How to Set Up Business in Japan Model Case Commentary: Business Setup

Foreign companies establishing a business entity in Japan can choose from three basic types of operations: 1) subsidiary company ("kabushiki kaisha"), 2) branch (of foreign office) and 3) representative office.

As the procedures for setting up a company or a branch in Japan are complicated and must be conducted in Japanese, most people enlist the services of a professional, such as an attorney-at-law, judicial scrivener, or administrative scrivener to handle establishment procedures which typically take three months to complete.

Japan has many licensed professionals with publicly administered qualifications in a broad range of areas (legal professional business). As a rule, the scope of business of licensed professionals are defined by competent ministries and agencies, and it is not permitted by law that any unlicensed person acts as an attorney-in-fact or agent in any business exclusive to the professional of other license on behalf of a company or other organizations.

In addition, recently, administrative procedures have been increasingly digitalized, and therefore it is possible for licensed professionals to take electronic procedures in the scope of their business. Professionals in Japan are only qualified to provide a defined range of services, so you will most likely need different professionals for different tasks. Many offices of professionals are often in alliance with offices of other kind of professionals, or they provide referral to appropriate professionals.

When setting up your company’s base in Japan, if your business is in industries related to national security, public order, public safety, etc., you need to submit a prior notification to the BOJ. For other types of business, you need to submit a report to the BOJ within 45 days from the date of establishment as a general rule.

Companies must complete the required registration procedures in order to legally conduct business in Japan.

Notification of establishment of business must be submitted to national, prefectural and municipal tax offices except for the 23 wards (Tokyo Map) of Tokyo. Many companies have a professional prepare and submit these notices. Note that if you intend to enter into an ongoing consulting agreement with an accounting or tax affairs office to handle your company’s day-to-day accounts, it would be more efficient to have the same office prepare the aforementioned notices. If you are not considering such an agreement, another option is to have the professional that took care of your company registration introduce someone to handle these notices. You must pay attention to the due dates, as some preferential measures may not apply to late submissions of applications and notifications.

Please refer to the following information for opening a corporate bank account.

When opening a corporate bank account, in addition to the above-mentioned perspective of preventing crimes such as account trading and money laundering, the actual business conditions may also be examined. Accordingly, the company may be required to explain its corporate profile and financial condition, including information on its beneficial owner(s) (see Note below), the purpose of opening the account, and the details of the business (including the license or permit if the business is a licensed or authorized business). Since incomplete submissions or delays in responding to inquiries may be judged unreliable, it is advisable to prepare in advance explanatory materials on such matters (e.g., websites for corporate profiles), certificates, agreements, etc. and respond promptly and reliably.

When setting up your company’s base in Japan, if your business is in industries related to national security, public order, public safety, etc., you need to submit a prior notification to the BOJ. For other types of business, you need to submit a report to the BOJ within 45 days from the date of establishment as a general rule.

When your Japanese base conducts a business that is subject to special regulations, such as financial business, insurance business, investment-related business, import and sale of pharmaceuticals, medical equipment, cosmetics, and alcoholic beverages, building construction business, and construction business, it is necessary to obtain a permit or approval before starting the operation.

If the representative and employees reside in Japan and attempt to engage in business activities, a visa and status of residence that enables them to work are required. Visas based on the status of residence may be applied for at a Japanese Embassy/Consulate abroad.

To obtain a working visa, applicants must first apply at a Regional Immigration Services Bureau for a certificate of eligibility. The type of status of residence for each applicant is determined by the nature of the applicant's activities in Japan. It usually takes about one to three months from application to issuance of the certificate of eligibility.

Once the certificate of eligibility has been applied for and issued in Japan, the representative and employees who intend to stay in Japan for a medium to long term may apply for and receive a visa to enter Japan at the Japanese diplomatic mission abroad in the country where each resides. After the visa is issued, the representative and employees will bring the certificate of eligibility and the visa to Japan.

The representative and employees who intend to stay in Japan and have been issued a certificate of eligibility and visa will be issued a resident card by the immigration inspector at the airport upon landing in Japan. The representative and employees residing in Japan must register as resident at each ward or city office with jurisdiction over each address within 14 days of establishing each addresses in Japan. When you register as resident, the person in charge at the ward or city office will write your address and affix an official seal on the back of the residence card, which can be used as an official ID card to prove your name, date of birth, and address. If there is any change in the information on the card, it is required to report the change.

Finding the right office takes time and effort, so it is important to begin the process early on in your preparations for setting up the company. It is important to note that the company will be required to have an office address in order to carry out many of the tasks needed to set up a company, including company registration, submitting official notices, applying for a certificate of eligibility, opening a bank account and hiring employees.

