January 2015 | www.selectasset.com
Minding your own business in Japan

“Doing business in Japan,” is usually near the top of every global-minded executive’s list. But starting a business in Japan is whole different ballgame. Yes, there are many hurdles to overcome before you can be up and running. And, compared a place like Hong Kong, Japan's dense layers of legal requirements can make it seem like an unwelcome place for entrepreneurs. However, in the last half decade there has been significant easing of restrictions, such as the former ¥10 million capital requirement. Today, as the country prepares for the 2020 Olympics and seeks to attract even more overseas investors, the message is clear: Japan is open for business and new businesses.

Coming in from overseas
The first thing to consider when starting a business in Japan is what kind of operation to launch. If you are an existing overseas firm seeking to open shop here, there are three typical models:

  • Representative office: While it cannot engage in sales activities, a representative office can do market research and preparatory work prior to a full and formal Japanese market entry.
  • Branch office: In this instance, the overseas parent company assumes responsibility for all debts. Tax levels are calculated based on the head office’s capital stock.
  • Subsidiary company: A new company is established, with responsibility for all its own debts. Taxes are based on the subsidiary’s capital stock.

Those setting up a subsidiary or starting up an entirely new company will need to consider what type of Japanese company to establish. Most will choose between a kabushiki-gaisha (K.K.), which roughly equates to a “corporation,” and Goudou-gaisha (G.K.), which replaced the former yugen gaishia (Y.K.) in 2006 and is similar to a “limited liability company” (LLC). While the K.K. presents a more established, hefty corporate image, the G.K. is a cheaper option for entrepreneurs and smaller operations.

Prior to registration, the Japan External Trade Organization (JETRO), recommends preparing the following items: business objectives, trade name, any relevant permits (such as food and beverage licenses), the representative director’s personal name seal (hanko), company hanko, and a designated bank account for investment capital. On their website, JETRO provides a handy start-up scenario flow chart in English and plenty of relevant information.

“If you are starting a new venture from scratch, it’s best include as many possibilities as you can imagine when designating what kind of business you will operate,” suggests Tom Boatman of Tokyo-based advertising boutique Native Creative.

“A marketing start up might want to include movie production, recording and publishing, along with more typical services, just in case,” he explains. “As your business evolves, you may want to diversify, but it is difficult to add services that were not included in your initial plan, without consulting a lawyer and doing mountains of paperwork.”

Also of importance to the budget minded is the selection of a corporate address, particularly in Tokyo where “establishment” and “enterprise” taxes on businesses vary considerably by ward. For example, Minato Ward, in central Tokyo, might be an ideal business address, but it would be much cheaper tax-wise to launch a business in more suburban ward, such as Nerima or Suginami. The “official” tax filing address, or corporate headquarters, and the place you actually work and hold meetings need not be the same.   

In terms of branding, in Tokyo at least, your business address can also have an impact on how your company is perceived. A phone number with a “03” prefix (indicating one of Tokyo's main 23 wards) will make a far more positive impression on most executives than the “04” numbers that indicate city’s westward expansion.

Visa? Make sure it’s in order or find a local partner
Having a Japanese business partner solves a lot of problems, but for those without, visa status is an essential business consideration. Foreigners married to Japanese or those holding permanent residence status have less to worry about. But for someone in the country on a temporary or restricted visa, an Investor/Business Manager visa will mostly likely be necessary. To qualify for this visa, you must prove you have prepared the following:

  • Office space
  • At least one full-time employee who is also a legal Japan resident (this can be yourself)
  • Investment capital of at least ¥5 million
  • A business plan including a detailed profit/loss statement

One frustrating problem can be the “Catch 22” scenario where real estate agencies are unwilling to rent office space to people who do not already have visas and residence permits. Fortunately, there are lots of temporary office space options that cater to foreign entrepreneurs and start-ups, but prices vary wildly. Shop around for the more reasonable, “do-it-yourself” facilities.

Registering a company? Japanese help needed
Finally, to manage the paperwork required to register a company in Japan, legal and accounting help are absolute musts. The kinds of services you will need generally fall under the following categories:

  • Legal counselling and representation in corporate matters
  • Assistance in registration of the business or office
  • Acquisition of visas and permits (e.g. food hygiene certificates for restaurants)
  • Consulting in matters relating to patents and licenses
  • Bookkeeping and taxation

When looking for help, accounting is a good place to start. Many Japanese accounting firms will integrate and offer most of the legal services required to launch a business. Fees vary and are directly related to the need for English assistance.

Tokyo-based marketing consultant Don Kratzer, who has started his own company in Japan, warned to expect an outlay of least ¥300,000 for launch services alone. “Once, you are up and running, corporate tax reporting services can run ¥30,000 to ¥50,000 yen per month,” he says. Of course, there is a big difference in fees between firms that offer English language services and those that don't. Even most native Japanese speakers struggle with the legalese of business forms, but being able to at least speak to your accountant in Japanese could give you access to a broader range of low-cost assistance and help you get the most out of your launch capital. That’s where a Japanese business partner, or personal assistant becomes invaluable.