Japan Entity Set Up

Japan Entity Set Up

Establishing a subsidiary overseas is a potentially costly and time-consuming venture without any guarantee of success. Japan is no exception to these issues. Incoming companies would typically choose to set up a Limited Liability Company (LLC) known as a Godo Kaisha or a joint stock company (Kabushiki Kaisha, KK). After the initial step of registering a unique company name with the Ministry of Justice’s Legal Affairs Office there follows a daunting succession of registration procedures for onboarding and putting staff on the payroll.

Expanding overseas is a major step. If the move fails, companies face the extra expenditure and stress of closing the business, selling property, and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while moving into a new territory, maybe thousands of miles overseas.

Once the subsidiary is legally established, other crucial factors must be dealt with. Tax processing, filing accounts, legal compliance, workforce management, payroll and recruitment add up to a hefty workload.

How to set up a Japan Subsidiary

Any entity established in Japan is governed by the Companies Act and supplementary corporate governance laws. The most popular form for a subsidiary is a Limited Liability Company (LLC) known as a Godo Kaisha (GK) or a joint stock company (Kabushiki Kaisha, KK), which are modelled on western limited liability companies.

Requirements for a subsidiary include:

• A Japanese resident, foreign or local, is appointed incorporator and must register a seal (Inkan) with the Trade Register to be used on official company documents, attach his own seal and apply for the Representative Seal ID card.
• Articles of Incorporation are notarized in Japanese, which include full details of the company’s registered address and any shareholders.
• The unique company name must be submitted to the Trade Register; can be in English but must include the Japanese characters for Godo Kaisha or Kabushiki Kaisha.
• Paid-up capital is deposited in incorporator’s bank account.
• All certified documents are submitted to the Legal Affairs Office of the Ministry of Justice.
• The appointed incorporator transfers responsibilities to the company’s executive director or manager, who take possession of the Certificate of Incorporation and Representative Seal from the Legal Affairs Office.

Once ‘up and running’ other procedures include:

• Remitting withheld taxes to the National Tax Agency (Kokuzei-cho, NTA).
• Remitting social insurance deductions to the relevant social insurance systems (Shakai Hoken).
• Withholding national income tax monthly.
• Providing employees with an annual certificate of deductions (Gensen) in December each year.
• Reconciling national and local taxes to assess for refunds or extra payments.

Benefits of setting up a Subsidiary in Japan

Foreign companies attracted by operating in Japan’s economy – the third largest in the world – will be entering a demanding marketplace. Therefore, setting up a subsidiary is the preferred route for exploring the opportunities of this exciting market.

The parent company has the advantage of investigating the potential of the Japanese market without committing to major capital investment. There is also the potential to move further afield into the Pacific Rim and Far East markets.

A subsidiary in Japan is incorporated either as a joint stock company (Kabushiki Kaisha, KK) or more typically as a limited liability entity Godo Kaisha (GK). These are separate legal entities from foreign parent companies.

Further benefits from taking this route include:

• The subsidiary is a separate legal entity to the parent company
• The subsidiary has the flexibility to operate under its own business name and pursue independent business activities once it has obtained any necessary licenses
• The subsidiary will boost the international profile of the parent company
• The subsidiary has the same legal standing as local companies and can be eligible for government tax incentives and benefits

The parent company is not liable for the obligations and debts of the subsidiary.