When Foreign Based Corporation Establishes Company in Japan

Pros and Cons when foreign based corporation establishes Company in Japan

There are mainly three types of entities – representative office, branch office, or subsidiaries – when foreign based corporation plans to establish the entity in Japan and two types of entities when considering to establish the subsidiaries– LLC or Stock Corporation.

1. Which entity is appropriate for your corporation

Representative Office

Rep office is the office- located somewhere in Japan. Once you will determine the location that will be the base in Japan, you may assign somebody as representative who will research the market or gather the information. This entity is appropriate for the preparation of establishment of branch office, or subsidiaries in the near future. This entity is enable to promote the goods, or research the market, but not permitted to the transaction obtaining the profit or doing the sales activities. This entity is not legally ‘company’, thus, no need to submit the application to the Ministry of Justice.

Branch Office

It is literally the branch of the corporation and will be applied as Japanese branch of the parent company outside of Japan. This entity is able to do the sales activities and appropriate when the corporation plans to transact with Japanese clients continuously. This is the branch of the foreign corporation and thus no capacity as corporation. However, it has sole decision making ability. To file the application to the ministry of justice, the following documents are required for certifying the existence of corporation in foreign countries;

1. The documents satisfying the existence – such as Bylaws, certification of corporation authorized by government of that country,
2. The documents satisfying the competency of managing director of the corporation, such as assignment letter, employment contract, and the oath of the director,
3. Articles of Corporation, or the documents satisfying the recognition of corporations’ character,
4. The documents certifying the method of public announcement, and

all translations of those documents and the power of attorney letter for the person submitting them. Registration tax is JPY90,000 as of 2019.

Subsidiary

It is the child company of foreign corporation. It requires the establishment of corporation in Japan and therefore, the process of the filing to the Ministry of Justice is the same as the establishment of Japanese Corporation. (i) Drafting Bylaws of the corporation and (ii) attested by public certified person (required only for the stock corporation), (iii) deposit the capital amount to the promotor’s bank account, drafting and submitting the documents above and (iv) acceptance letter of CEO, (v) letter of promotor determination, (vi) registration form and (vii) application forms of company stamp, which should be prepared at this moment. When the person, living outside of Japan, will be the board director, or chief director, it is required his or her signature certification authorized in public (Notary Public in the US, for example) in exchange of stamp and certification of stamp for filing. The registration tax will be JPY150,000 or 7/1,000 of capital amount, whichever is greater. When all promotor, chief director, and directors are resided outside and they do not have bank account in Japan, they could ask the third party and deposit the capital amount to third party’s bank account in Japan. If taking such procedure, the key is whether they trust the third party so that they deposit the capital amount in the third party’s account.

2. Whether the branch office or subsidiary is appropriate

As described above, the branch office has to be notified but not filed to the Ministry of Justice and no required to prepare the capital for the notification. Therefore, the notification process seems to be easier than the creation of subsidiary. However, it does not mean the entity earns the credibility easily and the clients will doubt for the entity’s seriousness and continuity of business in Japan. Moreover, preparation for the certified document and translation forms (which also need to be accurate) are not easy, and not always faster than the establishment of subsidiary. should be select either of them by comparing the volume of transaction, power balance with the clients, etc.

3. Whether the stock corporation or LLC (limited liability company) is appropriate

Four types of subsidiaries are possible- general partner company, general & limited partner company, LLC and stock corporation. However, general partner for both general partner company and general & limited partner company has to have unlimited liability for the company and they are only appropriate for the small family controlled entities. Therefore, the selection of the entity shall be either LLC or stock corporation. To create LLC in Japan, Bylaws does not have to be attested (if created by electrically, no need to pay the paper tax as well) and registration tax is only JPY70,000. Comparing with the filing of stock corporation, the procedure of filing LLC is simple and inexpensive. If you want to save the initial cost of establishment of corporation and just want to get the certificate of corporate entity, and already have some reputation for corporate name inside and outside of Japan, LLC is appropriate. However, it is called LLC but the character of LLC is different from LLC in UK or US. There is no tax priority and LLC is less credible and reputable than the stock corporation.

4. The relationship between Establishment of Company and Status of Residence

When the company is established and the foreigner operates the company, it is required the person having the status of residence in Japan.

When the company established and operated by foreigner living in Japan

The foreigner, not having “Business Manager” status of residence, is required to change the status of residence. When applying for Business Manager status, the minimum capital amount of the company will be JPY5,000,000 (this amount became one of the choices now, but still the basic standard. Because, for one year, when one person maintains the company living in Japan, such amount may be the least amount as necessary) and decision will be made in accordance with the possibility of business continuance, stability or any other matter. Generally, it was considered that the company was operated one person and therefore, only one person was obtained the status even if the several person explained they are co-manager of the company and apply for Business Manager status of residence. Here is the explanation of the standard of co-managers.

When the company established and operated by foreigner residing outside of Japan

The person is required to obtain Business Manager status of residence who residing outside and come to Japan for controlling the company. To apply for the status of Business Manager, it is required that the company is already filed (because the certification of registration is one of the required document for the application). Therefore, when the person entries to Japan for preparation of the company, he or she has to come without having the status of residence or request the trusted person to prepare for the establishment of company without entry of Japan before having the status of residence. However, for establishment of company, the person has to deposit the capital amount to the bank account in Japan and it is not easy to have the bank account in Japan without having the residence status. Usually, the foreigner can’t get the residence certificate when he/she comes to Japan by short stay. Without having the address here, the foreigner can’t open his/her bank account. So the issue, which is first process, obtaining the status of residence, or filing of company, has occurred. The best way to solve this issue is to consult the specialist and ask her to do the process on behalf of you.

Query for each process and issue is here.