Japan Entity Setup

A Kabushiki Kaisha is a joint-stock company and is commonly referred to as a “stock company” in English. It can have an unlimited number of shareholders and directors, and the shareholders’ liability is limited to their investment.

A Godo Kaisha is a limited liability company. It can have up to 50 members and requires at least one representative director. The shareholders’ liability is limited to their investment. A GK is not a pass through entity for Japanense domestic tax purposes but it is a checkable entity for US tax purposes. This has made it a popular vehicle for US parent companies.

A foreign company can set up a branch office in Japan. However, the branch office is not considered a separate legal entity, and the parent company is liable for all the branch office’s activities.

A joint venture is a new business entity created through a partnership between foreign and Japanese investors. In a JV, the partners jointly share the profits, losses, management responsibilities, and operational expenses.

There is no minimum paid-up capital requirement for incorporating a KK or a GK in Japan. However, it is recommended to have sufficient capital to fund the business operations.

Foreign companies can set up a wholly-owned subsidiary in Japan where 100% foreign ownership is allowed under the Foreign Direct Investment (FDI) policy. The equity holder or “shain” can be a natural person or corporation and does not need to be a resident of Japan.

A KK or a GK must have at least one director who is a resident of Japan. It is also recommended to appoint a local corporate secretary to assist with the compliance requirements.

Appointing a company secretary is not mandatory, but recommended, for a Japanese Limited Liability Company.

A physical office in Japan is mandatory before incorporation. The office address will be used as the registered office of the entity in the incorporation documents.

A GK company must register the company name at the Legal Affairs Bureau. The registered name may include English alphabet only or a combination of English and Japanese characters.

In order to register a company a legal firm, corporate secretary or corporate service provider will assist with the preparation of company incorporation paperwork. This will include articles of incorporation (teikan), constitution, first AGM meeting, share certificate, member consent forms, consent to act as director and other legal documents to support the incorporation. The provider will then continue to manage any new company resolutions that are required over the course of the company lifecycle.

The Legal Affairs bureau will normally complete commercial registration within one week of receiving the application. On completion of commercial registration the Legal Affairs bureau will provide a certified copy confirming the date of incorporation.

Once the company is registered, it is possible to obtain a registry certificate and company’s seal certificate, which are required at various business situations such as opening a corporate bank account, or signing business or employment contracts in company’s name. The professional service provider provide a copy of the official certificate of incorporation issued by the Legal Affairs Bureau. In Japan, the incorporation process can take between one to three months.

Subsidiary companies are established through registration with the Legal Affairs Bureau. The application date for registration will also be the date of establishment, and the company may carry out business operations from that date. Some of the documents needed for the subsidiary establishment procedures should be prepared in the home country of the foreign company: document(s) certifying the profile of the foreign company, document(s) certifying the representative authority of the foreign company’s representative and document(s) certifying the authenticity of the signature of the foreign company’s representative.

Within two months of completing commercial registration the new entity must report its incorporation, business year and other basic information to the National Tax Agency.

Social insurance premiums are deducted from a salaried worker’s monthly salary. Pension and health premiums are calculated as a percentage of the ‘standard salary’. Standard salary is based on the employee’s monthly compensation amount and is determined according to a table provided by the social insurance office. The standard salary is capped. The maximum standard salary for pension is 650,000 yen, and 1,390,000 yen for health. Unemployment and workers’ accident compensation insurances premiums are calculated as a percentage of the actual compensation instead of the standard salary.

The Labour Standards Bureau is administering supervision and guidance to secure legal working conditions, such as a clear indication of working conditions and the management of working hours stipulated in the laws governing labour standards.

Health Insurance and Employees’ Pension Insurance apply to all corporations and individual offices which regularly employ 5 or more persons, with the exception of those in some industries such as agriculture, forestry, and fishing. Those who are required to join this insurance, are employees who work regularly for an applicable company.

Members must file a “Reporting Concerning Acquisition of Equity Interest” through the Bank of Japan. The filing of a BOJ report is generally regarded as a formality and does not require extensive disclosure of information as long as it does fall under a restricted industry in the Foreign Exchange and Foriegn Trade Act.

The final step is to establish a bank account with a local bank in Japan. This can include extensive application documents, notarized director documents, KYC documentation, and in-person signatures. Common local banks in Japan include Mizuho Bank, Sumitomo Mitsui Banking Corporation (SMBC), and Mitsubishi UFJ Financial Group (MUFG).