The Mipro Guide toStarting a Business in Japan

Manufactured Imports and Investment Promotion Organization (MIPRO)
6th Floor, World Import Mart Bldg., 3-1-3, Higashi-Ikebukuro, Toshima-ku, Tokyo 170-8630, Japan
TEL.03（3971）6571 FAX.03（3590）7585
URL：https://www.mipro.or.jp/〜Startup Q&A〜
The Mipro Guide to Starting a Business in Japan〜Startup Q&A 〜

外国人のための起業ガイドブック（起業Q&A編）

外国人のための起業ガイドブック（起業Q&A編）
MIPRO

To those who readthis guidebook

MIPRO's Guide to Starting a Business in Japan describes what foreign nationals need to do in startinga business in Japan as a business owner, according to theme. Adding to this title, the Guide consistsof seven other titles:“Preparations for Startup,”“Status of Residence,”“Obtaining Authorization,”“Drawing up a Business Plan,”“Tax Edition,”“Establishing a Company,”and“Public Insurance and
Employment Management.”
In this“Startup Q&A,”we have enabled foreign nationals to find answers in a question-and-answer
format with regard to important items that they especially want to check when starting a business inJapan. You can search the table of contents for what you want to look up, and read to get answers. If,
after reading this“Startup Q&A,”you want to learn more about the subject, you can deepen yourunderstanding by reading other titles in the series.
In addition, MIPRO provides a variety of materials useful for business, covering topics such as importbusiness, intellectual property rights, and product safety. We also provide consultation services forestablishing a company, starting a business, and obtaining the status of residence. Please utilize theservices together with the materials.

Tax Commentary (Q23, Q24) Author: Hiroko SAKASHITA, Representative Partner,
Tax Accountant, Sakashita International Tax Accountant Co.
Passed the certified tax accountant examination in 1996.
After working at a tax accounting firm in final income tax return and bookkeeping services for domestic
corporations and individuals, engaged in internal audit services of IT companies, and international tax
consulting at a tax accounting corporation. In 2005, joined the Sakashita International Tax Accounting
Office (reorganized into a tax accountant Co. in 2010), which mainly provides support for tax andaccounting services to foreign corporations and provides support for foreign nationals living in Japanto start their own businesses. Also working as a tax-related lecturer at a business startup seminar forforeign nationals by MIPRO.

Supervisor: Shuji TAKAHASHI, MIPRO Investment Adviser and Administrative Attorney
Worked for the Prime Minister's Office (currently the Cabinet Office) and the Cabinet Secretariat. After
that, worked for a foreign information service company and other companies, then opened anadministrative scrivener's office in December 2003. Specializing in business startup support, procedures
for licensing, and application for permission for foreign resident status.
At MIPRO, serving as a consultant for free face-to-face consultation and as a lecturer at a businessstartup seminar for foreign nationals.

December 2022, Manufactured Imports and Investment Promotion Organization (MIPRO)Table of Contents
1. Status of residenceQ1． What are the differences between “visa” and “status ofresidence”? 

5

Q2． I came to Japan for sightseeing purposes and am

currently staying in Japan with the status of residence of“Temporary Visitor.” Can I work in Japan? 

7

Q3． I am currently working as an office worker with thestatus of residence of “Engineer/Specialist in Humanities/
International Services.” In order to establish my own
company, I would like to change my current status ofresidence to “Business Manager.” Which should I do first,
establish a company or change my status of residence? 

7Q4． Can I obtain the status of residence “Business Manager”

before establishing a company? 

8Q5． I f two foreign nationals run a business together, canthey both acquire the status of residence of “Business
Manager”? 

8

Q6． I heard that it is possible to establish a company with astated capital of one yen in Japan. On the other hand,in order to obtain the status of residence of “Business
Manager,” an investment of five million yen or more isrequired. Does this mean that foreign nationals haveto prepare five million yen or more of stated capital toestablish a company? 

10

Q7． The requirements for the size of a business under the

status of residence of “Business Manager” should fallunder any of the following. What exactly does “equivalentscale” in (c) mean?
   (a) The business is operated by two or more full-time
employees living in Japan other than those who run
or manage the business.
  (b) The amount of stated capital or the total amount ofcontributions is five million yen or more.

   (c) T he scale of the business is considered to beequivalent to that of (a) or (b). 

10

Q8．	Is it possible to apply for a Certificate of Authorized

Employment at an immigration office other than the
one that has jurisdiction over my place of residence?
Since my place of work is in a different area of jurisdiction,
I would like to apply at the immigration office that has
jurisdiction over my place of work. 

11

Q9．	If hiring a foreign national, do I absolutely have to checkhis or her Certificate of Authorized Employment? 

