Introduction
Japan is a country that is politically stable and has gained international trust in its legal system and accounting standards. It offers a highly transparent business environment in Asia, making the establishment of a Japanese corporation an effective means for foreign companies and investors to directly enter the local market and enhance their brand value. On the other hand, setting up a company in Japan requires a wide range of preparations, including legal procedures, tax notifications, and registrations related to social insurance. This article systematically explains the process of company establishment in Japan and practical considerations for international tax experts and corporate representatives considering overseas expansion.
1. Types of Companies That Can Be Established in Japan
In Japan, there are mainly four types of company structures that can be established: "Kabushiki Kaisha (KK)", "Godo Kaisha (GK)", "Gomei Kaisha", and "Goshi Kaisha". Among these, the most commonly chosen in practice are Kabushiki Kaisha and Godo Kaisha. Kabushiki Kaisha has a high level of social credibility and the potential for future public listing, making it suitable for companies with many external transactions or large-scale businesses. In contrast, Godo Kaisha is preferred for its low establishment costs, flexible decision-making, and as a form for internally focused businesses or foreign-affiliated subsidiaries.
There are no restrictions on the minimum capital, and it is possible to establish a company with just 1 yen. All investors have limited liability, and personal assets are not subject to company debts.
2. Basic Steps for Company Establishment
The establishment of a company in Japan typically proceeds through the following six steps.
First, determine the business structure, company name, and location of the head office. It is acceptable for the company name (trade name) to be duplicated nationwide; however, to avoid confusion due to similar trade names, it is advisable to conduct a search at the Legal Affairs Bureau in advance.
Secondly, create the articles of incorporation. In the case of a corporation, notarization at a notary office is required, and using electronic articles of incorporation can save 40,000 yen in stamp duty. A limited liability company does not require notarization of the articles.
Third, transfer the investment funds to the promoter's personal account and prepare a copy of the bankbook. This will serve as an alternative to the capital payment certificate.
Fourth, prepare the registration application documents and submit the articles of incorporation, the founders' resolution, the seal registration form, and other necessary documents to the Legal Affairs Bureau. The registration will be completed approximately 1 to 2 weeks after the application date, and this date will be the company's "establishment date."
Fifth, after the registration is completed, various notifications will be made to the tax office, prefectural tax office, and municipal office.
Overall, the period from preparation to completion of registration is approximately 2 to 4 weeks.
3. Tax Procedures Required After Establishment
After the company is established, it is necessary to submit multiple tax notifications within a certain period.
In relation to national taxes, it is important to submit the "Notification of Incorporation" within two months from the date of establishment, along with the "Application for Approval of Blue Return" within three months or by the earliest date of the first fiscal period's end. The blue return offers tax benefits such as the carryover deduction for losses, which is why almost all corporations apply for it.
In addition, if you hire employees, you must submit the "Notification of Establishment of a Payroll Office" within one month after its establishment.
Regarding local taxes, it is necessary to submit the corporate establishment notification to the prefectural tax office and the municipal office within one month, respectively.
Furthermore, if the capital is expected to be over 10 million yen or if the taxable sales are expected to exceed 10 million yen, it is advisable to submit the "Notification of Selection of Taxable Business Operator" for consumption tax to the tax office and also register for the invoice system.
4. Procedures for Social Insurance and Labor Relations
If a corporation is established, the obligation to enroll in social insurance arises at the time of paying the representative's compensation. Health insurance and employee pension must be processed at the pension office, and the representative director themselves is also subject to enrollment.
When hiring employees, it is necessary to enroll in workers' compensation insurance and employment insurance, and to submit notifications to the Labor Standards Inspection Office and Hello Work, respectively. These are related to the security of employees, so applications must be made within the legal deadlines.
Additionally, there is an obligation to submit the payroll report to the municipality where the employees reside at the end of the year.
In the case of foreign business owners, the presence or absence of social insurance enrollment is subject to review when renewing the "Management and Administration" visa, making proper enrollment essential.
5. Considerations for Foreign-affiliated Companies
When foreign companies establish a corporation in Japan, there are additional practical considerations to keep in mind.
First, although there are no restrictions on the nationality of directors, it is desirable to have at least one representative director with an address in Japan for the purposes of mail and administrative procedures.
Next, when a foreign representative is appointed, it is necessary to obtain or change the residency status to "Management and Administration."
Regarding the opening of bank accounts, the review process has become stricter in recent years due to the strengthening of anti-money laundering measures. It is often required to disclose information about the ultimate beneficial owner (UBO) and to provide documentation explaining the actual business operations, so adequate preparation is necessary.
In addition, if transactions such as dividends, interest, or royalties occur between the parent company and the Japanese subsidiary, there may be a possibility of withholding tax reduction under the tax treaty. In that case, it is required to submit a "Notification Regarding Tax Treaties" to the tax office.
6. Conclusion
Establishing a company in Japan involves multifaceted procedures such as legal, tax, and social insurance matters; however, the system is well-organized, and if the correct steps are followed, it is possible to set up a corporation in a short period of time.
Especially for foreign companies, support from experts who understand international taxation, accounting, and legal matters as an integrated whole, rather than just simple registration services, is directly linked to long-term success.
Establishing a system in the early stages of company formation leads to reduced tax risks and stabilization of management later on.
When entering the Japanese market, it is important to optimize the business structure from an international tax perspective, not just to limit oneself to formal registration procedures.