For people want to run a business by themselves, one-man business or Sole Proprietorship (個人事業 kojin jigyo), can be a good option.
It has many advantages over a company; for example the process for filing taxes is simpler and you don’t have to hire an accountant. You can also expense a portion of your apartment rent if you work out of it. A sole proprietor does not necessarily work alone - you can still employ other people, and of course self-sponsor your visa.
It is possible for anyone to set up a Sole Proprietorship at any time and there is no need for a startup fee. Except in the case of some outside employment prohibition created by one’s current employer, it is even possible for an already employed individual (salaried employee) to set up a Sole Proprietorship to bring in some extra income.
What Visa Do You Need?
To establish a business in Japan you will need to hold either permanent residents status (永住者 - Eijusha), long term resident status (定住者 - Teijusha), a "Spouse or Child of Japanese National" visa (配偶者 - Haigusha), a "Spouse or Child of Permanent Resident" visa (永住者の配偶者等 - Eijusha no haigusha tou), or obtain an "Investor / Business Manager" visa (投資家/経営者 - Toshi-keiei).
Detailed information about working and long-term stay visas can be found on the Ministry of Foreign Affairs of Japan "MOFA" website.
You can also read the details about laws and regulations concerning the immigration services on Immigration Bureau of Japan website.
Individuals who would like to start their own Sole Proprietorship are required to file a Blue Form called “Notification of Commencement of Business” (個人事業の開廃業等届出書 - Kojin Jigyo no Kaihaigyo Todokedesho) with their local tax office at their Ward / City within 30 days of the business’s establishment.
Do You Need A Special Permit?
Depending on the type of business you decide to establish you will require one or few permits. Since the most common businesses which foreign residents in Japan decide to establish are, export-import trading companies, restaurants and language schools, below only related permits to those activities are referred to.
Register With The Post Office
If you are using your home address as your business address, you’d better inform the post office. You just need to fill out a half-page form at your local post office. Adding your company name to the name and address of your residential mail box would help too.
Note: if you are living in rented property, it might be necessary to obtain a written consent from the property owner, especially if you have regular visitors.
You will be required to pay sole proprietor tax "個人事業税 - kojin jigyo-zei", income tax "所得税 - shotoku-zei", and residential tax "住民税 - jumin-zei".
Make sure to keep records of revenues and expenses as well as bills and receipts issued or received in relation to your business; at the time of filing your taxes they may ask for these references. For more details visit National Tax Agency Japan Website.
Do You Speak Japanese?
Unless your business is a niche business targeting foreigners who speak your language, a working level understanding of Japanese is vital. If you have to communicate with Japanese and do not speak the language, you will always be dependent on someone else, and that is a huge handicap as an entrepreneur.
Why Wouldn't You Want To Use A Sole proprietorship?
If you want to share ownership of a business, either with other partners or investors, you need to establish a company. Another reason is that because the sole proprietorship is not a separate entity, and you have unlimited liability - so if your business go bankrupt, is litigated, or something else happens, you are personally liable for it.