11

2. Establishing a company
Q10． P lease tell me about an incorporator required toestablish a company. Is it possible for a foreign national
living in Japan to become an incorporator? Is it also
possible for foreign nationals living abroad? 

14

Q11． I s it possible to establish a company solely withoverseas residents as the incorporators? Q12． Is it possible for foreign nationals to become investors? 

14
15

Q13． If there are multiple incorporators, how should I decide

the amount of each contribution? 

15

Q14． The person who is going to be a director is a foreign

national living overseas. Will the nationality or place ofresidence of the person who becomes a director be a
problem? 

15

Q15． Does a foreign national need the status of residence

that allows one to work (so-called working visa) inadvance to become an investor, an incorporator, or adirector in order to establish a company? Q16． Is it possible to register my residence as the head office? 

16
16

Q17． I heard that it is possible to establish a company with astated capital of only one yen. What is the appropriate
amount? 

17

Q18． H ow should I set the company's closing date? Can I

decide it freely? 

17

Q19． The maximum term of office for directors is ten years,

but I don't know how many years should be set as theterm for directors of my company. Please tell me ifthere is any way to decide. 18

3. Preparation of business plan
Q20． I don't have enough money to fund myself. Therefore, I

would like to use a loan system, a grant or a subsidy
provided by a public institution. Please tell me an
institution that provides them. 

19

Q21． I don't know how to prepare a business plan. Please tellme if there are any items I should include. 

19

Q22． W ill the business plan be submitted to government

offices or other public organizations as application
documents? 

26

4. Tax commentary
Q23． I am wondering whether to start a business as a sole

proprietorship or a corporation. Please tell me thedifference in terms of tax. 

27

Q24． Currently, I have an overseas office and am conducting

business overseas. In the future, I am thinking of
expanding business in Japan. In that case, please tellme what kind of business structure is suitable. 30

5. Public insurance
Q25． What is public insurance in Japan? Is there any public

insurance for foreign nationals? 

6. Consultation desks and contact points

33

1. Status of residence

1. Status of residence

Q1

A

   What are the differences between“visa”and“status of residence”?

Visas are required for entry into Japan (at the time of immigration) and are issued by
Japanese embassies and consulates overseas.

A visa has two purposes: as a“confirmation”that the foreign national's passport is valid, and a“recommendation”that the foreign national has no problem entering Japan according to theconditions written on the visa.
On the other hand, the status of residence is used as the basis for staying and engaging in activities
in Japan after entering Japan with a landing permit at the port of entry. A“Certificate of Eligibility”
certifies that“the activities you intend to engage in Japan are not false and fall under the status ofresidence; and, if the criteria for landing permission are determined based on the status of residence,
you also fit to such criteria,”which is one of the conditions for landing in Japan. By presenting thiscertificate at the time of landing examination, the landing examination will be carried out smoothly.
This“Certificate of Eligibility”system does not apply to the status of residence of“Temporary Visitor”
for purposes such as sightseeing, visiting relatives, or short-term business trips.
Foreign nationals cannot enter Japan only with a Certificate of Eligibility. They need to obtain a visa
by presenting a Certificate of Eligibility at Japanese embassies and consulates overseas. Furthermore,a visa and a Certificate of Eligibility do not guarantee entry into Japan. Landing may not be permitted
if it is found at the time of landing examination that the criteria for landing permission are not satisfied
due to a change in circumstances.

Chart 1: Flow of landing permission procedures
1. If there is no “Certificate of Eligibility”(1) Visa application

Foreign national(10) Issuance of a visa

Japanese embassy or
consulate overseas(2) Transmission(9) Instructions

Ministry ofForeign Affairs(8) Answer(11) Application for landing(3)
Consultation

Ministry of Justice(7) Transmission

Port of entry or departure(4)
Instruction for
examination

Regional Immigration
Bureau, etc.

Landing examination○Checking of passport and visa validity○Examination as to whether the foreign national falls under
the status of residence○Determination of a status of residence and period of stay(6) Proof(5) Request
for proof

Concerned parties
in Japan51. Status of residence

New Application for Status of Residence
Visas are applied for and obtained at Japanese embassies and consulates overseas. However, if
applying for a visa for long-term residence, such as for work purposes, it takes more time forJapanese embassies and consulates overseas to examine the eligibility requirements for the statusof residence than they do for a short-term visa.
Under these circumstances, in general, the“Regional Immigration Bureau”in Japan examines
whether the requirements for the status of residence applied for by a foreign national who wishes
to enter and live in Japan are satisfied, and grants and issues a“Certificate of Eligibility”if therequirements are satisfied. If you apply for a visa by presenting this“Certificate of Eligibility”toJapanese embassies and consulates overseas, you will normally be recognized as satisfying therequirements for entry into and living in Japan and will be able to obtain a visa promptly.

