As a foreigner in Japan, you may come up with ideas which others may not have thought of, and it is easier to differentiate your business and get noticed. So while it is certainly more challenging for foreigners, it can also be more rewarding.
This article is aimed at individuals already living in Japan, who want to create their own business, as opposed to companies looking to establish a Japanese subsidiary.
Establishing a company isn't a walk in the park, but it is easier than the general perception is. Part of the problem is the lack of English-language information about it. For this and many other reasons that you will face in future, a working level understanding of Japanese is vital.
Many foreign businessmen do not speak a word of Japanese, and some of them are really successful. However, if you don’t speak Japanese, you will always be dependent on someone else, and that is a huge handicap as an entrepreneur.
Choosing A Company Type
There are two types of companies you can establish in Japan:
From a high level perspective, a Godo-Kaisha is a bit easier to establish and manage than a Kabushiki-Kaisha, but is unable to have outside investors and it does not give you the same status as a KK.
Some Japanese companies prefer to deal with KKs, but if you think most of your clients will not be concerned with the type of entity they are doing business with, then the GK is a perfectly fine choice as well. With its simpler structure and no requirements for annual shareholder meetings etc., the GK may be the more attractive choice for smaller scale operations.
Kabushiki-Kaisha is structurally tantamount to large corporations like Sony or Toyota, so there is no glaring indication of how small your operation might be. In most cases KK is the best company structure to adopt, as its status is important if you will be dealing with other Japanese companies.
The KK needs only to have share capital of 1 yen initially. There is no rule as to the right amount of capital, but the capital amount is useful to demonstrate the credibility of a company. Of course, small amounts are fine as the capital can be increased in the future.
The incorporation of a K.K. is carried out by one or more incorporators (発起人 hokkinin, sometimes referred to as "promoters"). Under present law, a K.K. must have a board of directors (取締役会 torishimariyaku kai) consisting of at least three individuals. Directors have a statutory term of office of two years, and auditors have a term of four years.
Small companies can exist with only one or two directors, with no statutory term of office, and without a board of directors (取締役会非設置会社 torishimariyaku kai hisetchigaisha). In such companies, decisions are made via shareholder meeting and the decision-making power of the directors is relatively limited. As soon as a third director is designated such companies must form a board.
The major costs to incorporate a company consist of the professional fees charged by legal specialists and government registration taxes. With the exception of cases of very large capital amounts, the registration tax for a KK is 150,000 yen and for a GK 60,000 yen. In addition, the Articles of Incorporation of a KK must be notarized adding about another 50,000 yen in expenses.
You should budget around 300,000 yen to set up a KK and another 200,000 yen or more if you use a legal adviser. Depending on a number of factors, including how quickly the documents are collected and finalized, generally speaking expect the whole process to take between one month or so for a KK and a little quicker for a GK.
Which one is best, Godo-Kaisha or Kabushiki-Kaisha really depends on your individual business.
What Visa Do You Need To Establish A Company In Japan?
In Japan, there are over 27 types of Visa. These can be divided into two types — those that allow a foreign national to work in Japan, and those that don’t.
Examples of the type of status where working is generally forbidden include "temporary visitor", "college student", "dependent", "designated activity" and so on. However, those with "college student" or "dependent" residence status might be allowed to work up to 28 hours per week if they apply for permission from the Immigration Bureau.
Examples of the type of status where working is allowed include specialist in humanities/international services, engineer, entertainer, professor and so on. Basically, the type of work permitted is limited to a specific area of expertise.
However, a foreign national registered as a permanent residents status "eijusha", long term resident status "teijusha", a Spouse or Child of Japanese National visa "haigusha" or a Spouse or Child of Permanent Resident visa "eijusha no haigusha tou" can work in any field.
Detailed information about these visas can be found on the Ministry of Foreign Affairs "MOFA" Website.
If you want to start a business and live in Japan, applying for "Investor/Business Manager" status would seem to be the obvious choice, unless you have the possibility of acquiring any of the visa statuses listed above that allow you to work in any field.
With this visa, you are allowed to run any kind of business, and is the most commonly recommended option.
The downsides of this visa are its requirements: a permanent office "not a co-working space or virtual office" and a 5,000,000 yen investment in the company.
The most important thing when renewing your visa is that you can demonstrate your company can pay you a salary sufficient for you to support yourself. This is considered to be around 250,000 yen to 300,000 yen per month.
The easiest way to do this is if you can actually show that your company has paid you a salary by submitting the receipt you receive annually from Tax Office for Income Tax "gensenchoshuhyo - 源泉徴収票"– Typically it is sent to employees in December or January.
Failing that, contracts with customers are the next option, and theoretically even if you just have a business plan, you can still get your visa renewed.
This means that if you're already in Japan, it's probably easiest to start a company when you have at least a year or so left on your visa.
The paperwork itself for obtaining/renewing a visa isn't so complicated, so if you're doing something standard, as long as you can provide the required documents you can do it yourself "such as renewing a spouse or business visa".
With a quick visit to the Immigration Bureau of Your City you can get the list of the necessary documents that you have to submit.
As a director of a company, Japanese law requires you to set your salary to fixed amount for a given financial year. Once you've fixed your salary, you aren't allowed to change it.
If your company makes profit, you are allowed to issue dividends to the owners of the company "which will just be you if you don't have any partners or investors".
However, profit will be taxed at a rate of about 42%. On top of this, you'll still need to pay income tax normally on any dividends.
When you're starting out, your own salary will probably be the main cost of business, so this leads to a tricky juggling act, where you need to guess how much your company will make in the next year, and set your salary accordingly.
