Japan is known for its technological innovation and thriving manufacturing sector, with key industries including automobiles, electronics, semiconductors, pharmaceuticals, and processed foods. In the latest Global Business Complexity Index (GBCI), Japan ranks 38th, improving from 43rd place in 2023. While the country has become more business-friendly, challenges still exist for foreign investors. If you’re considering incorporating in Japan, here’s a guide on what to keep in mind.
Types of Business Entities in Japan
The Companies Act of Japan defines three primary business entity types: Kabushiki Kaisha (KK), Godo Kaisha (GK), and branch offices. Each has its own characteristics, advantages, and drawbacks, making it important to choose the right structure based on your business needs.
1. Kabushiki Kaisha (KK)
The Kabushiki Kaisha (KK) is the Japanese equivalent of a corporation and is the most commonly used entity for foreign businesses. It is highly respected by Japanese partners, contractors, customers, and employees. Like a public limited company (PLC), a KK allows shares to be publicly traded, and shareholders enjoy limited liability.
Setting up a KK involves more rigorous registration requirements compared to other entity types. The articles of incorporation must include:
Company name
Registered office address
Business purpose
Names of directors and auditors
Total number of shares to be issued
Terms of directors and auditors
At least one shareholder and one director are required, and while a shareholder can be a corporation, a director must be a natural person. The local residency requirement for directors was abolished in March 2016, making it easier for foreign businesses to operate in Japan.
Financial statements must be approved at an annual shareholder meeting within three months of the business year’s end. Non-listed KK entities are also required to publicly announce their balance sheets and profit/loss statements.
2. Godo Kaisha (GK)
Introduced in 2006, the Godo Kaisha (GK) is less formal than a KK and operates similarly to a US LLC. Unlike a KK, a GK cannot issue shares. Ownership and management are more flexible, as owners can be individuals or corporations. Additionally, a GK is not required to hold annual shareholder meetings or make public announcements, which makes it appealing to foreign investors who prefer a more relaxed regulatory framework.
Although the GK entity offers fewer compliance obligations, it is less recognized than the KK, which may affect its ability to build credibility with local businesses and partners.
3. Branch Office
A branch office is an extension of a foreign company, not an independent subsidiary. As such, branch offices are less commonly used in Japan, and their setup requirements have declined. However, they still operate as a legal entity in Japan, allowing them to open bank accounts, hire employees, and enter into contracts independently.
Branch offices require at least one local representative director, a natural person who acts as a liaison between the branch and the parent company.
Capital Requirements
For both KK and GK entities, the minimum capital requirement is 1 yen, though most companies choose to register a higher capital amount to enhance their credibility. For branch offices, there is no minimum capital requirement. If applying for a visa, however, a capital of at least 5 million yen is often necessary.
Document Submission and Incorporation Timeline
The process of incorporating a business in Japan typically takes one to two months after all necessary documentation has been submitted. Japan has been slow in adopting online application systems, and while electronic filing is available for incorporation, non-Japanese companies cannot access these systems from abroad.
All incorporated entities must notify the tax office within three months of incorporation to ensure they don’t miss out on tax benefits.
Opening a Bank Account
Opening a business bank account in Japan can be a lengthy and challenging process due to strict Know Your Customer (KYC) requirements. In-person interviews with company representatives are often required, and banks may insist on having a local director, even though it is not mandated by the Companies Act. The high KYC standards are aimed at preventing money laundering and ensuring that businesses meet Japan’s investment product suitability requirements.
Why Work with B2B Hub?
Navigating the complexities of starting a business in Japan can be overwhelming. That’s where B2B Hub comes in. With expertise in local regulations, market entry strategies, and business setup services, B2B Hub can streamline the incorporation process for you. We provide tailored solutions that save you time, minimize risks, and ensure compliance with Japanese laws, making your transition into the Japanese market seamless and efficient. Whether you need assistance with entity selection, document submission, or opening a bank account, B2B Hub is here to help you succeed in Japan’s dynamic business environment.
For inquiries, please contact us at +44 770 018 3107, visit our website at b2bhub.ltd, or send us an email at reg@b2bhub.ltd.
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