2. If attaching “Certificate of Eligibility”(7) Application for a visa

Foreign national(8) Issuance of a visa

Japanese embassy or
consulate overseas

Regional Immigration
Bureau, etc.
(2) Application for“Certificate of
Eligibility”(3) Proof(1) Request for issuance of “Certificate of Eligibility”(6) Sending of “Certificate of Eligibility”(4) Examination(5) Issuance of“Certificate of
Eligibility”

Concerned parties
in Japan(Legal representative)(9) Application for landing

Port of entry or departure
Landing examination○Checking of passport and visa validity○In principle, the examination of the status of residence is omitted for those who have a Certificate of Eligibility.
○Determination of a status of residence and period of stay

References“Flow of Landing Permission Procedures”Tokyo Employment Service Center for Foreigners
https://jsite.mhlw.go.jp/tokyo-foreigner/yokuaru_goshitsumon/kigyou/q_38_a4/q4-a.html“Application for Certificate of Eligibility”Ministry of Justicehttps://www.moj.go.jp/isa/applications/procedures/16-1.html
https://www.isa.go.jp/en/applications/procedures/16-1.html“Flowchart of the Procedures for Entry and Return to Japan”Immigration Services Agency
https://www.moj.go.jp/isa/applications/guide/nyukoku_flow.html
https://www.isa.go.jp/en/applications/guide/nyukoku_flow.html

6

1. Status of residence

Q2

A    I came to Japan for sightseeing purposes and am currently
staying in Japan with the status of residence of“Temporary
Visitor.”Can I work in Japan?

Foreign nationals living in Japan under the status of residence of“Temporary Visitor”(for sightseeing, visiting relatives, and other purposes) are not allowed to engage inactivities for compensation in Japan, except for temporary ones. However,“secondary business”of“main business”outside Japan, such as business liaison, business negotiation, and after-sales service
for the business execution of foreign companies, can be performed.

Q3

   I am currently working as an office worker with the status ofresidence of“Engineer/Specialist in Humanities/International
Services.”In order to establish my own company, I would like tochange my current status of residence to“Business Manager.”
Which should I do first, establish a company or change my statusAof residence?

In this case, you need to apply for a change of status of residence after establishing acompany. What should be considered is the expiration date of your current status ofresidence and the timing to apply for a change of status of residence to“Business Manager.”
Regarding this question, the Immigration Control Act stipulates that if it is found that a foreign
national living in Japan under the status of residence“Engineer/Specialist in Humanities/International
Services”has lived for three months or more without continuously engaging in such activities, his/her
status of residence may be revoked (Article 22-4, paragraph (1), item (vi)).* Therefore, you should firstestablish a company and then apply for change of status of residence to“Business Manager”within
three months at the latest.
If you do not adjust the schedule around here well, you may be unable to obtain the status ofresidence of“Business Manager”even if a company is established. Before starting a business, youneed to make adequate preparations, including leaving the company.
* However, if there are reasonable grounds for living in Japan without engaging in prescribed activities, such as long-term
hospitalization due to illness, this item does not apply. The parenthesis of the same item says,“except for cases in which theforeign national has a justifiable reason for not engaging in the activities while residing in Japan.”7

1. Status of residence

Q4

A   Can I obtain the status of residence“Business Manager”before
establishing a company?

In principle, you cannot. A status of residence with permission to work is issued on thepremise that a business entity where the applicant (foreign national) can work has been

secured in Japan. However, if you obtain the status of residence of“Business Manager”for fourmonths, or if you use the“Foreign Entrepreneurship Promotion Project”implemented by some local
governments, you can institutionally obtain it even before the establishment of the business entity.

・“Foreign Entrepreneurship Promotion Project”Startup Visa
In December 2018, the Ministry of Economy, Trade and Industry established a new system jointlywith the Ministry of Justice to facilitate business startup by foreign nationals, based on the“Growth
Strategy 2018”(Cabinet decision of June 15, 2018). It is commonly called“Startup Visa Program.”
Under the new program, foreign entrepreneurs can enter and live in Japan for up to one year for
startup preparation activities by going through examinations by a local government, which is theimplementing body of the program, and the Immigration Bureau, even if they do not meet therequirements for the status of residence“Business Manager.”(Their status of residence will be“Designated Activities.”)
Under the new program, if you are expected to start a business within one year, you will be
granted the status of residence“Designated Activities”for up to one year. The status of residence isgranted once every six months: when applying for confirmation of the business startup preparation
plan and when applying for confirmation of renewal of the plan. If you meet the prescribed criteria
within one year from the start of preparation activities for starting a business and then continue tolive in Japan to manage the business, you will change your status of residence to“Business
Manager.”
References“Outline of the Program on the Foreign Entrepreneurship Promotion Project”Ministry of Economy,
Trade and Industry
https://www.meti.go.jp/policy/newbusiness/startupvisa/index.html
https://www.meti.go.jp/english/policy/economy/startup_nbp/startup_visa.html
Startup Visa (Foreign Entrepreneurship Promotion Project) Program, Fukuoka City
https://www.city.fukuoka.lg.jp/keizai/r-support/business/startupviza.html
https://www.city.fukuoka.lg.jp/keizai/r-support/business/startupviza_english.html

