Thanks to the world’s 3rd largest GDP and stable economic growth, many international companies are keen to enter the Japanese market as a way to grow their businesses. There has been an increasing demand for the creation of Japan operations, especially among start-ups that have raised Venture Capital funding outside of Japan as part of their global strategy.
Despite this strong demand, there are few firms in Japan that offer bilingual support for companies who wish to enter the Japan market. VentureINQ provides high quality company formation and tax advisory services to clients representing more than 15 countries around the world.
There are many pitfalls for companies attempting to establish their Japan operations, and we have seen many international companies overpay large law firms ($10,000+), that do not have an expertise in company formation nor the ability to provide tax and business advisory services.
Since we have expertise in inbound business, we are able to offer a one-stop-solution for companies that need to make important decisions regarding revenue model and the related tax structure as well as type of legal presence. Our long industry experience gives us the depth to solve a wide array of challenges tailored to your company’s unique situation at an affordable price.
The Japanese government is currently changing many local regulations to encourage more international companies to enter the Japanese market and we offer the most up-to-date information in English, so our clients can take advantage of this changing landscape.
Type of Business Entity
As a first step, your business will need to choose from one of the three main types of business entities in Japan:
(1) Kabushiki Kaisha (KK) (similar to a C-corporation in the US)
(2) Godo Kaisha (GK) (similar to an LLC in the US, but taxed as a corporation under Japanese law)
(3) Branch (not legal entity in Japan)
Kabushiki Kaisha (KK)
KK is viewed as the most credible of legal entities in Japan and is also the most widely used with roughly 90% of existing companies using this form.
KK is a separate entity from the overseas parent company, so the parent company’s shareholders will bear a limited liability as an equity participant for all debts and credits related to the Japan KK’s activity.
Godo Kaisha (GK)
GK is a new form of entity introduced in 2008, which is modeled after the LLC in the US. GK has a simplified internal structure, similar to a partnership, which provides limited liability to its owners.
GK’s and KK’s share the same limited liability protections and taxation rates. In contrast to many countries, both KK’s and GK’s in Japan are levied at the same tax rate. For GK’s pass-through income taxation is not applied at the Japan side, which makes taxation a minor issue for businesses to decide their entity type.
A Japan branch of an overseas company belongs to the same entity as the foreign parent company has no legal distinction from the overseas-based parent company. Under this organization, the parent company is directly liable for acts of the Japan branch. In recent years, this option is rarely selected for Japan market entry for the following reasons:
• Permission to open a Japanese bank account may be denied
• Bookkeeping needs to be maintained at both parent company and the Japan branch
• Clients and 3rd-party vendors prefer to have contracts with KK’s or GK’s
• Office owners may reject lease applications because of this less credible type of business entity
Based on our experiences, a branch entity is suitable for transportation industry, non-profit organizations, and government institutions.
There are many differences among the three types of entities which can confuse businesses who want to enter the Japan market. Through our experience, we highly recommend choosing the KK option because of the credibility which will impact sales and recruiting activities. Trust and credibility are very important in Japan, so many Japanese are wary to get involved with, or buy products from, organizations outside of the KK structure. The challenges faced by non-KK businesses can mean the difference between success and failure in the Japan market. Since all KK’s all follow the same structure, your organization will appear more stable and credible if it receives KK designation.
Deciding Corporate Profile (KK)
Setting up a KK is the most standard process in business entity formation. In this section we will explain the Corporate Profile which is a necessary step to establish a KK. The application to register a KK requires a business to establish their “Articles of Incorporation” and “Corporate Profile” which become public record viewable at the Legal Affairs Bureau.
The chart below shows a typical scenario for an international company’s establishment of a KK in Japan.
|Company Name||VentureINQ Japan KK|
|Location of head office||Koho Bldg. 5th floor, 1-11-8 Kayaba-Cho, Nihombashi Chuo-ku Tokyo, Japan|
|Capital amount at incorporation||1,000,000 yen|
|Number of shares issued at incorporation||100 shares|
|Par value of each share||10,000 yen|
|Total number of authorized shares||10,000|
|Business purposes – Business activities||-Accounting and payroll service
-Business operations outsourcing service
-Consulting service related to the preceding items
-All other business incidental to or related to those mentioned above
|Fiscal year end||December 31|
|Restriction on share transfer||Approval by shareholder’s meeting|
|Organization||No board of directors/No corporate auditor|
|Representative director (Name/Address)||Name: Tomo Inoue
Address: XYZ Garrett Rd, Durham, NC, USA
|Term of office – directors||10 years|
|Promoter||Name: VentureINQ, Inc.
