Procedures for Doing Business in Japan Part1 -Types of Organizations and Taxation-
Japan is the third-largest in the world by nominal GDP. Due to its large market economy and stable security situation, Japan is one of the attractive locations for international organizations.
Through a serialization of “Procedures for Doing Business in Japan,” we would like to provide the basic knowledge and procedures for foreign companies starting business in Japan. In the first part, we would like to focus on types of business entities in Japan and related tax issues.
2. Types of business entities and taxation
① Representative office
A representative office is established to conduct preparatory operations for future sales activities. The establishment of a representative office does not require registration. A representative office can engage in supplemental activities such as market survey and information gathering; however, it is not allowed to conduct any sales activities in Japan.
Since no income is supposed to derive from preparatory activities in representative offices, there is no requirement of filing corporation tax or consumption tax in general. However, in cases where certain transactions exceed the scope of auxiliary activities, there might be a possibility of taxation.
② Branch office
A branch office does not have its own corporate status. It is deemed as a part of a foreign company. In order to conduct sales activities continuously in Japan, a branch office has to be registered in accordance with the Japanese law.
For tax purposes, a branch office is treated as an independent entity from its overseas head office. The scope of income is the income attributable to the branch office (permanent establishment) and other prescribed income.
③ Subsidiary (a Japanese company)
A subsidiary company is a separate independent entity from its overseas head office and has to be registered with the Ministry of Japan. Although there are several corporate entities under the Companies Act, either a joint stock company (Kabushiki-Kaisha, KK) or a limited liability company (Godo-Kaisha, GK) is selected in general. KK is the most common structure and considered to be more reliable and better-known when doing business in Japan. On the other hand, GK can embrace more freedom of self-government through its articles of incorporation and operate its administrative works more simply.
In principle, KK is imposed on its world-wide income regardless of whether its source of income (the source location of income) is generated in Japan or overseas.
We have been supporting international clients setting up business in Japan since our founding. With a wealth of knowledge and experience, our bilingual staff can select your best corporate structure in starting business in Japan and offer one-stop service from company registration to tax filing.
In this News, we mentioned types of business entities and taxation as the first part of “Procedures for Doing Business in Japan.”
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
(Reference / In English)
JETRO How to set up business in Japan
(Accessed on 21 March, 2022）