Q5A   If two foreign nationals run a business together, can they bothacquire the status of residence of“Business Manager”?

Activities that fall under the status of residence“Business Manager”are activities
carried out by those who substantially participate in the operation or management of abusiness. Therefore, it cannot be said that a person falls under such status of residence by the merefact that the person has assumed the position of a director. In addition, if more than one foreign
national participates in a business, in order for the activities of each foreign national to fall under the8

1. Status of residence

status of residence of“Business Manager,”it must be recognized that there is a reasonable ground formore than one foreign national to run or manage the business, taking into account the scale, volume
of work, sales of the business, and so on. In practice, whether or not the activities carried out by these
foreign nationals fall under the operation or management of the business is determined by taking
into account the details of services they will engage in and the amount of compensation they will be
paid as directors．
Specifically, it can be said that it is possible to judge that each foreign national falls under the statusof residence of“Business Manager”if the following conditions are met: (1) a reasonable ground isrecognized for each foreign national to run or manage a business in consideration of the scale of thebusiness and the volume of work, (2) with regard to work related to the operation or management of
the business, the contents of the work that each foreign national will engage in are clarified, and (3)each foreign national will receive a considerable amount of compensation as consideration for thework related to the operation or management of the business. Specific examples allowed include:

Foreign nationals A and B each contributed five million yen to establish Company X (statedcapital: 10 million yen) which imports goods in Japan. A is an expert in overseas transactions such as
Case 1

customs procedures and import and export services, and B is an expert in quality/inventory
management of imported goods and accounting. The business status of Company X is judged fromthe aspect of overseas transaction by A and from the aspect of management of imported goods andaccounting by B. The management policy is to be decided in consultation between them as business
partners. Each person's compensation is to be paid out of the business profits in proportion to theamount contributed.
Case 2 Foreign nationals C and D contributed six million yen and eight million yen respectively andjointly established Company Y (stated capital: 14 million yen) which provides transportation services inJapan. Based on the areas of responsibility for providing transportation services, each person is incharge of the area he/she is responsible for, and operates the business in the area. The management
policy of Company Y as a whole is to be decided in consultation between them, and each person's
compensation is to be paid out of the business profits in proportion to the amount contributed.

References“Clarifications regarding the criteria for the ‘Business Manager’ status of residence (in cases where two
or more foreign nationals are the joint managers of a business)”March 2012 (revised in March 2015),
Immigration Services Agency
https://www.moj.go.jp/isa/publications/materials/nyuukokukanri07_00052.html

9

1. Status of residence

Q6

   I heard that it is possible to establish a company with a statedcapital of one yen in Japan. On the other hand, in order to obtainthe status of residence of“Business Manager,”an investment offive million yen or more is required. Does this mean that foreign
nationals have to prepare five million yen or more of stated capitalA

to establish a company?

The minimum stated capital required to establish a company is not directly related tothe status of residence. However, while it is possible to establish a company with astated capital of only one yen, in order to obtain the status of residence of“Business Manager,”it isnecessary to prepare stated capital that meets the conditions of“investments of five million yen or
more.”Otherwise, you may not obtain a proper status of residence although you were able toestablish a company. If you have a status of residence with no restrictions on your work activities, suchas“Permanent Resident”or“Long-term Resident,”you can establish a company with a stated capitalof one yen and operate a business.

Q7

   The requirements for the size of a business under the status ofresidence of“Business Manager”should fall under any of thefollowing. What exactly does“equivalent scale”in (c) mean?
   (a) The business is operated by two or more full-time employees
living in Japan other than those who run or manage thebusiness.
   (b) The amount of stated capital or the total amount of contributions
is five million yen or more.
* (c) The scale of the business is considered to be equivalent to thatAof (a) or (b).