Because your salary needs to stay the same, but especially when you're starting a business, cash flow isn't consistent. When you don't have enough money to pay your salary, you normally record paying yourself the full salary in the books, but instead of giving yourself cash, you'll record it as a debt from the company to you. Later, when the company has enough money, they'll repay you.
So why wouldn't you just set your salary to some amount so high you're guaranteed not to exceed it? Well, firstly directors are only allowed to be compensated a "reasonable amount". More importantly though, even though your company isn't giving you the cash, you still need to pay personal income tax and pension/health insurance, which are based on your salary regardless of this debt. This means if you set your salary too high, you'll end up paying tax on money you never get.
Here you can see the list of relevant material in English on the National Tax Agency’s website.
Hire A Tax Counselor
As a company, you'll need to find an accountant eventually, but by finding one earlier, you can get advice on how to file the proper paperwork, or even have them do it for you "for a fee".
In Japan, specialists in the fields of law and taxation are diverse. They are classified as follows:
Bengoshi "lawyers", Shiho-shoshi "judicial scriveners", Gyosei-shoshi "administrative scriveners", Benrishi "patent attorneys", Zeirishi "tax counselors", specialists in social insurance, real estate examiners, and certified public accountants.
A quick Google search will list a few English-speaking accounting firms that can register your company for you. Usually you’ll pay a premium "50%~100%" more for English-speaking service, so hire a Japanese accountant if you want to save money on the registration process.
While it is possible to register a company on your own, the extra assurance that everything is handled properly is more than worth the accountant's fee.
As an individual, you can file the paperwork necessary to create a company yourself. But you must be able to speak, read and write Japanese to deal with the Legal Affairs Office and bank.
Whether for company registration, you ask your account or you’d like to handle it on your own you need to prepare the followings;
1. Company Profile
The profile should list the following:
Company Name – Decide whether you want to use Kanji, Katakana, or Romaji "roman letters", for the name.
Prepare the katakana pronunciation of the name as well because the bank will ask for this when opening the account. The name you choose will appear on your company registration certificate and seal.
What Your Company Does – Make a list of around 5 or more things. Try to cover a wide range of activities within your chosen industry as your company must remain inside these established objectives.
Address – A permanent address is best because you'll have to pay a fee to change the address later.
Paid-In Capital ― Decide how much money you'll contribute to start the new company. This money will be transferred into the company’s bank account you establish after registration is complete.
Tax Year – Is your company tax year January ~ December or April ~ March? A good rule of thumb is to get your registration date as far from the tax filing date as possible. This way you don't have to file taxes a month after registering the company.
Owners ― Are you the only owner or are others involved?
2. Personal Seal Registration
There are shops all around Japan that will make Seals "Hanko" for you in the standard size. You can purchase one from a local Hanko shop or even order online using a Site Like Hankoya.
A normal Hanko cost about 7,000 yen, but this can easily go up to 100,000 yen if you want stamps made out of rare buffalo horns or whatever.
Take the seal to the municipal office and they will "connect" it with your identity "like a signature". They will ask you how many copies of the seal registration certificate you want. Get 2~3 of them. You'll need one for the company registration process. Keep the others for yourself, they might come handy.
The entire procedure is quick and straightforward. When process finished you'll also receive a card similar to an ATM Card, to make any future changes to the seal registration. This is a security measure to prevent identity theft.
3. Company Bank Account
4 or more weeks later, you'll receive your company registration certificate and seal registration. Think of your company as a person―it has its own name, address, and seal. It also pays its own taxes. It's a separate entity.
Therefore, it needs its own bank account too. Bring your company registration certificate, company seal certificate, and seals "personal & company" to the bank you'd like to use. Make sure you know how to spell your company name in katakana.
Banks in Japan wouldn’t easily open account for you. If you apply with one of the major banks where you have a personal account, create the company account at the branch where you created your personal account; apparently, because they know you better they might accept to open an account for your company too.
The best option is the local city banks "for example if you live in Yokohama: Yokohama Bank". Comparing to major banks they are somehow welcoming, because they feel you are helping the economy of the city by bringing your business to them which is good for them too. It is easier to receive banking facilities from them as well.
Whether you choose a mega bank or a local city bank, the process of opening an account is much faster and smoother if you are introduced by a company who has an active bank account there.
National Pension / National Health Insurance
If you're a resident of Japan, law requires you to be enrolled in the National Pension and National Health Insurance programs.
There are two ways of being registered: directly as an individual or through your company. In both cases, the amount you pay is based on your income, and as an individual, you pay about the same amount.
However, by being registered through your company, your company does a co-payment of the same amount as you do as an individual. So if your company only employs the director(s), by going through the company, you have a significant cost increase over paying it as an individual, and thus can afford to pay yourself less salary.
Technically, this is what you are supposed to do, but apparently if your company only employs the director(s), it is a grey area, and you can get away with not going through the company. You’d better check with a lawyer.
Get Advice From Others
There are a number of successful foreign entrepreneurs in Tokyo and the foreign entrepreneurial community is quite strong and can be very supportive.
As an entrepreneur, your network is likely to be your biggest asset and so you should take advantage of the various entrepreneur networks in Japan. Most entrepreneurs want to share their experiences and seeking their advice could save you a lot of time and money. See the Entrepreneur Association of Tokyo.
International Business Support Centers "IBSC"
JETRO stands for The Japan External Trade Organization, and they're a prime information resource for starting your own business in Japan.
Although their free consulting services only apply to foreign companies seeking to start operations in Japan, their free library contains a surprisingly comprehensive amount of information in English, so it's a fantastic place to educate yourself.
To obtain JETRO Library Card, ask the front desk and fill out the application form.
In fact, much of the basic information about starting your own company is even download-able from their website.
Here is a list of some useful websites you may want to refer to when starting a business in Japan.