Incorporating a Business in Japan: A Summary Guide for Foreign Nationals and Overseas Residents
Establishing a company in Japan is an exciting opportunity to access one of the world’s largest and most stable markets. However, the process can be complex, especially for foreign nationals or companies with overseas directors. This guide aims to provide an outline to help you navigate the process of incorporation in Japan effectively.
TL;DR: Here’s my bottom-line recommendation:
While it is technically possible to incorporate a company in Japan without professional assistance, I strongly recommend enlisting the help of a professional. The process is still heavily paper-based and requires manual handling, making it challenging to manage remotely—especially without on-the-ground support in Japan.
Although the steps outlined in this article may appear straightforward, the process involves numerous complexities. At the end of the article, you’ll find a summary highlighting some of these intricacies and the lessons I learned from setting up five entities in Japan myself.
Table of Contents
- Introduction to Business Entities in Japan
- Representative Office
- Branch Office
- Subsidiary (KK or GK)
- Steps to Incorporate a Business in Japan
- Preparation
- Registration Process
- Post-Registration Compliance
- Key Considerations for Foreign Nationals
- Residency Requirements
- Documentation and Translation
- Banking and Capital Deposits
- Costs and Timelines
- Legal and Regulatory Notes
- Special Considerations
- Foreign Executives
- Use of Foreign Language Documents
- Conclusion
1. Introduction to Business Entities in Japan
When incorporating a business, foreign nationals can choose among three main types of establishments. This guide focuses on the third option, “Subsidiary”, as it provides the greatest autonomy and flexibility, making it the most popular choice in recent years.
- Representative Office: Focuses on preparatory or auxiliary activities, such as market research or advertising. Direct business transactions are not allowed.
- Branch Office: Serves as a business base but is legally part of the foreign company, making the company liable for its operations.
- Subsidiary (KK or GK): A locally incorporated entity under Japanese law. Offers limited liability and a distinct legal identity, making it the most common choice for serious business operations.
2. Steps to Incorporate a Business in Japan
Preparation
- Choose a Business Structure:
- Kabushiki Kaisha (KK): A joint-stock company with stricter governance and greater social credibility.
- Godo Kaisha (GK): A limited liability company with simpler management structures.
- Define Key Details:
- Company Name: Must follow specific rules for acceptable characters.
- Registered Address: Required for the incorporation process.
- Directors and Shareholders: At least one director must be appointed.
- Draft Articles of Incorporation:
- Includes business objectives, shareholder details, and other foundational elements.
- Translation of Documents:
- All non-Japanese documents must be translated into Japanese. Partial translations are acceptable under certain conditions.
Registration Process
- Prepare Capital:
- Deposit capital into a Japanese bank account. If unavailable, a proxy’s account may be used.
- File Registration Documents:
- Submit the notarized Articles of Incorporation, proof of capital deposit, and other required forms to the Legal Affairs Bureau.
- Seal Registration:
- Obtain and register the company’s seal (inkan).
Post-Registration CoDmpliance
- Prepare Capital:
- Deposit capital into a Japanese bank account. If unavailable, a proxy’s account may be used.
- File Registration Documents:
- Submit the notarized Articles of Incorporation, proof of capital deposit, and other required forms to the Legal Affairs Bureau.
- Seal Registration:
- Obtain and register the company’s seal (inkan).
3. Key Considerations for Foreign Nationals
Residency Requirements
As of March 16, 2015, directors of Japanese companies do not need to reside in Japan. However, this exemption does not apply to other requirements, such as ensuring capital deposit processes comply with Japanese regulations.
Documentation and Translation
Foreign documents, such as minutes of shareholders’ meetings or certifications, must be accompanied by Japanese translations. Translation of non-critical sections can be omitted, but a statement indicating omitted parts must be included.
Banking and Capital Deposits
- Capital deposits must be verifiable through:
- A passbook copy or banking transaction statement.
- Evidence of exchange rates if deposits are in foreign currency.
- Deposits can be made through domestic or certain foreign bank branches.