In order to be recognized as an“equivalent scale,”the scale of the business run mustbe substantially equal to (a) or (b). The scale equivalent to (a) corresponds to the scaleof a business in which, for example, only one full-time employee is engaged and the cost required toengage another employee (approximately 2.5 million yen is required) is invested, and the scaleequivalent to (b) corresponds to the scale of a business in which, for example, a foreign national
intends to start a business in the structure of sole proprietorship and invests five million yen or more.
The investment of five million yen in this case is the total amount that is invested as necessary to run
the business such as the cost for securing workplaces, salaries of employees, and purchasing officeequipment.

10

1. Status of residence

Q8

   Is it possible to apply for a Certificate of Authorized Employment
at an immigration office other than the one that has jurisdiction
over my place of residence? Since my place of work is in a different
area of jurisdiction, I would like to apply at the immigration officeAthat has jurisdiction over my place of work.

You need to apply to the Regional Immigration Bureau and other organizations thathave jurisdiction over your place of residence, so you cannot apply at the Regional

Immigration Bureau that has jurisdiction over your place of work. The same applies to applications forextension of the period of stay or for change of status of residence.
References“Application for Certificate of Authorized Employment”Immigration Services Agency
https://www.moj.go.jp/isa/applications/procedures/16-9.html
https://www.isa.go.jp/en/applications/procedures/16-9.html

Q9A   If hiring a foreign national, do I absolutely have to check his or
her Certificate of Authorized Employment?

A Certificate of Authorized Employment is to specifically present, if a foreign national
wishes it, the work activities the foreign national could do, in order to increase theconvenience of both the employer and the foreign national. However, the certificate is issued to aforeign national if he/she wishes it, so it does not mean that he/she cannot work without a Certificate
of Authorized Employment. The status of residence with permission to work and having permission
to engage in activities outside the scope of the resident status can be confirmed by the passport
stamp, the residence card, and other items. However, when the job duties change due to a change ofjob, the Certificate of Authorized Employment is effective and reliable in confirming whether the newjob is within the scope of the permission of the resident status held by the person.

111. Status of residence

Chart 2: List of Statuses of Residence
Status of residence

Applicable examples (such as occupations)

Status of residence with no restrictions on work activities
Permanent Resident

Those permitted by the Minister of Justice to be Permanent Residents (excludingSpecial Permanent Residents)

Spouse or Child ofJapanese National

Spouse, biological child, or specially adopted child of a Japanese national

Spouse or Child of
Permanent Resident

Spouse of a Permanent Resident or a Special Permanent Resident and a biologicalchild who was born and continues to live in Japan

Long-Term Resident

Third-generation Japanese descendants, third-world country resettlement refugees,
war-displaced Japanese with Chinese citizenship, etc.

Status of residence with permission to work (contents of activities are designated)
Diplomat
Official

Foreign government's ambassadors, ministers, consul generals, delegation members,
and their family members
Employees of embassies and consulates of foreign governments, those dispatched byinternational organizations on official duties, and their family members

Professor

University professors

ArtistComposers, painters, writers

Religious Activities

Missionaries dispatched by an overseas religious group

Journalist

Journalists and photographers of a foreign press agency

Highly Skilled
Professional

Highly skilled human resources under the points-based system

Business Manager

Managers and managerial executives of companies

Legal/Accounting
Services

Lawyers, certified public accountants

Medical Services

Physicians, dentists, and nurses

Researcher

Researchers at government-related organizations and private companies

Instructor

Language teachers at a junior high school and a high school

Engineer/Specialistin Humanities/
International
Services

Mechanical engineers, interpreters, designers, language instructors at a privatecompany, and marketing employees

Intra-company
Transferee

Transferee from overseas workplaces

Nursing Care

Certified care workers

Entertainer

Actors/actresses, singers, dancers, and professional athletes

Skilled Labor

Foreign chefs, sports trainers, airline pilots, precious metal processors

Specified Skilled
Worker(i)(ii)

Foreign nationals who are engaged in work requiring a considerable degreeof knowledge or experience in the specified industrial sector
Foreign nationals who are engaged in work requiring proficient skills in thespecified industrial sector(i)Technical Intern
Training

(ii)
(iii)

12

Technical interns

1. Status of residence

Status of residence with no permission to work
Cultural Activities

Researchers of Japanese culture

Temporary Visitor

Tourists, conference participantsStudent

Students of a university, junior college, technical college or senior high, junior high,elementary or other schools

TraineeTrainees

Dependent

Spouse or child supported by foreign residents

Status of residence with/without permission to work depending on the content of the designated activities
Activities which are specifically designated by the Minister of Justice for each foreign
individual
Designated Activities(Domestic workers of diplomats, working holiday participants, candidates for foreign
nurse or certified care worker positions in accordance with economic partnershipagreements)

