Japan

Sakura Consulting works with you to ensure you establish a business entity that fits your needs for Japan. Below is a brief description of each business entity.

Common business entities in Japan are as follows:

• Differences between a BO, KK, & GK
• Kabushiki Kaisha (KK)
• Godo Kaisha (GK)
• Branch Office (BO)
• Representative Office (RO)
• Nominee Director & Nominee address Services

A Kabushiki Kaisha (KK – joint stock company) is the most common business entity in Japan as roughly 85% of all registered companies are a KK. The KK is the equivalent of an American C Corporation. One of the advantages of a KK is that it carries a higher level of prestige with customers, employees, and in the Japanese business community. As with a C-Corp, a KK protects shareholders from personal liability and there is also a clear organizational distinction between shareholders and management. However, it is still possible for a person to be a shareholder and director at the same time. It is important to note that KKs must have at least one representative director who can be either a resident or non-resident. KKs are the most expensive business entity to form and are held to the highest regulatory standards. An advantage of a KK is that it can be listed on the Japanese stock exchange (Nikkei). A KK is most appropriate for medium to large companies and is scalable but is not limited to smaller businesses that prefer the designation of being registered as a KK.

The Godo Kaisha (GK) is the Japanese equivalent of a U.S. Limited Liability Company (LLC). GKs provide limited liability protection for shareholders. Thus, allowing shareholders / small business owners protection from personal liability. GKs are easier to set-up and less expensive than a KK. Benefits include not having to establish a Board of Directors or filing Articles of Incorporation. Additionally, there is no organizational separation between ownership and management and investors are considered partners that help run the company. As for business size, GKs are typically better suited for small to medium size companies and do not carry the prestige of a KK, which may be a deterrent for attracting new customers or recruiting employees. Another disadvantage of a GK is that it cannot be listed on the Japanese stock exchange (Nikkei).

The simplest means for a foreign company to establish a base for business operations in Japan is through the establishment of a branch office (BO). The BO can begin business operations as soon as an office location is established, when a BO representative has been secured, and all required information has been registered. A BO does not have its own legal corporate status but instead is deemed to be encompassed within the corporate status of the foreign company. The foreign company is ultimately responsible for all debts and credits generated by the activities of its Japanese BO. A Japanese BO can open bank accounts and lease real estate in its own name. Additionally, a BO creates potential Japanese corporate income tax exposure on all of its foreign parent’s Japanese business income (the foreign company is ultimately responsible for all debts and credits generated by the activities of its Japanese branch office). A BO cannot be converted to a Japanese company so the corporate tax benefit of rolled-up losses will be lost if for any reason a switch is made to a kabushiki kaisha or godo kaisha prior to the rolled-up losses being offset.

Representative offices (RO) are established as locations for carrying out preparatory and supplemental tasks aimed at enabling foreign companies to engage in full-scale business operations in Japan. These offices may conduct market surveys, collect information, purchase goods, and implement publicity/advertising efforts but they are not permitted to engage in sales activities. The establishment of a RO does not require for it to be registered. A RO cannot ordinarily open bank accounts or lease real estate in its own name, so agreements for such purposes must be signed by the head office of the foreign company or by the representative at the RO in an individual capacity (Yusuke Tanaka, Company Name Inc. RO in Japan). The RO needs to have a Representative resident of Japan (someone with a Japanese address and the right to work in Japan).

There are no legal registration requirements and the RO does not need to be registered with the Legal Affairs Bureau as would be the case with a branch or a subsidiary. In addition, there is no requirement to report the direct inward investment to the Ministry of Finance via the Bank of Japan, which is required under the Foreign Exchange Law for Branch entities. However, where there are employees being paid a salary into a Japanese bank account, there are payroll and social insurance registration requirements.

RO’s are not subject to taxation in Japan. However, if the RO exceeds the permitted functions outlined above, there is a risk that it will be subject to Japanese taxation. The profits that would become subject to taxation under these circumstances would then be subject to negotiation between the company and the Japanese authorities.

Nominee Director services allows clients important options such as the ability to hire staff, while in the process of recruiting a director/country manager. The Representative Director of a Kabushiki Kaisha or Executive Manager for a Goudou Kaisha, needs to be appointed at the time of establishment but no longer needs to be a resident of Japan. This person is not considered an employee but a principal of the company who can bind the company contractually and bears the risk of liability.

Nominee business address services (virtual business address) enable our clients to register their company in Japan before a permanent office location is selected.