4. Costs and Timelines
Related Costs (The amounts below include only statutory/mandatory costs and do not include professional fees)
- Kabushiki Kaisha (KK):
- Registration Fee: ¥150,000 minimum, will increase based on capital amount (Capital amount × 0.7%).
- Articles of Incorporation Notarization: ¥30,000 – ¥50,000 depending on capital amount. Certain deductions apply when meeting certain criteria.
- Articles of incorporation stamp duties: ¥40,000 (unnecessary when the Articles of incorporation is digital).
- Incidentals: ~ ¥10,000
- Godo Kaisha (GK):
- Registration Fee: ¥60,000
- Articles of Incorporation Notarization: Not required
- Articles of incorporation stamp duties: ¥40,000 (unnecessary when the Articles of incorporation is digital).
Timelines
- Preparation Phase: 1-2 weeks
- Registration Phase: 1-2 weeks
- Post-Registration Procedures: 1-2 weeks
Total Time: ~4-6 weeks
5. Legal and Regulatory Notes
- Corporate Governance:
- Regular meetings and compliance with Japanese governance standards are required.
- Tax Obligations:
- Newly incorporated companies with capital under ¥10 million may initially be exempt from Japanese consumption tax (JCT).
- Employment Laws:
- All companies must enroll employees, including directors, in social insurance programs.
6. Special Considerations
Foreign Executives
Directors and shareholders residing abroad may need to provide notarized or consular-certified documents. Signature certificates issued by the government or authorized notaries are mandatory.
Use of Foreign Language Documents
Partial translations are allowed for:
- Non-critical sections of certificates.
- Administrative sections of official documents.
For foreign nationals, special procedures for document notarization and approval apply.
Japanese Bank Accounts
Opening a bank account with a Japanese bank has become increasingly challenging, even for locals, due to heightened KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations. However, there are several strategies to navigate this obstacle effectively which needs to be implemented when setting up the company.
7. Conclusion
Incorporating a company in Japan requires meticulous planning and adherence to specific legal processes. By understanding the distinctions among business entities, preparing the necessary documents, and following the registration steps, foreign nationals can establish a solid foundation in Japan’s dynamic market.
As mentioned at the beginning of this article, I strongly recommend engaging a professional to assist with your incorporation in Japan. This advice comes from personal experience, having set up five entities in Japan myself—two Goudou Gaishas (GKs) and three Kabushiki Gaishas (KKs).
The first entity I established was a GK, and I took a do-it-yourself approach, referencing articles like the one you just read. I attempted to use digital Articles of Incorporation (AOI) to save a few hundred dollars in stamp duties, only to discover that I lacked the necessary tools to digitally sign the document in compliance with the regulations. Additionally, I created the AOI on my own, carefully including all the required elements. However, without guidance from someone experienced in the process, I later had to make amendments to the AOI, resulting in additional registration fees.
Having experienced firsthand the complexity and time involved in incorporating an entity, I have since relied on professionals to manage the process for me. They handle the administrative work efficiently and effectively based on my specific input about how I want the entities set up, ensuring regulatory compliance from the outset.
Typically, professionals involved in the incorporation process include lawyers and Shiho Shoshi (Judicial Scriveners). Lawyers are particularly useful for handling complex entity structures but often charge significantly higher fees compared to Shiho Shoshi. In most cases, Shiho Shoshi are more than capable of handling the process efficiently, effectively, and at a much lower cost. For the four companies I’ve set up since my first GK, I have never needed to involve a lawyer during the incorporation phase—Shiho Shoshi has been my preferred choice every time.
When you engage Japan Professional Alliance (JPA) to assist with your incorporation, we work with trusted Shiho Shoshi for all your legal administrative needs. This allows for a seamless transition from incorporation to tax registration and filing. By entrusting us with the process, you’ll save yourself from the burden of manual paperwork, enabling you to focus on what truly matters: your business.
In summary, while it’s possible to incorporate in Japan on your own from abroad, I strongly recommend working with professionals, particularly Shiho Shoshi. Their expertise will simplify the process, save you time, and help you avoid unnecessary costs or complications.
If you’re interested in incorporating in Japan, schedule a call with us using the inquiry form below. Let us help you get started.
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