References“List of Statuses of Residence”Immigration Services Agency
https://www.moj.go.jp/isa/applications/guide/qaq5.html
Materials to be submitted according to status of residence
https://www.isa.go.jp/en/applications/procedures/zairyu_nintei10.html“Foreign Workers Employment Manual”Office for Promotion of Citizen Safety, Tokyo Metropolitan
Government
https://www.tomin-anzen.metro.tokyo.lg.jp/about/pdf/poster-leafret/2019manual.pdf
https://www.tomin-anzen.metro.tokyo.lg.jp/about/pdf/gaikokujin/koyou-manyuaru/koyoumanyuaru-english.pdf

13

2. Establishing a company

2. Establishing a company

Q 10

    Please tell me about an incorporator required to establish acompany. Is it possible for a foreign national living in Japan to
become an incorporator? Is it also possible for foreign nationals

Aliving abroad?

There is no restriction on the nationality or place of residence of an incorporator.
Therefore, it is possible for foreign nationals living in Japan or overseas to become

incorporators. However, since the documents necessary for establishing a company require the sealor signature of the incorporator, it may take time and effort to prepare the documents if theincorporator is an overseas resident. For a foreign national living in Japan, he/she can register as aresident, create a seal, and register the seal. On the other hand, for a foreign national living overseas,
he/she needs to prepare an official certificate of signature in accordance with the system of his/hercountry. In addition, if the signature certificate is in a foreign language, a translation is required. From
the above, if you have an overseas resident as an incorporator, you should prepare for theestablishment of the company, keeping in mind that it takes time to prepare the documents.

Q 11

A

    Is it possible to establish a company solely with overseas
residents as the incorporators?
There are no legal restrictions on the address of the incorporators, so it is possible foroverseas residents alone to establish a company. However, the procedure fordepositing or transferring capital requires that an incorporator have a savings account at a Japanesefinancial institution (including overseas branches of Japanese banks). Therefore, it would be easier toestablish a company with at least one incorporator who lives in Japan and owns a bank account.

142. Establishing a company

Q 12

A

   Is it possible for foreign nationals to become investors?

Foreign nationals can also become investors. However, if an overseas resident
contributes 10% or more of the stated capital, either a prior notification to the Bank ofJapan or a subsequent report is required. The procedure of prior notification or subsequent reporting
depends on the type of business. For details, please refer to the following Bank of Japan website.
“Procedures under the Foreign Exchange and Foreign Trade Act”Bank of Japan
https://www.boj.or.jp/about/services/tame/index.htm/“Industries in which Prior Notifications Required before Foreign Direct Investment in Japan”JETRO
https://www.jetro.go.jp/ext_images/invest/setting_up/pdf/201710/1-3aE.pdf

Q 13

A

    If there are multiple incorporators, how should I decide theamount of each contribution?

Each incorporator is required to contribute at least one share, but there is no specificamount stipulated by law. It can be decided by discussion among the incorporators.

Also, there is no requirement that the person assuming the position of representative director must
contribute the largest amount of capital. However, the ratio of contributions is an important factor
because investors become shareholders after the incorporation of the company and make decisions
on the operation of the company and elect directors. Please decide the amount of contributions
based on that. The contribution ratio (amount) may be stated in the articles of incorporation at thetime of preparing the articles of incorporation, or may be determined by resolution of theincorporators after the preparation of the articles of incorporation.

Q 14

A

   The person who is going to be a director is a foreign national
living overseas. Will the nationality or place of residence of theperson who becomes a director be a problem?

There is no restriction on the nationality or place of residence in the procedures forestablishing a company. However, like an incorporator, a prospective director may needa certificate of registered seal (inkan toroku shomeisho ) or a certificate of signature, so an overseas
resident should prepare for the establishment of the company assuming that it will take effort toprepare those documents.

15

2. Establishing a company

Q 15

   Does a foreign national need the status of residence that allows
one to work (so-called working visa) in advance to become aninvestor, an incorporator, or a director in order to establish aAcompany?

A status of residence with permission to work is not required to establish a company.
However, in order to stay in Japan and run the company as a director and earncompensation after the establishment of a company, you must have an appropriate status ofresidence such as“Business Manager.”

Q 16

A

   Is it possible to register my residence as the head office?

