How to Set Up Business in Japan: Initial Cost Estimation

Model Case - Commentary

Preparation

(1) The definition of a "foreign company"

In Japan, the definition of what constitutes a "foreign company" differs according to each law or regulation. For instance, companies must be more than one-third foreign-owned in order to be approved as a "Specially Designated Inward Investor" by the Ministry of Economy, Trade and Industry.

(2) Research

When preparing to enter the Japanese market, it is essential to gather as much information as possible on the competitive environment for your company's products or services.
Such information can be obtained through organizations like JETRO as well as International accounting and consulting firms.

(3) Appointing a representative in Japan

It is highly advisable that a person be appointed to represent your firm in Japan to carry out the necessary steps and procedures involved in setting up a business entity. This person needs to be vested with adequate decision-making authority to ensure that such procedures go smoothly. An increasing number of firms are opting to hire a Japanese national, which brings with it several obvious benefits, including enhanced negotiations with prospective business partners and clients.

(4) Accommodation (extended-stay apartment)

After formulating a basic schedule for your company's expansion into Japan, the person appointed to represent the firm in Japan will need to reside in Japan on a semi- long-term basis to begin start-up procedures (unless the representative already resides in Japan). Details of such procedures, which typically take about three months to complete, are explained in another section. During this period, your representative will need accommodations in Japan. Most elect to stay in extended-stay apartments (called "monthly mansions" in Japan) which offer monthly rates or hotels which offer weekly or monthly rates, are other options to consider.

There are several important factors to consider when renting a monthly apartment for such a long-term stay. This may include proximity to train and subway stations as well as English speaking services. Rates vary greatly according to the availability of facilities, location and other factors.

(5) Temporary offices

When setting up a business entity in Japan, you will need to complete various work and meet with numerous people. It is therefore advisable to rent a temporary office for approximately three months that has basic office equipment, such as a fax and telephone.
For temporary office rental, it is advisable to choose the JETRO Invest Japan Business Support Center (IBSC), offices provided by local and regional governments, or private companies based on availability, requirements and the cost.

The offices provided by private companies require thousands of dollars in rental fees and security deposits (security deposits are usually refunded, minus deductions agreed on in the contract, at the end of the lease period). Such facilities typically offer a full range of secretarial and business services which are charged on a services-rendered basis.

Some local and regional governments offer discounted or free temporary office spaces. Another option is to utilize free temporary office space (for a maximum of 50 business days) provided by the JETRO Invest Japan Business Support Center (IBSC). Located in six major business areas across Japan, IBSCs provide not only free temporary office space, but also offers consultations with industry experts and accountants, use of meeting rooms and exhibition halls, and access to a wealth of business and trade resources. A typical one-person private IBSC office is 10 square meters (there are also 12 and 16 square meter configurations). IBSC has well-established basic business services such as a telephone, facsimile and copy machine (charged on a services-rendered basis). The greatest benefit of utilizing the IBSC is the generous support offered by IBSC staff and veteran advisors, in everything from tax and labor issues, to visas and general incorporation procedures.
JETRO Invest Japan Business Support Centers (IBSCs)

Obtaining visas

Foreign nationals require a working visa to reside and work in Japan. The Japanese visa system is under the jurisdiction of the Ministry of Foreign Affairs (includes Japanese government offices abroad) and the Ministry of Justice (includes immigration offices in Japan).
How to Set Up Business in Japan: Section 2. Visas and status of residence

(1) Certificate of eligibility

To obtain a working visa, applicants must first apply at an immigration office for a certificate of eligibility. To complete this application, the applicant usually obtains a short-term visa from their local Japanese government office and enters Japan on a temporary travel basis. This is not required for persons from countries with which Japan has a visa exemption agreement.
When applying for a certificate of eligibility, you must know what type of working visa is required. In the model case outlined here, the visa statuses are "Business Manager" for setting up a joint-stock company ("kabushiki kaisha") and "intra-company transferee" for setting up a branch. If the Japanese base to be set up already has staff, that staff may act as proxy to apply for a certificate of eligibility without the applicant entering Japan.
How to Set Up Business in Japan: Section 2. Process from acquisition of Certificate of Eligibility to acquisition of visa

(2) Resident card

Resident cards are cards issued to foreign nationals residing legally in Japan for the mid- to long-term who have resident status under the Immigration Control Act ("mid- to long-term residents") when they are granted a residence-related permit, such as landing permission, permission for change of status of residence, and permission for extension of period of stay. Mid- to long-term residents carry a resident card while living in Japan.
Should any of the details of the foreign nationals residency change, the bearer is required to notify the authorities.
How to Set Up Business in Japan: Section 2. What are resident cards?

