Starting and doing business in Japan

Starting and doing business in Japan


  • Written by Yogi (Yogendra PURANIK), on 31-Mar-2022
  • Proofread by Megha Wadhwa

Japan has offered business opportunities to Indians since old times. The businesses are of three types, import to Japan, export to India or a local business in Japan. In recent history, Indian people in business settled down in Japan, in areas like Yokohama or Kobe, to trade in commodities like Indian cotton, Indian clothes, tea, stone sculptures, gemstones, etc. In more recent history, Indians have also ventured into restaurants, grocery, information technology, education, human resources management, consulting, etc. Some also indulge in 2nd hand machines, metal scrap exports etc. 

Understanding Japan as a market

Let us look into a few key aspects of Japan as a market.

Japan will constantly challenge you in terms of quality and time management. Also, the Japanese side has high expectations in terms of quality. Time management can also become a possible issue as the Japanese counterpart will take a lot of time to decide on the business deal and then expect you to deliver efficiently in a short time. There will be an expectation to test the products several times to ensure high-quality standards, be it a physical product or software.

Japan has a typical set of business etiquette, right from bowing to holding the business card with both hands and going for alcohol parties. You might have to understand and inculcate a few of these when doing business with the Japanese people.

Language is the highest barrier in Japan. Either you learn Japanese (intermediate level), or you can use a language expert to support your work. Your business counterpart (corporate or retail), government offices, and ancillary service providers, all will expect you to explain things in Japanese language.

Punctuality and staying committed are fundamental yet extremely important. Additionally, following basic hygiene and professional attire is appreciated during the meetings. In some cultures, the intense fragrance of perfumes is typical, whereas, in Japan, one can avoid them. Suppose you produce something in India and are willing to export it to Japan the Japanese counterpart will be interested in the cleanliness of your workplace, your employees' attire, employee satisfaction, and so on.

To Do List

Setting up a company in a foreign country requires working on multiple fronts like researching the market, registering the business, employing human resources, arranging visas, renting, or buying properties, setting up an office or a unit and so on. Please see a simple flow of activities below.  

Type of companies / organizations 

There are multiple choices when you wish to set up a company / organization in Japan, depending on various factors like your activity, business size and so on.

1.Kabushiki Kaisha (KK or LTD)

This is a joint stock or limited company. You may need around 300,000 yen to set up a KK entity. This is the most common type of entity in Japan with a higher credibility which can be helpful when dealing with local customers, employees and business partners.

KK allows for a scalable organization, with the ability to have a Board of Directors, listing on the stock exchange, and raise additional money through sale of shares, etc. In contrast in a GK, the next option, you cannot do any of these things.

In a KK, there is a clear organizational distinction between ownership (shareholders) and management (directors). In contrast, GK investors are legally considered partners, who help run the company, and investment amount is not automatically proportionate to authority over the company or voting rights.

2.Goudou Kaisha (GK or LLC)

This is a limited liability company. You may need around 150,000 yen to set up a GK entity. The registration process and ongoing corporate compliance for GKs is simpler and less expensive compared to KK.

While both KK and GK are required to submit an Articles of Incorporation and submit annual accounts to the tax office, KK is required to also hold annual shareholders' meetings and submit reports. KK is also required to publish its financials every year. Both GK and KK can be fully owned by a company overseas. GK can be considered as a branch. GK cannot be listed on the stock market.

The GK, while still very credible, is a newer type of entity established in 2006, and therefore still has a weaker image in Japan. That being said, many businesses opt to set up a GK over KK, because of ease in management.

3.Representative office

This type of entity can indulge only in market research, information collection or PR. It cannot indulge in full-scale operations or sales. A representative office does not require setting up a local entity or investment of capital.

4.Branch office

It is the most accessible type of entity to establish. With a branch office, you can operate your business after securing a business office, designating a representative person in Japan, and registering these matters with the legal affairs bureau in Japan. A branch office can be established in around a month for a cost of less than 150,000 yens. A branch office is not an independent entity. The credits and debts arising from branch office activities are directly attributed to the foreign company. Branch office cannot be converted to a KK or GK.

5.NGO or NPO

There is no legal entity called NGO in Japan. Under Japanese law, one can establish NPO, Association (shadan houjin), or Foundation (zaidan houjin). NPO has two types; the regular NPO and the “Approved” NPO. After one year of launching the regular NPO, one can apply to the government to approve it. You can also set up an Informal Association (nin’i dantai) usually established for housing societies, sports groups etc. You are allowed to open bank accounts for any of these establishments.

