My first experience with establishing a company "Kabushiki Gaisha", goes back to 1987, but not much has changed since. The nature of the business is the same; producing, selling and buying – only there are more products and the ways of communication have expanded. Three decades ago we were using telex, telephone and fax machines, and now Internet has made it a lot easier and consequently fiercer competition in the market.
As a foreigner in Japan, you may come up with ideas which no one have thought of yet, and it is a kind of easier to differentiate your business and get noticed in the market. While it certainly is more challenging for foreigners to work in Japan, it can also be more rewarding.
This article would be helpful for individuals who are already living in Japan, and want to establish their own business, as opposed to companies looking to set up a Japanese subsidiary.
Establishing a company in Japan is not easy, but it is easier than the general perception is. Actually the main problem is the lack of English-language information about this subject. For this and many other reasons that you will face in future, a working level understanding of Japanese is vital.
Many foreign businessmen live and work here with no more than a handful of simple phrases, 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 Company Type
There are two types of companies you can establish in Japan:
Godo-Kaisha is a bit easier to set up and manage than a Kabushiki-Kaisha. With its simpler structure and no requirements for tasks like annual shareholder meetings, the Godo Gaisha may be the more attractive choice for smaller scale operations.
However, Godo Gaisha is unable to have outside investors and also it does not give you the same kind of status as a Kabushiki Gaisha. Some Japanese companies prefer to deal with Kabushiki Gaisha, but if you know that most of your future clients will not be concerned with the type of entity they are doing business with, then the Godo Gaisha is a fine choice as well. In most cases Kabushiki Gaisha is the best company structure to adopt, as its status is important if you will be dealing with Japanese companies.
The Kabushiki Gaisha 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 as the company grows.
The major costs to establish a company consist of the professional fees charged by legal specialists and government registration taxes. The registration fee for a Kabushiki Gaisha is 150,000 yen and for a Godo Gaisha 60,000 yen. The Kabushiki Gaisha must be notarized which cost another 50,000 yen.
You should budget around 300,000 yen to set up a Kabushiki Gaisha and about 200,000 yen if you use a legal adviser. Depending on a number of factors generally expect the whole process to take about one month for a Kabushiki Gaisha and a little quicker for a Godo Gaisha. So, which one is best? - Godo Gaisha or Kabushiki Gaisha; it really depends on your individual business needs.
Type of Visa You Need
In Japan, there are 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.
The types of status that generally are forbidden to work include "dependent", "temporary visitor" and "college student". However, the "dependent" and "college students" might be allowed to work up to 28 hours per week if they apply for permission from the Immigration Bureau.
The types of status that are permitted to work in a specific area of expertise include "engineer", "professor", "specialist in humanities/international services" and "entertainer".
The types of status that can work in any field include a foreign national registered as a permanent residents status "eijusha", long term resident status "teijusha", a Spouse or Child of Japanese National visa "haigusha" and a Spouse or Child of Permanent Resident visa "eijusha no haigusha tou". Detailed information about these visas can be found on the Ministry of Foreign Affairs "MOFA" Website.
If you are in Japan and want to start a business, the obvious choice would be applying for "investor/business manager" status, unless you have the possibility of obtaining any of the visa statuses listed above that allow you to work in any field. With "investor/business manager" visa, you are allowed to run any kind of business. The disadvantages of this visa are the conditions attached to it: 5,000,000 yen to invest in your company and to have a permanent office (not a virtual office).
Once you start your work, the most important thing for renewing your visa is that you can prove your company can pay you a salary that is sufficient for you to support yourself. Normally your salary should be around 250,000 yen to 300,000 yen per month. The proof you need to provide is to show that your company has paid you a salary by submitting the receipt which 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. If that is not possible, showing contracts with customers would be your next option.
The paperwork for renewing a business visa, or a spouse visa is not complicated. As long as you can provide the required documents you can do it yourself. 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.
Presently, according to Japanese law, as a director of a company you should have a fixed salary for a given year. The company’s profit will be taxed at a rate of about 42%. If you have issued dividends, you need to pay more income taxes.
Japan is one of those countries that if your company’s expenses exceed its income annually, you can record it as debt and later when the company has enough money, it will pay you back. This is mostly for tax related issues. For some this is one of those situations that they need to contemplate how high to set the salary.
If you are guessing that your company is going to have a lot of income and you are thinking to set your salary high enough to pay fewer taxes, you need to keep in mind that the personal income tax, pension and health insurance will be calculated based on your salary. So, the higher you set your salary the more tax you should pay on other things. Here you can see the list of relevant material in English on the National Tax Agency’s website.
Hire A Tax Counselor
If you are going to establish a company for the first time and not sure what you exactly should do, you’d better find an accountant who can advise you on how to file the paperwork. For filing your company’s formal paperwork with different organizations in future, you’ll need to find one anyway.
You can file the paperwork to set up a company yourself, but you must be able to speak, read and write Japanese to deal with the legal affairs office and bank. Nowadays, you can easily find several English-speaking accounting firms with a quick google search. Just know, in comparison their charging fees are a little higher.
In Japan, consultants in the fields of law and taxation are diverse. Below see their name in English and Japanese and how generally they can assist you.
Documents For Company Registration
For company registration, whether you’d like to handle it on your own or ask your account, you should prepare the followings;
1. Company Profile
The profile should contain the following:
2. Registering Your Personal Seal
There are shops all around Japan that will make Seals "Hanko" for you in the standard size. You can purchase one from a Hanko shop which you would usually find near train stations. A normal Hanko costs about 7,000 yen, but this can easily go up to 100,000 yen depending on the material you choose.
You need to take the seal to the Municipal office and they will connect it with your identity. People usually use this Hanko for official and important documents. Together with your registered Hanko they will give you a card similar to an ATM card. You can use the card to make changes to the seal registration whenever necessary. Ask for one copy of the seal registration certificate; you will need it for opening the company bank account.
3. Opening The Company Bank Account
Once your company is registered, you will receive a registry certificate and company's seal certificate. The process of registration normally takes two to four weeks. For opening a bank account for your company you’ll need the company registration certificate, company seal certificate and both personal and the company’s seals. The bank will ask you for the Katakana version of the company name too.
Banks in Japan, especially major banks wouldn’t easily open an account for you. 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 would be smoother if you are introduced by a company who has an active bank account there.
National Health Insurance & National Pension
According to Japan’s law, all residents must enroll in the National Pension and National Health Insurance programs. You can choose to register directly as an individual or through your company. Legally, as a company director/owner you are required to register through the company. You’d better check the details with a lawyer.
Get Advice From Other Entrepreneurs
There are several entrepreneurial communities in Japan. Members go to events set up by the community to share their experiences. Seeking their advice could save you a lot of time and money.
You should take advantage of the various entrepreneur networks. As an entrepreneur, your network can be your biggest asset. See the Entrepreneur Association of Tokyo.
Here is a list of some useful websites you may want to refer to when starting a business in Japan.