(3) Re-entry permit

In preparation for the various business trips and other travel that will undoubtedly arise during the term of your working visa, it is recommended that a re-entry permit be obtained after entering Japan on a working visa. This will allow you to avoid the hassle of re-applying for a visa at an overseas Japanese government office every time you leave Japan and wish to re-enter. Re-entry permits are valid for a maximum of five years and are available in two types: single and multiple. To apply for a re-entry permit, take your passport and alien resident card to your local immigration office. The application can be made on your behalf, but the process is very simple and most people do it themselves.

The introduction of the new residency management system from July 9, 2012 was accompanied by the introduction of a new "special re-entry permit" system. Under this system, foreign nationals in possession of a valid passport and resident card who declare their intention when they leave to re-enter Japan within 1 year of their departure to continue their activities in Japan are no longer, in principle, required to obtain a re-entry permit. However, if the period of stay will expire less than 1 year after departure, they must re-enter Japan before the expiration of this period of stay.
How to Set Up Business in Japan: Section 2. Re-entry permission

Setting up a business

Foreign companies establishing a business entity in Japan can choose from four 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.
How to Set Up Business in Japan

(1) Preparation

The following preparations should be completed before commencing set-up procedures:

  1. Deliberation of business objectives
    Companies in Japan are only allowed to carry out business activities written in the "objectives" section of the firm's "articles of incorporation". Thus, it is vital to thoroughly research the feasibility and scope of your company's "objectives" or business activities before starting the incorporation procedures.
  2. Determination of Trade name
    A trade name must be included in the articles of incorporation and be registered. The trade name must be expressed in Japanese characters (hiragana, katakana and kanji) or letters of the alphabet.
    An injunction may be filed after incorporation if use is made of a trade name that may be mistaken for another company for dishonest purposes. Prior to registration, proper research should be conducted to determine that a trade name is not already in use by another firm.
  3. Permits
    Some business activities require that the company obtain special permission from (or submit special notification to) relevant government or municipal offices once the business has been established and trading has commenced. It is recommended to check beforehand whether or not your company will need to obtain such permissions or submit such notifications.
  4. Reports and notification under the Foreign Exchange and Foreign Trade Control Law
    Companies are generally required to file notification with the Bank of Japan (BOJ) by the 15th day of the month following the month in which they were established. (Where prior notification is required, notification must be filed from six months prior to engagement in transactions or other activities and allowing sufficient time for examination.). The BOJ provides guidance on the requirements for this procedure, but many companies choose to consult with a professional in the field to make this report.
    Bank of Japan: reports under the Foreign Exchange Law (Japanese only)External site: a new window will open.
  5. Personal name seal
    People who assume important posts within the company will need to have a personal name seal (or "jitsuin") made and registered with the local government office in the municipality in which he or she resides. These personal seals are generally used in Japan in the same manner as signatures are in other countries, i.e., as a form of identification. Your "jitsuin", which can be made at a seal store for as little as JPY5,000, must be registered prior to registering the company. Over the course of the company establishment process you will need several copies of the certificate of seal impression from your local government office. Please note that a residence card must be possessed in order to obtain the certificate of seal impression.
    How to Set Up Business in Japan: Section 1. Certificate on registered company information and company seal registration certificate
  6. Company seals
    Once you have decided on your company name, the next step is to make company seals. Typically, a set of three seals is made: a Representative Seal (known as "daihyoin", which is basically the "jitsuin" for the company), a Bank Seal (known as "ginkoin"), and a Company Name Seal (known as "shain"). A set of seals can be made at a specialized shop for as little as JPY10,000. The "daihyoin" is the seal to be registered in the competent legal affairs bureau by the company's representative and can be used as the representative's personal seal (in his or her capacity as representative). In most cases, however, the representative uses separate seals for personal and company business. The "ginkoin" is used in the company's dealing with banks, while the "shain" is a square stamp used when issuing receipts, invoices and the like. The stamp is usually affixed so that it slightly overlaps with the company name printed on the paper.
    How to Set Up Business in Japan: Section 1. Certificate on registered company information and company seal registration certificate
  7. Deciding on a bank for capital
    When incorporating a joint-stock corporation by offering (boshû-setsuritsu), the company's paid-in capital must be deposited in a bank. The company must obtain a certificate of deposit of paid-in capital issued by the bank, which is then submitted to the competent legal affairs bureau when applying for registration. Due to the variances in the deposit fee depending on the bank, it is necessary to investigate such fees prior to setup.
    When a company is incorporated without offering (hokki-setsuritsu), it is also possible to deposit the company's paid-in capital in the account of the initiator, the representative director at the time of incorporation, or a director at the time of incorporation. In this case, a copy of a bankbook and a document that certifies deposit of paid-in capital must be submitted to the competent legal affairs bureau. When all of the initiator, the representative director at the time of incorporation, and directors at the time of incorporation have their domicile overseas, it is possible to delegate receipt of deposit to a third party. A power of attorney, a copy of a bankbook whose account holder is the third party, and a document that certifies the deposit of paid-in capital must be submitted.
    Domestic headquarters and branches, and overseas branches of Japanese banks, and branches of foreign banks in Japan can be used as the payment handling bank.
    How to Set Up Business in Japan: Secion 1. Procedures for registering establishment