6.Religious organization

The constitution guarantees Freedom of religion to all. Religious organization means any organization whose primary purposes consist of disseminating religious teachings, conducting ceremonies and functions, and educating and nurturing believers. A religious juridical person means a religious organization that obtains juridical status through certification by a prefectural governor or the Minister of Education, Culture, Sports, Science and Technology (MEXT). Religious juridical persons have two categories. One is a single religious juridical person with establishments for worship, such as a shrine, temple, or church. The other is a comprehensive religious juridical person, who affiliates shrines, temples, or churches under its umbrella, such as a denomination, sect, or religious community. Among the single religious juridical persons, those under the umbrella of a comprehensive religious juridical person are called affiliated religious juridical persons. Those that are independent are called individual religious juridical persons.

Starting/establishing a business in Japan

The steps for establishing a company are as follows.

1.Prepare and certify the articles of incorporation

2.Transfer and receipt of capital

3.Apply for registration of company and registration of official seal

4.Report acquisition of stock (in case of KK)

5.Open bank account and transfer capital funds

The process is easy and if you are in Japan, you might be able to do it on your own. However, taking the help of a solicitor can make things easy.

The key things you need to decide in step one are the activity, address, fiscal year and directors of the company. You may choose to have or not have a local director from Japan. If you are the only director from overseas, you will have to make certain affidavits, get those notarized from your country of origin, and then get notarized in Japan.

If you wish to start a business in Japan and get a business manager visa to live and work in Japan, you are expected to invest 5,000,000 yen in your business. If you are overseas, you won’t have an account in Japan to which you can transfer the funds. If you have a local director in Japan, you may transfer the funds to that director. Else, you can transfer the funds to your solicitor in Japan. You will have to bring this investment into Japan from your account overseas. If you already live in Japan, you can prove your investment capability using your passbook or a bank statement.

The date of application for registration of the company is the date of establishment of your company. The registration is completed in a week or two. In the case of KK, one must submit a stock acquisition report to the Bank of Japan after registration. The total time taken to set up a KK or GK could be 1 to 3 months, and slightly lesser in the case of GK. Suppose you plan to deal in certain products like ammunition, cyber security, medical devices etc. Then, you need to submit details to the respective ministry in Japan, to get approvals before establishing your company.  

Payroll and accounting

Accurate and timely payroll and accounting is an important aspect of the business to maintain its credibility and sustainability. The basics and process are the same as usually seen in any country. Some Japanese concepts like the cap on certain kinds of expenses and producing the reports in Japanese are peculiar to Japan.

There are many small companies to whom you can outsource your payroll and accounting. Depending on your business size, such a company might charge you 400,000 yen a year. If the size of your business is going to be big, with complex operations, I would suggest you collaborate with a large accounting firm. Some firms also take care of your visa processing needs. I run a business in Japan, and I do my payroll, accounting, taxation and reporting by myself. I have implemented a local software named Yayoi, for which I have to pay 50,000 yen annually as maintenance fees. The essential requirement is that you know Japanese and the basics of accounting. It will take some time for you to get used to the software. However, once you are used to it, it gets easier. 

Types of taxes

As a corporate, you will have to pay certain kinds of taxes. For the business entity, you will have to pay the local government tax (kuzei or shizei), the prefectural tax (tozei or kenzei) and the consumption tax (shouhizei) on the basis of your profits. If your profit is zero or negative, you don’t need to pay any kuzei / shizei however, you are still required to pay a bare minimum of tozei / kenzei.

You will have to submit the salary report every six months and pay the income tax for all of your employees on the salaries you pay. Recently, the government has mandated registering the employees in the employment insurance scheme. Hence, you are expected to deduct at source and pay for the same. Many businesses have not been deducting the health insurance pension premiums at the source. However, government is getting stricter about these practices.

You will have to pay the applicable customs duty on the goods you import. If you export software from your overseas unit, a withholding tax of 10% will be deducted from your payment from Japan. You get a certificate for this withholding which you can use when filing the returns for your overseas operations. 

Setting a restaurant in Japan

Setting up a restaurant in Japan requires following the above process. If you are already working in Japan on an engineer or other work visa, you might be able to start a business without setting up a company. Please confirm with a solicitor. Also, check the eligibility of your visa category. Your visa category may not permit an activity like running a business or restaurant in Japan.

For setting up a restaurant, it is necessary that you spend time in carefully understanding the ways other restaurants work. Look into the ways cleanliness is maintained, the customers are handled, sitting arrangement is designed, the way the kitchen is designed and so on. Please make sure to pick good restaurants for your understanding.

Restaurant business requires high investment – a minimum of 8,000,000 to 10,000,000 yen, for a 20-to-40-seater restaurant. You can reduce the cost by carefully choosing second hand appliances from reliable sources like tempos.com etc. Taking over the operations of an existing restaurant could be an easier way to start. However, do not end up paying exorbitant prices without knowing the market.

To start a restaurant, one of your staff needs to have a hygiene management certification. The staff will have to take a short course and a short exam in Japanese language. If you are going to serve alcohol, you will have to train one of the staff in bartending and alcohol machine cleaning techniques.