There is no problem in registering your residence as a head office. However, if yourhouse is a rental house, please check with your real estate agent or manager in advance

if you can use it for business, as it is often the case that it is leased for residential use only and not forbusiness use under the contract. In order to obtain the status of residence of“Business Manager,”youneed a place where it is judged that“facilities to run a business as workplace are secured in Japan,”depending on the layout of your residence. Practically, the residential and business sections should be
separated, and fixtures necessary for business execution, such as personal computers, copy machines,
and office desks, should be provided. When applying to the Immigration Services Agency, it iscommon to submit photos of these.
References“Clarification of Criteria for the Status of Residence for Foreign Managers”(Formulated in August 2005, revised in August 2020) Immigration Services Agency
https://www.moj.go.jp/isa/content/930005791.pdf

16

2. Establishing a company

Q 17

A

   I heard that it is possible to establish a company with a statedcapital of only one yen. What is the appropriate amount?

You can legally establish a company with a stated capital of only one yen, but in orderto actually operate a company, you can't do it with one yen. As for how much isappropriate, there is a way to estimate the initial cost required for doing business and use it as a
guideline for stated capital. Even if there is not much initial cost, working capital is necessary for thetime being. For example, one way is to calculate how much you need for about six months of working
capital and use this as a guideline for stated capital. In other words, you calculate the necessary costs
to start the business, such as labor and miscellaneous costs required for the business, initial costs andworking capital for the time being, and determine the amount of stated capital based on these costs.
In addition, the Ministry of Justice's criteria for foreign nationals to obtain permission for the status ofresidence of“Business Manager”state that the“size of a business is five million yen or more.”
Therefore, if a foreign national establishes a company and obtains the status of residence of“Business
Manager,”it is recommended that the stated capital be five million yen or more. Furthermore, asset
requirements may be set for businesses that require a license or permission. If you conduct such abusiness, it is possible to examine the minimum assets required to obtain a license or permission andto use the amount as stated capital.

Q 18

A

   How should I set the company's closing date? Can I decide it
freely?

There are the following approaches to determining the closing date. Please refer tothese and determine the closing date according to your company's circumstances.

(1) March or December, which is adopted by many Japanese companies.
(2) Because settlement of accounts involves complicated work, delay the initial settlement ofaccounts as much as possible. For example, if the company was established in October, the datewould be September 30, the month before the month of establishing a company.
(3) A void the busy season or sales season of the business you are about to start and choose a goodday.
(4) If the flow of money is seasonal, choose a time when it is easy to make a break between deposit
and withdrawal.

17

2. Establishing a company

Q 19

A

   The maximum term of office for directors is ten years, but I don't
know how many years should be set as the term for directors of mycompany. Please tell me if there is any way to decide.

One approach for such decision is to consider the size of the company and thepersonnel composition of investors and directors. For example, if the term of office isdetermined as ten years, there is no need to go through the procedures for the appointment andregistration of directors upon the expiration of the term of office for ten years. Therefore, it is suitable
for a company that does not change directors frequently, such as a small and medium enterprise with
one director or a family business. On the other hand, if you want more opportunities to review theoperation of the company, you might want to set a shorter term than ten years, for example, four tofive years.

18

3. Preparation of business plan

3. Preparation of business plan

Q 20

A

   I don't have enough money to fund myself. Therefore, I would
like to use a loan system, a grant or a subsidy provided by a public
institution. Please tell me an institution that provides them.

“Major Loan System Available at Start-up”Japan Finance Corporation
https://www.jfc.go.jp/n/finance/sougyou/riyou/sougyouji/
https://www.jfc.go.jp/n/english/“List of Prefectural SME Support Centers”National Association of Small and Medium Enterprise
Promotion Organizations
https://zenkyo.or.jp/association/
Example:“Subsidies”Tokyo Metropolitan Small and Medium Enterprise Support Center
https://www.tokyo-kosha.or.jp/support/josei/index.html
https://www.tokyo-kosha.or.jp/english/index.html“List of Credit Guarantee Corporations in Your Neighborhood”Japan Federation of Credit Guarantee
Corporations
https://www.zenshinhoren.or.jp/nearest/
https://www.zenshinhoren.or.jp/English/
Example:“Guarantee System Guide by Needs”Tokyo Guarantee
https://www.cgc-tokyo.or.jp/institution/needs.html
In order to borrow money from financial institutions, there is a screening process. The screening isbased on whether the business plan is feasible, whether the repayment plan is reasonable, and so on.
Please prepare the required documents for the screening. Also, please note that some loans arelimited to certain applicants, while others have a fixed application period.

Q 21

A

   I don't know how to prepare a business plan. Please tell me ifthere are any items I should include.

There is no specific format. You can create a business plan that fits your business andsituation, referring the example format below. Please note that if you receive a loan, agrant, or a subsidy, you may be required to submit the business plan in the prescribed format
depending on where you are submitting your application. Therefore, we recommend that you
carefully check the application requirements on the website by yourself.