When searching for an office, many foreign companies engage the services of a major real estate brokerage firm that has a wide range of properties on its books and an English-speaking staff. While brokerage commissions may equal one months' rent (due at the conclusion of the lease agreement), brokers provide lists of available offices free of charge and will travel to the offices to inspect them; they also negotiate terms with building owners. While it is possible to contact owners directly, they typically can only offer their own properties, which severely limit the number of prospective offices to choose from.

After securing an office location, companies should confirm and update their registered information accordingly.

You will also need fire and accident insurance, which covers the tenant's compensation paid to building owners for any accident incurred as a result of fires caused by the tenant or damage to fixtures, fittings, etc. In taking out fire and accident insurance, many companies choose optional extras like insurance that covers losses caused by suspension of business or damage to buildings and facilities.

There are a number of ways to recruit employees in Japan, including using "Hello Work" (public employment security offices), private employment agencies, and placing advertisements in classified sections of magazines or job-hunting Internet sites, and newspapers. When companies look for relatively highly skilled human resources or intend to avoid the trouble of screening and other matters, companies typically use private employment agencies, as they offer the best means of securing personnel that best fit requirements. In this section, we will look at recruiting according to the level of staff needed: managerial and administrative.

For companies employing workers, it is essential that the personnel system, such as salary rules, performance evaluation system, rules of employment, and pension plans, is in place. It should be noted that the obligations to enroll in labor and social insurance systems where a company hires any employee differ depending on the company structure (Employing workers at a representative office, branch, or subsidiary),position (representative director, representative, general employee, etc.), or working conditions.

Managerial staff working in a foreign enterprise in Japan earns between 8 million JPY and 10 million JPY per year; salaries vary based on an individual's skills and experience. Placement fees charged by private employment agencies can go as high as 35% of the employee's first year annual salary. Search firms allow the company to interview as many candidates as necessary to find the right person for the job. Fees are typically paid only after a suitable candidate has been found.

Please note that while there is high demand for manager-class employees with relevant business experience, knowledge, and connections, Japan's workforce is not as fluid as that in the West: the higher you set your sights, the harder it will be to find suitable staff. Allow at least a month to find managerial staff.

Administrative staff earn between 4 million JPY and 5 million JPY per year. There are a number of general and clerical tasks that must be performed when setting up a company, so it is recommended to hire administrative assistants with prior experience in such tasks. Another option is to “Hello Work”, advertise job vacancies in classified sections of magazines, newspapers, job-hunting and Internet sites."

Companies should verify all necessary registration information required for human resource procedures.

Any company in Japan employing workers is required by law to enroll in social and labor insurance systems. Social insurance refers to health insurance and welfare pension insurance. Nursing care insurance is also required in some cases. Labor insurance refers to unemployment insurance and workers' compensation insurance. If a company engages professionals, the company will engage a labor and social security attorney, to submit notices required to join these schemes. If a company has the professional that took care of company registration procedures handle such notices, it will be advisable to confirm that the person who performs the actual procedures is a social insurance consultant.

When coming to Japan, one of the first things that needs to be done is to settle on a place to live. A fixed residence is required to obtain a certificate of name seal registration, which in turn is needed to carry out company establishment procedures or assume a position as representative director. As with finding a suitable office, most people engage a brokerage firm to find suitable housing.

Many foreign nationals engage a real estate broker with a large number of rental residences on its books and English-speaking staff to find them a suitable place to live. A number of these brokers specialize in the kind of residences favored by non-Japanese. While brokerage commissions may equal one month's rent (due at the conclusion of the lease agreement), given the time and effort involved in finding a place to live, it is much more efficient to use a broker than not. It should also be noted that many companies enter into a corporate lease agreement for the employees' residences, rather than having the employee execute the contract themselves.

Business operations may commence once all necessary preparations have been completed.

Please refer to the Flowchart and Model Case Commentary of "Factory establishment" for details if applicable.

Once company establishment procedures near completion, it is time to think about publicizing your company's expansion into Japan. Through press releases, creating printed PR materials (e.g., company brochures and pamphlets) and holding opening parties, you can expand your business network and let your trading partners and other industry figures know that you are “open for business.” Many companies aim to maximize their networks by joining various overseas chambers of commerce in Japan.

Recently, many companies have created localized Japanese websites that are linked to their company's main homepage. It is convenient to use a WEB design company to create this localized internet content. The fees vary according to your company's needs. Simple website design fees range from 100,000 JPY to 200,000 JPY.