in Japan, a Shiho-Shoshi lawyer who can communicate in English (or your language) will be helpful and informative on the procedures.

Japan Federation of Shiho-Shoshi Lawyer's Associations

ZEIRISHI (Certified Public Tax Accountant)

2010-06-06T18:48:00.000+09:00

ZEIRISHI provides accounting services for individuals, companies and other legal entities. Usually, their services include representation in tax filing, preparation of tax documents, tax advice, bookkeeping, and so on.

If you are looking for someone who assists your tax filing, ZEIRISHI is the appropriate professional.

From its origin, ZEIRISHI can be divided into four kinds.

1) People who passed the Certified Public Tax Accountant examination
2) OB/OG of tax office
3) Masters who finished the postgraduate courses on accounting subjects (they are exempted from some categories of the Certified Public Tax Accountant examination. If they finish both the accounting courses and tax courses, they are exempted from all subjects of the examination.)
4) Attorney at law or Certified Tax Accountant

Of course, ZEIRISHI categorized in 1) is the most knowledgeable on tax laws.

ZEIRISHI of above 2) type is knowledgeable on the area they experienced when they were officials at the tax office, but not on other matters.

Type 3) is likely to lack the knowledge of tax laws, but some of them are successors of big accounting firms, and their offices are with a lot of experienced staff :-)

People in above 4) category are, in a way, brilliant but may lack the expertise on tax laws. I you are going to ask for litigation/contract/IPO consulting together with accounting, it may be convenient to hire them. They can offer one-stop service for that.

Japan Federation of Certified Public Tax Accountants' Associations

KONIN KAIKEISHI (Certified Public Accountant)

2010-05-15T19:59:00.000+09:00

The work of KONIN KAIKEISHI (Certified Public Accountant) is to audit financial statements and to advise on tax and accounting. They can register as ZEIRISHI (Certified Public Tax Accountant) as well. In this sense, KONIN KAIKEISHI can also provide accounting services including filing of tax return.

Many Japanese laws require the companies to have audit by KONIN KAIKEISHI.

Japanese Institute of Certified Public Accountant

BENGOSHI (Attorney at law)

2010-05-15T17:58:00.004+09:00

BENGOSHI (attorney at law) is a legal practitioner in Japan, qualified to practice in almost all fields of legal services in Japan. Simply a counterpart of attorney in other parts of the world.

Although the license of BENGOSHI is almighty in legal services, their actual works frequently focus on the litigation, corporate and financial services.

If you have a big case, BENGOSHI will be the best choice.

If the legal service you need is not so big or mainly on license, registration, accounting or social insurance, other lawyers may be able to meet your requests better and at a low fee.

Japan Federation of Bar Associations

Legal profession in Japan

2010-02-13T10:15:00.000+09:00

One of the characteristics of Japanese legal system is that there are several licenses of legal professions. It seems to be difficult for people in foreign countries to figure out which is the best lawyer for them.

I will keep moving with this topic during the next few entries, and explain the differences of each licenses and how to effectively use the lawyers in Japan.

Moreover, when I am asked to do some legal job and it is not my scope of practice, I would be glad to introduce other lawyers, free of charge. If you are unsure about proper lawyers, feel free to ask me.

Outline of Public-Interest Corporation System in Japan

2010-01-14T19:41:00.001+09:00

I added English pages to my website on Japanese public-interest corporation system. You can check what kind of organizations exist in Japan and points to be considered when you establish a charitable/non-profit organization in Japan.

Guide to Public-Interest Corporation

Tax filings after establishing your company/branch in Japan

2009-11-18T16:29:00.001+09:00

After establishing a company or branch office in Japan, you have to lodge filings with Taxation Authorities, Local Government, Labor Standards Inspection Office, Public Employment Security Office, Social Insurance Office, and so on.

The most important tax filing is Application for Blue Form Tax Return. Even if your business is small at the beginning, you should not miss it. This application should be filed within three months after establishment of the company/branch (if the initial taxable year ends within three months, the filing should be made before the end of taxable year).

If the blue form status is granted, net losses under income in each business year can be carried forward for the next seven years. If you do not apply for the blue form tax return, losses cannot be carried forward.

The procedure is here (sorry, Japanese only).

Besides above, there are several tax filings that may be beneficial to you. For further information, I recommend to hire an accountant for consultation.