Address: Kenan Center Drive, Chapel Hill, NC, USA
Steps to Incorporate (KK)
Below is the standard flow for an overseas company to register their company as a KK in Japan. One challenging step is that the parent company needs to arrange a public notary to attest on affidavit and signature certificate in English. While notary systems can vary widely by country, all documents will be prepared in English, so the parent company will need to notarize their document in English for successful registration.
1) Determine KK’s profile using a questionnaire
2) Investigate whether or not your business is regulated in Japan and if it requires prior notification of establishment to the Bank of Japan
3) Determine the company’s office address
4) Examine whether your company’s name is already being used or not
5) VentureINQ drafts 1) affidavits regarding profile of parent company and 2) signature certificate of representatives of parent company
6) Parent company gets affidavits and signature certificate attested by a public notary in Parent company’s country
7) VentureINQ drafts KK’s article of incorporation
8) Parent company reviews KK’s article of incorporation and finalizes the content
9) VentureINQ sends the original Articles of Incorporation and related documents by courier for signature
10) Parent Company remits KK’s capital amount to a VentureINQ bank account
11) Parent company returns the signed documents to VentureINQ
12) VentureINQ orders company set of three Official Seals for important documents
13) Articles of Incorporation are notarized by a Japanese public notary
14) All necessary documents for the KK registration are prepared
15) Application at the Local Affairs Bureau including:
a) Registration of KK’s establishment
b) Registration of Corporate Seal
16) Certification of Registration and Corporate Seal impression certificate are obtained
17) Establishment of KK bank account under the company name
18) Notification of stock acquisition to the Bank of Japan
• Certificate of company’s registered information
• Copy of Driver’s license (representative director of both parent company and Japan KK)
• Information on ultimate owner of the company
• Affidavits regarding profile of parent company (Notarized)
• Signature certificate of representative director of parent company (Notarized)
• Signature certificate of representative director of Japan KK (Notarized)
VentureINQ provides clients the necessary advice to determine the best business structure in Japan to satisfy each company’s business development and tax strategies.
We will closely work with corporate finance and international business development team to fully understand our client’s strategies. It is critical to determine the right revenue model and related tax structure together with the right type of legal entity to avoid any tax risks and compliance issues, and also to identify the most advantageous tax model.
|1) Contact||If you do not have a local director, please contact us directly in English via email or contact form.
If you already have a local director, we welcome their email, call or contact form submission. We will then set up a meeting with the local director to explain the process of company formation and the necessary costs.
|2) Proposal of business structure||We will provide our service proposal including company formation and accounting/payroll/taxes service based on the preliminary discussion.
When we reach an agreement, VentureINQ will get started on the company formation process. (We offer company formation and accounting/tax service as a bundle since company formation is closely related to tax strategy.)
|3) Explanation to parent company’s team||We are happy to explain the company formation process to international business team at parent company by phone or video conference via Skype, Zoom, or Google Hangout.|
|4) Determination of corporate profile||It is important to determine the corporate profile including business objective, fiscal yearend, initial capital amount with the consideration of tax matters. Our local CPA and Certified Tax accountant will provide tax advisory to structure the best business form.|
|5) Arrangement for affidavits and signature certificates||Once the corporate profile is determined, the parent company needs to arrange for the notarization of affidavits of the parent company profile and signature certificate. Since these documents include specific information, we will prepare the draft of affidavits and signature certificates.|
|6) Arrangement of Corporate Seal||On behalf of parent company, we can order 3 sets of official corporate seals which are used for many important company documents in Japan. Common seals include a. Corporate Representative Seal
b. Banking Seal
c. Identification Seal (Square Seal)
|7) Company Registration||Once all documents are ready to submit, our legal specialist will file for notarization of Articles of Incorporation and the Company Registration. The application processing typically is completed within 2 weeks. We will obtain a corporate certificate and a seal certificate after the completion of the company registration.|
|8) Back office support after incorporation||VentureINQ is a bilingual one-stop service provider who focuses on Japan market entry phase for international companies. We will fully support back office related procedures including accounting, payroll and taxes.
At the initial stage of your operation, you do not need to hire expensive bilingual accounting and HR staff just for bookkeeping. This will help minimize your operational costs.