Choosing the right location, a conceptual and market differentiating menu is the key to the success of a restaurant. Having a good website and a mascot is a plus. Distributing fliers in the local community and creating presence in the SNS / media, and the local ranking sites will have positive impact on the sales.  

Exporting food products to Japan

The food processing industry is growing in India and now looking at Japan as a prospective market. Japan has laid down an extensive framework of rules for importing food products in Japan. The rules consider how the food was harvested and packaged, stored, and transported to Japan. It also requires the stamping of necessary details on the packaging, including nutrients' composition.  

Closure of a company

1.Closure of a branch office

Branch offices can be closed in two ways, either by registering the closure of a branch office or by registering the resignation of all representatives in Japan. A Japanese branch office’s register will not be closed unless all representatives in Japan resign. This is because it is possible for business to be continued in Japan if representatives are registered. Conversely, a branch office in Japan is closed when all its representative directors in Japan resign.

The approach commonly adopted in practice is only to register the resignation of all representatives in Japan. Creditors of the branch office must be given no less than one month before the closure to submit objections to the closure of the branch office.

The general flow of events is as follows.

A)Decision on branch office closure and the resignation of all representatives in Japan

B)Call for creditors with objections to the branch office closure, on an individual basis and through a notice in official gazettes, to submit claims

C)Notification by a tax agent to tax authorities

D)Branch office closure (no sooner than one month after call/notice above)

E)Preparation of an affidavit regarding the closure of branch office and resignation of all representatives in Japan

F)Attestation of an affidavit by embassy consul or similar official

G)Application for registration of resignation of all representatives in Japan with the Legal Affairs Bureau

H)Acquisition of certificate on registered closure information (about two weeks after registration application)

I)Notification of branch office closure to tax authorities, etc.

These procedures for closing a branch office must also be completed when upgrading a branch office to a subsidiary company. Because a branch office cannot be directly reorganized into a joint-stock corporation (Kabushiki-Kaisha (K.K.)) or a limited liability company (Godo-Kaisha (LLC)), the branch office closure procedures and the subsidiary company establishment procedures must be carried out simultaneously. In such instances, however, the branch office's assets may be passed on to the subsidiary through investment in kind.

Once the resignation of all representatives in Japan has been registered, the register is closed without a date being entered for the branch office’s closure. Although it is usually sufficient for the date of closure to be recorded in the affidavit, it is necessary to register both (1) branch office closure (abolishment) and (2) resignation of all representatives in Japan if a date of closure is required in the register. Where the address of a representative in Japan and the branch office fall under the jurisdictions of different regional legal affairs bureaus, it may be necessary that a registration application similar to that for registration of transfer of a business office is made to the bureau with jurisdiction over the representative’s address.

2.Closure of a local entity

The following procedures must be completed when dissolving/liquidating a GK or KK. Creditors of the subsidiary company must be given a period of no less than two months prior to the liquidation to submit their claims against the subsidiary company. Should the subsidiary company have negative net assets, the corporation cannot independently complete the liquidation procedures below but instead must follow special liquidation procedures under the direction of a court.

General flow of the procedures is as follows

A)Resolution at the general meeting of shareholders or equivalent on the dissolution of the subsidiary company and the appointment of a liquidator

B)Application to the Legal Affairs Bureau for registration of the dissolution of the subsidiary company and the appointment of a liquidator

C)Notification to tax authorities of the dissolution of the subsidiary company and the appointment of a liquidator

D)Call for creditors with claims against the subsidiary company, on an individual basis and through notices in official gazettes, to submit claims

E)Preparation of a balance sheet and inventory of property at dissolution

F)Approval by a general meeting of shareholders or equivalent of the above balance sheet and inventory of property (notification delivered to members in the case of a limited liability company)

G)Ascertainment and distribution of residual assets

H)Resolution approving conclusion of liquidation at the general meeting of shareholders or equivalent (no sooner than two months after the call and placement of notices in 4 above)

I)Application for registration of the completion of liquidation of the subsidiary company with the Legal Affairs Bureau

J)Acquisition of certificate on registered closure information (approx. two weeks after application for registration)

K)Notification of completion of liquidation of the subsidiary company to tax authorities, etc.

If you need any support, please contact us at info@ajai-indians.org

. We will be happy to guide you and/or introduce a good solicitor to you.   

References

1.Japan External Trade Organization (JETRO) website 

About the author

Yogi (Yogendra Puranik), born in India, is living in Japan for more than 20 years. He is the first elected assemblyman of Indian / Asian origin in Japan and the first foreign-origin person to be appointed as Principal (Grade V civil officer) of a public secondary and high school in Japan. He is a leading volunteer in Indian community in Japan and a thought leader on topics like symbiotic society, education, IT in government etc. He conducts lectures in universities across Japan, ministries, government offices and corporates.  

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