(2) Company registration

  1. Subsidiary company
    Once the above preparations have been completed, it is time to register the company. In the case of a subsidiary company, registration costs start at about JPY250,000. This amount does not include the aforementioned name seal expenses and fees charged by the bank for paid-in capital, as well as service fees charged by any professionals hired (which usually run between JPY200,000 and JPY300,000).
    How to Set Up Business in Japan: Secion 1. Procedures for registering establishment
  2. Branch
    Unlike a company, setting up a branch does not require you to draw up new articles of incorporation. Instead, you prepare an affidavit for certification by your country' s Embassy in Japan. If your country' s embassy does not provide notary services, certification by a public notary in your home country is acceptable.
    The registration process is relatively simple. Expenses start at approximately JPY100,000; name seal expenses and services fees paid to professionals, however, still apply. There are basically no differences between the rules and restrictions that apply to the business activities of companies and those that apply to branches.
    How to Set Up Business in Japan: Secion 1. Procedures for registering establishment
  3. Representative office
    Establishing a representative office is a very effective method of setting up a business when the company is still at the advertising or market research stage of its expansion into Japan. While a representative office cannot perform actual business activities, it generally does not have to be registered, and so registration costs do not apply and tax notices do not need to be submitted. To engage in business activities, a representative office only needs to be registered as a subsidiary or branch as described above.
    How to Set Up Business in Japan: Secion 1. Procedures for establishing a representative office

(3) Professionals

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.

  1. Attorney-at-law
    The main service offered by an attorney-at-law is to act on behalf of his or her client in legal matters, either by a request from the client or by court order. In Japan, many people consult a lawyer after a legal problem has arisen. However, it is important to retain a consulting attorney-at-law so as to receive legal advice whenever necessary, and to prevent legal problems from initially occurring.
  2. Judicial scrivener
    The main services offered by a judicial scrivener include submission of application for official registration of companies, corporate bodies, or real estate by an Attorney-in-Fact, and preparation of documents relating to the application. If you are involved with companies and corporate bodies as a whole, real estate or financial institutions, your need of a judicial scrivener will be greater.
  3. Administrative scrivener
    The main services offered by an administrative scrivener involve submitting notices and requests to government and other administrative institutions. Many people also engage administrative scriveners to apply for their certificate of eligibility, re-entry permit, etc.
  4. Certified public accountant
    The main services offered by a certified public accountant (CPA) involve performance of audits.
    In Japan, only a CPA can audit, prepare an auditor's reports, and write an opinion of the audit.
  5. Tax accountant
    Tax accountants offer services such as bookkeeping, drawing up financial statements, submitting necessary tax notices and general tax-related consulting.
  6. Labor and social security attorney
    The main services offered by a labor and social security attorney include all labor, social insurance and labor standards-related procedures as well as consultation on aspects pertaining to labor management and labor disputes.
  7. Patent attorney
    Patent attorneys are experts in all areas of industrial property rights, including patents, utility model rights, design rights, and trademarks.

Applications and notifications

Having completed company registration, the next step is to prepare and submit various notices. Each notice is due within a different time frame (usually between ten days and three months after setting up the company), and must be submitted in Japanese. In addition to notices for tax and social insurance, there are numerous other notices that must be prepared and submitted (often to many different authorities), so it is common for companies to hire professionals, such as tax accountants and labor and social security attorney, to prepare and submit such notices on their behalf.

(1) Reports and notification under the Foreign Exchange and Foreign Trade Control Law

When setting up your company's base in Japan, If the types of business are related to the national security, public order, public safety, etc., a prior report must be submitted to the BOJ, In the case of the other types of business, a notification must generally be submitted to the BOJ within fifteen days of the company being established.
Bank of Japan: reports under the Foreign Exchange Law (Japanese only)External site: a new window will open.

(2) Tax notices

Notification of establishment of business must be submitted to national, prefectural and municipal tax offices except for the 23 wards
(link to: http://www.tokyomap.com/External site: a new window will open. ) 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 handle these notices.
How to Set Up Business in Japan: Section 3. Taxes in Japan

(3) Social insurance notices

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.
How to Set Up Business in Japan: Section 4. Japan's social security system

Personnel-related matter

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.
How to Set Up Business in Japan: Section 4. Human resource management

(1) Managerial staff

Managerial staff working in a foreign enterprise in Japan earns about JPY10 million 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.

(2) Administrative staff

Administrative staff earn between JPY3 million and JPY5 million 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.

