BUSINESS IN JAPAN

Japan ranks third in the world in terms of nominal GDP, ahead of developed European countries such as Germany and the UK. Despite some demographic challenges and natural disasters (the 2011 earthquake and tsunami), this East Asian island nation of about 123 million people maintains a strong market economy centred on the high-tech and industrial sectors in general. Today, thousands of migrant workers seek employment in Japan, and many entrepreneurs are considering starting their own businesses in this prosperous country.

Business in Japan

Given a certain slowdown in economic growth in recent years, the Japanese government has taken effective measures to stabilise the situation, such as easing monetary policy, reducing fiscal pressure on business and introducing a number of structural reforms. Japan's universities produce well-trained, highly skilled professionals, and average Japanese salaries are higher than in many Western European countries. Attracting foreign investment and creating favourable conditions for foreign companies are the priority tasks of local authorities. Let's talk about how to open a business in Japan further.

CONTENTS

Peculiarities of doing business in Japan

According to the Doing Business agency, Japan ranks 29th out of 190 countries in terms of accessibility of starting a business, positioned between Russia (28) and Spain (30). The country has an almost perfect infrastructure, a transparent legal system, and a very low level of crime and corruption. Foreign entrepreneurs are guaranteed security and optimal conditions for doing business on a par with Japanese citizens.

Undoubtedly, one of the main obstacles to effective business activity in the Land of the Rising Sun is its geographical location. Japan has no land borders with other countries, so logistical issues are solved exclusively by sea and air transport. In the modern world, this is not a problem. In addition, foreigners should take into account the mentality of the Japanese and be prepared for the language barrier.

In most cases, especially at the stage of company registration, entrepreneurs require the services of local specialists, including lawyers, accountants and auditors. Many people initially set up to do business in Japan together with Japanese partners. The country has a huge research and innovation potential, a large-scale consumer market and a high rating of global competitiveness.

The largest global corporations open representative offices and branches in Japan, and there are enough powerful companies of their own in the country. Such giants as Toyota, Honda, Hitachi, Softbank and so on are just worth mentioning. To do business and stay legally in Japan, entrepreneurs from abroad usually apply for a special ‘business manager/investor visa’, which is issued by the Japanese Immigration Bureau for 4 months with the right to extend it for one year.

Business immigration and choice of ownership in Japan

Moving to Japan for business purposes is a very challenging task for foreigners. Most often, to obtain a business manager/investor visa, the minimum investment amount must be at least 5,000,000 yen. Even though this rule of law was cancelled in 2015. In addition, an office/warehouse must be secured to conduct business in Japan.

The business area must have a positive impact on the Japanese economy. This requires a clear business plan to be submitted to the local authorities. A visa may be refused if the foreign entrepreneur has no relevant experience. It is mandatory to provide jobs for local residents. Sometimes this factor helps to reduce the required minimum investment amount.

If the foreigner already has his own business, it is best to ensure a presence in Japan by establishing a representative office or branch office. In the first case, it is allowed to collect and analyse information about the Japanese market, purchase local products and launch advertising/marketing campaigns, but it is prohibited to carry out commercial activities. A branch allows you to conduct virtually full-fledged business in Japan.

Under Japanese law, there are three main forms of ownership for a company:

Joint Stock Company (Kabushiki Kaisha)
Limited Liability Company (Godo Kaisha)
Partnership (Gomei Kaisha) and Limited partnership company (Goshi Kaisha)

The choice of the type of company depends on the specific area of activity, the amount of investment, the need for tax optimisation and so on. The most popular form of ownership for business in Japan is a joint stock company. Unlike a partnership, members of JSCs and LLCs have limited liability for the company's activities, proportional to their contributions to the authorised capital.

Company registration in Japan

Using a joint stock company as an example, let's consider the main stages of company registration in Japan.

Registration of the registered office and preparation of documents and information about the new company, including, name, business plan, capital amount, share issue prices, reserve funds, names and powers of the board of directors, shareholdings of shareholders and so on.
Approval by the Japanese Legal Affairs Bureau of the name of the company.
Preparation of articles of association.
Notarisation of the company's incorporation documents by a Japanese notary public.
Submission of an application to the bank to deposit the authorised capital and obtaining the relevant certificate.
Appointing directors, auditors and other officers and preparing additional documentation, including company seals.
Applying to the Legal Affairs Bureau of Japan for registration of the new company. The processing time is about 2 weeks.
Obtaining a certificate of incorporation of the company in Japan.
Opening a bank account under the company name.
Additional procedures related to obtaining licences for certain types of activities, registration with tax authorities and social security services.

Usually the period of business (company) registration in Japan takes from 2-4 weeks to 3 months. It is almost impossible to cope with this procedure without specialised intermediaries.

Taxes in Japan

Companies registered in Japan are taxed worldwide, including income from foreign branches. In some cases, there is a reduction in liability to avoid double taxation. General corporate tax rates depend on the level of annual turnover and the size of the company.

Tax rates in Japan in 2024

Corporate income tax:

For small and medium-sized companies:

Turnover up to 8 million yen per year – 15%
Turnover of more than 8 million yen per year – 23.20%

Other companies (authorized capital of over 100 million yen and offices in several prefectures) – 23.20%.

Effective corporate tax rate (excludes some other taxes):

For small and medium-sized companies – 34.6%
For large companies – 30.62%

Income tax:

Annual income from 0 to 1,950,000 yen – 5%
Annual income between 1,950,001 yen and 3,300,000 yen – 10% (minus 97,500 yen)
Annual income from 3,300,001 to 6,695,000 yen – 20% (minus 427,500 yen)
Annual income from 6,695,001 to 9,000,000 yen – 23% (minus 636,000 yen)
Annual income between 9,000,001 and 18,000,000 yen – 33% (minus 1,536,000 yen)
Annual income between 18,000,001 and 40,000,000 yen – 40% (minus 2,796,500 yen)
Annual income over 40,000,000 yen – 45% (minus 4,796,500 yen)

As of 1 December 2019, the special local corporate tax in Japan has been abolished. However, Japanese companies still pay municipal tax and standard local corporate tax.

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