Different Types of Operation for a Foreign Company
Different types of business operation categories for a foreign company in Japan Foreign companies that wish to operate business in Japan can choose a type of operation from among three different options – Representative Office, Branch Office or Subsidiary.
Which structure would be most suitable for your company? Some indications would be the following:
・Representative office: If you don’t know how the business will grow in the Japanese market so simply wish to do a market research so far
・Representative office: If there will be no sales in Japan. You only wish to send an employee to engage in the PR, advertisement or to contact Japanese business partners and do not wish to pay taxes in Japan.
・Branch office: If you need to have an officially registered legal entity in Japan or a Japanese bank account to be able to deal with Japanese clients, but do not wish to have a separate capital in Japan.
・Subsidiary: If you need a Japanese company, or prefer to avoid disclosing the information on the parent company (directors, amount of capital, etc.) or to have a separate accounting from the parent company.
・Subsidiary: If there will be a certain amount of turnover in Japan that would be likely to generate profit locally. Now let’ review the details of these 3 different business operations.
REPRESENTATIVE OFFICE
A Representative Office is a simple fact of having a physical office space located somewhere in Japan, and there isn’t any required procedures to register it officially. It is not supposed to engage in commercial activities or generate profits locally. The activities of a representative office are limited to the following fields :
・Providing information to parent company in overseas,
・Advertising and publicity,
・Market research,
・Basic research and studies,
・Purchase and storage of assets for parent company.
Since a Representative Office doesn’t have any commercial activities, a Representative Office doesn’t have capital, and therefore it is not subject to paying corporate tax in Japan.
When a non-Japanese staff member is sent to work in Japan, it is necessary to obtain a visa / status of residence for that staff member (see the page on visa and immigration procedures).
It is also possible to employ local staff. It is not possible to open a bank account under the name of the parent company. Only a personal account under the name of the representative can be opened, but the account holder’s name can be followed by the company’s name.
BRANCH OFFICE (SHITEN)
A Branch is an extended office of the parent company in Japan and can engage in commercial activities based on the capital of the parent company. The expenses are paid by the parent company, but it also collects the profits made by the branch office, which needs to be integrated to the company’s annual accounting.
A branch office needs to declare and pay corporate taxes in Japan. The tax amount is based on the profits generated by the branch office in Japan.
Because of the complexity of the accounting aggregation with the head office, the only benefit of registering a branch office is when the Japanese operation will be solely a cost center, without generating any profit in the future, but needs to have an officially registered entity in Japan (to be able to have a bank account in Japan or to be able to provide a certificate of registration issued by the Japanese authorities for example). It is recommended to open a Representative Office instead if its functions are sufficient, or a subsidiary if the Japanese entity is likely to generate profit in the future. It is required to register a branch office at the Japanese registry office and to be able to do so, it is necessary to have an official Japanese office address and to nominate a representative who is a resident in Japan (regardless of the nationality).
When a non-Japanese staff member is sent to work in Japan, it is necessary to obtain a visa / status of residence (see the page on visa and immigration procedures). It is necessary to obtain business licenses or permission from Japanese authorities when your activities fall into one of those that require them.
SUBSIDIARY – company established under the Japanese Law
A Subsidiary is an independent company established under the Japanese law, with a foreign company holding its shares. Please see “how to establish a company in Japan?” for detailed setting up procedures.
A foreign company can be the sole shareholder of its Japanese subsidiary, although it is also possible to have other shareholders whether it is a company or an individual, Japanese or foreign.
It is possible to appoint non-resident directors, as long as there is a Representative Director who is a resident in Japan (regardless of the nationality).
It is also common to appoint two Representative Directors, one resident and another non-resident, often assumed by the president or one of the directors of the parent company.
When a non-Japanese staff is sent to work in Japan, it is necessary to obtain a visa / status of residence (see the page on visa and immigration procedures).
It is necessary to obtain business licenses or permission from Japanese authorities when your activities fall into one of those that require them.
We support with setting up a business in Japan.