(3) Personnel management

For companies employing workers, it is important not only to clearly define the conditions of employment, but also to institute a "personnel management system", which includes such things as pay regulations, performance assessment systems, employment regulations and pension plans. 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.
How to Set Up Business in Japan: Section 4. Human resource management

Setting up an office

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.

(1) Office broker

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.

(2) Choosing the right location

There are several important points to consider when choosing your company's location, such as proximity to trading partners and other parties with which the company has close business ties, attractiveness of the site to potential employees as well as ease of access. It is recommended that you weigh all factors, such as convenience, rent and other costs, when deciding on your optimal location.
In addition to regular offices (i.e. just an empty office for your firm), there are also serviced offices, which typically include secretarial services, office furniture, etc. Shared office space can be expanded or reduced. In addition, they are shared by multiple companies, with each firm allocated its own space for desks, chairs, etc.

(3) Differences in business practices

There are considerable differences in business practices between Japan and the rest of the world when it comes to renting office space; be sure that you enter negotiations having fully understood these differences. In particular, be aware that you will be asked for a security deposit (known as "hoshokin" or "shikikin") equal to approximately ten months’ rent to cover any unpaid rent or damages to the office/property. When your company vacates the office, the security deposit is usually returned minus any expenses required to restore the property/office to its original condition. Tenants are also liable to pay a common service fee that covers maintenance of shared-use areas within the building.

(4) Office space

Whereas Japanese offices are usually arranged in an open-plan style with "islands" of desks, Western companies prefer to have their office workers stationed in individual cubicles. An office with cubicles for three people and a space for meeting with clients would require about 50 square meters. Note that many owners of new offices refuse to lease small spaces, so it is advisable to have a clear idea of your spatial requirements when referencing the property owner's policies.

(5) Office renovations

The amount of work required to achieve your desired office layout will depend largely on the building's standard specifications. If you intend to simply install partitions, expenses will start at about JPY10,000 per square meter.

(6) Office equipment and supplies

In addition to sundry goods such as stationery, you will need to rent, buy or lease basic office items including desks and chairs, furniture for meeting with customers, computers, printers, telephones and photocopiers. It is recommended to compare the costs and benefits of each option and choose the one that best suits your company's needs.

(7) Telecommunications

It is necessary to purchase a "telephone subscription right" or an IP phone using lines over the Internet in order to have a regular landline telephone installed. There are advantages and disadvantages to both so it is advisable to research all options well in advance.

(8) Insurance

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.

Setting up a place of residence

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.

(1) Real estate brokers

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.

(2) Choosing the right location

When choosing where you are going to live, it is always better to give priority to the actual living environment, including such factors as easy commuting to your workplace and forming a network with compatriots. It is recommended that you weigh up all factors, such as convenience, rent and other costs, when deciding on an optimal location.

(3) Differences in business practices

There are considerable differences in business practices between Japan and the rest of the world. When renting a place to live (as with renting an office), be sure that you enter negotiations having fully understood these differences. In particular, be aware that you will be asked for a security deposit (known as "hoshokin" or "shikikin") to cover any unpaid obligations on the part of the tenant. You may also be asked to pay "gift money" to the landlord (known as "reikin") for the "favor" of granting you the right to lease. Expect to pay between two and six months' rent in security deposits and "reikin" combined when concluding a lease agreement. When you vacate the residence, the security deposit is usually returned minus any expenses incurred in restoring the property to its original condition (the "reikin" is generally not refundable under any circumstances). Recently, the number of properties not requiring a security deposit or "reikin" is on the rise.

(4) Living Space

Just how spacious your Japanese residence will be depends on a myriad of factors. For those living on their own, a one-bedroom apartment with living room, dining space and kitchen can range from 50 and 100 square meters.

(5) Utilities, etc.

In Japan, basic utilities (electricity, gas, and water) are provided by specific operators within each region of the country. In Tokyo, for instance, they are the Tokyo Electric Power Company, Tokyo Gas and the Tokyo Metropolitan Waterworks Bureau. Be sure to call these service providers in advance to inform them of the date you will begin living in your residence, so that these services will be turned on when you move in.
In many cases, it is necessary to purchase a "telephone subscription right" or an IP phone using lines over the Internet in order to have a regular landline telephone installed. There are advantages and disadvantages to both so it is advisable to research all options well in advance.

(6) Miscellaneous

There are a number of options for furniture. Furniture can be shipped to Japan. Buying furniture in Japan and renting a furnished apartment are other options. These options depend on your company rules as well as personal factors. If you do decide to have your furniture sent from your home country, there are a number of considerations, including cost, to examine. It may be convenient to use a carrier that has branches in Japan and your home country.

Opening publicity

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 JPY100,000 to JPY200,000.

(As of July 2018)