Starting a business in Japan

13 December 2011Yoko Majima - Legal Advisor, Immigration Lawyer

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Education

◦ One year students exchange program at a high school in Melbourne,

Australia

◦ Graduated from Sophia University, majoring in French studies

(language, sociology), including one year exchange at Université Aix-

Marseille I (Aix-en-Prevence)

Work history

◦ Japanese fashion designer’s office in charge of International Dept.

◦ Japanese importer of French wine and food

◦ Permanent Mission of Japan in Geneva, Switzerland

◦ Mission Economique, l’Ambassade de France au Japon

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Two ways of doing business – as a sole proprietor (kojin jigyo / auto-entrepreneur) or by setting up a company

SOLE PROPRIETOR: ◦ Business entity owned and run by one individual◦ Possible to use a different commercial name◦ No legal distinction between the owner and the

business◦ All profits/losses, assets/debts of the business

belong to the owner

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Advantages of sole proprietorship◦ Easy to start – no registration required◦ Simple tax procedure◦ Low cost, no corporate tax

Disadvantages of sole proprietorship◦ Less credibility◦ Unlimited liability◦ No corporate bank account available◦ Difficult to manage when there are several partners◦ Higher tax rates when the profit exceeds certain

amount

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What is a company?◦ A legal entity that can be defined as an “artificial

person” registered at the registry office (homukyoku)◦ Different types of legal entities – Kabushiki Kaisha

(KK), Yugen Kaisha (YK), Godo Kaisha (GK), NPO, Association (shadan hojin), Foundation (zaidan hojin), LLP…

Advantages of a company◦ Credibility◦ Limited liability◦ Easier to manage when there are several partners

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Disadvantages of a company◦ Registration required for setting up, changes,

closing down – more time and costs involved◦ Complicated tax procedures (need to hire an

accountant)◦ Two levels of taxation – corporate tax and

personal tax

However your visa category doesn’t always give you a free choice.

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Visa categories Sole proprietor Company

Visa status without work restrictions (Permanent Resident, Long Term Resident, Spouse/Child of Japanese national, Spouse/Child of Permanent Resident)

OK without any restrictions

OK without any restrictions

Work visas (Specialist in Humanities, Engineer, Intra-company Transferee etc.)

Possible under certain conditions

Need to change to an “Investor/Business Manager” visa

Non-working visas (Dependent, Student, Cultural Activities)

Possible with restrictions or change to a work visa

Possible with restrictions or change to an “Investor/Business Manager” visa

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Visas that allow you to become a sole proprietor◦ Visa status without work restrictions◦ Freelance under a work visa – need to have stable

contracts with Japanese companies (translator, IT engineer…)

◦ Dependent, student, cultural activities visa – within 28 hours/week under a permission from Immigration office (or change to a work visa if working on full-time basis)

◦ Working holiday visa (change to a work visa when the WHV expires)

◦ Investor/Business Manager visa if 5 million yen investment can be proven without a company

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Visas that allow you to run a company◦ Visa status without working restrictions◦ Investor/Business Manager visa◦ Other types of work visa if someone else can

become the Representative Director◦ Dependent, student, cultural activities visa –

within 28 hours/week under a permission from Immigration office (or change to an “Investor/Business Manager” visa if working on full-time basis)

◦ Working holiday visa (change to an “Investor/Business Manager” visa when the WHV expires)

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To invest 5 million yen from foreign source (foreign company or individuals)◦ Investment from the visa holders without work

restrictions doesn’t count◦ Doesn’t need to be your own funds

To have a physical, dedicated place of business (office, shop, etc.)◦ Virtual office is not accepted.◦ If working at home, a written consent from the

landlord authorizing you to use the residence as an office is required

◦ Could be a place rent out from a friend for free

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Company’s financial stability◦ Ideally the company needs to generate a profit or have

no loss.◦ It’s still possible to renew the visa even if the company

is in loss, as long as the capital hasn’t been exhausted.

Payment of personal income and resident tax◦ The company needs to pay you a sufficient monthly

salary (ideally 200,000 yen/month or above) and withhold the income tax to pay to the tax office on your behalf.

◦ It is necessary to pay the resident tax (jumin-zei) to be able to provide a tax certificate (nozei shomeisho) for the visa renewal.

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Kabushiki Kaisha (KK)

Godo Kaisha (GK)

Credibility Most credible Less credible

Setting up cost Around 380,000 yen Around 220,000 yen

Governance Possible to separate those who invest and those who run the company

Necessary to invest to be able to participate in the company’s management

Operation At least one shareholder and a Representative Director who needs to be resident in Japan (could be the same person)

At least one partner who needs to be resident in Japan

Advantages Most credible.Easier to have other investors or to transfer/sell shares

Possible to decide freely the profit dividing rate regardless of the amount of investment.Simple to manage.

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Required documents◦ Inkan shomeisho (seal certificate) issued at the city

hall or signature certificate issued by the Embassy or certified by a notary public abroad

◦ Personal bank account in Japan (for deposit of capital)

Necessary to decide:◦ Office address in Japan◦ Representative Director who needs to be resident in

Japan◦ Amount of capital (minimum 1 yen / 5 million yen for

an Investor visa)◦ Other detail such as company name, activities…

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Importing and selling products such as medicines, cosmetics and other products that have contact with skin or could damage the health

Restaurant, café, catering, hotel, spa (sanitary requirements)

Importing and selling alcohol Sale of used items (including auctions) Travel agency Real estate agent Recruitment, temp agency Investment brokerage, advisory

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Corporate taxes◦ Corporate income tax (hojin-zei) ◦ Corporate inhabitant tax (hojin jumin-zei)◦ Enterprise tax (jigyo-zei)◦ Effective tax rates from 25% to 40% (on taxable income)◦ Minimum tax 70,000 yen (even if the company is in loss)◦ Consumption tax (shohi-zei) 5% : 2 years after making 10MY sales

Personal taxes◦ Income tax (shotoku-zei), withheld from your salary (5, 10, 20, 23, 33

and 40%)◦ Inhabitant tax (jumin-zei): 10%

Social insurance◦ Health insurance◦ Pension◦ Limit of “dependent” status: 1.3 million yen income/year◦ No unemployment insurance available as a business owner

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Manage from overseas: necessary to hire someone in Japan

Make company dormant◦ Until you can decide what to do or if you might

come back to Japan◦ Still necessary to file the tax declaration once a

year

Sell the business to someone interested

Close down the company (cost around 200,000 yen, 2-3 months procedure)

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Yoko Majima – Legal Advisor, Immigration Lawyer

www.juridique.jp - info@juridique.jp2F Minami Azabu Centre, 4-12-25 Minami-Azabu

Minato-ku, Tokyo 106-0047

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Thank you for your attention!

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