19

3. Preparation of business plan

Chart 3: Sample business plan
[Business Overview]
Scheduled date of establishment

Year

month

Industry
Names of products or services
Description of products or services
Business style* e.g. physical store or online

Location of place of business
Operating body

* e.g. sole proprietorship or corporation

Amount of personal funds

YenAmount of contributions from third parties

Yen

Investors
Amount of stated capital* in the case of a corporation

Amount of debt

Yen

Revenues

Yen

Profits

Yen

Business partners
Employees

20

Yen

Number of employees:

3. Preparation of business plan

[Details of product or services]

Names of products or services

Overview of products or services

Characteristics of products or services

Why you chose the products and services

Selling price or supply price for products
or services

Sales quantity or supply quantity for
products or services

Projecting sales volume (target figure)

Procurement methods for products orservices

Procurement costs for products or services

Sales methods or supply methods for
products or services

Direct sales costs or direct supply costs for
products or services21

3. Preparation of business plan

[People Involved in Business]
Your position, role, and salary(Position or role)
Salary:

Yen

Motivation for startup and future vision
Qualifications, professional background, andspecial skills and patents you own which are
related to the reason for establishing yourbusiness

Plans pertaining to your business partners(Division of role)
Number of partners:
Salary:

Employees(Plans pertaining to regular employees andpart-time employees)

Yen

Number of employees:
Salary:YenSuppliers or manufacturers for products orservices
Sales destinations or supply destinations for
products or services[Trial Calculation of Selling and General Administrative Costs]
Selling and general administrative expenses
Item

AmountAdvertising

Yen

Rent (physical stores, warehouses, offices, etc.)

Yen

PayrollYen

Utilities

Yen

Travel and transportation

Yen

Communication

Yen

etc.

Yen

・

Yen

・

Yen

・

Yen

・

Yen
Yen

22

3. Preparation of business plan

(Cash flow estimates)
Month

1st
month

Carried over from theprevious month (Initial cash
for the 1st month)

2nd
month

3rd
month

4th
month

5th
month

6th
month

Yen

Yen

Yen

Yen

Yen

Yen

Yen

Yen

Yen

Yen

Yen

Receivables collected

Yen

Yen

Yen

Yen

Yen

Yen

Advances received

Yen

Yen

Yen

Yen

Yen

Yen

Other funds received

Yen

Yen

Yen

Yen

Yen

Yen

Total revenues

Yen

Yen

Yen

Yen

Yen

Yen

Amount of cash paid
for purchased goods

Yen

Yen

Yen

Yen

Yen

Yen

Payment of accounts
payable

Yen

Yen

Yen

Yen

Yen

Yen

Payment of selling andgeneral administrative
expenses

Yen

Yen

Yen

Yen

Yen

Yen

Repayment of debt

Yen

Yen

Yen

Yen

Yen

Yen

Other expenditures

Yen

Yen

Yen

Yen

Yen

Yen

Total expenditures

Yen

Yen

Yen

Yen

Yen

Yen

Balance for month

Yen

Yen

Yen

Yen

Yen

Yen

Carry over to next month

Yen

Yen

Yen

Yen

Yen

Yen

Expenditures

Revenues

Cash sales

23

3. Preparation of business plan

[Estimates according to type of expense]
Cost Items
Stores, factories, offices, machinery, fixtures, vehicles, etc.

AmountYen(Breakdown)

Facilities

・Interior construction cost

Yen

・Machines and tools, equipment, facilities and fixtures

Yen

・Display shelves

Yen・Security deposits for stores and offices, real estate agency
fees

Yen

Raw materials, goods purchased, selling and generaladministrative expenses

Yen(Breakdown)

Running costs

Financialexpenditures

24■ Cost of sales

Yen・Purchased goods

Yen・Materials

Yen

・LaborYen・Subcontracting

Yen・Other manufacturing costs

Yen■ Selling and general administrative expenses

Yen・Advertising

Yen

・Rent (e.g. stores, warehouses, offices)

Yen

・Payroll

Yen・Utilities

Yen

・Travel and transportation

Yen

・Communications

Yen

・Taxes and public charges

Yen・Other periodic costs

Yen・Repayment of debt (including interest paid)

Yen・Depreciation

Yen3. Preparation of business plan

[Business Startup Financial Plan]
Necessary funds

Facilities

AmountStores, factories,
machinery, fixtures,
vehicles, etc.

AmountPersonal funds
Yen

Yen

Running costs

Procurement
methodRaw materials,
goods purchased,
selling and generaladministrative
expenses

Contributions andloans provided
by relatives or
acquaintances

Yen

Loans from the Japan
Finance Corporationand other financial
institutions

Yen

Total

Yen (b)Yen
Yen (a)Total[Profit Plan for Three terms]
Term 1

Term 2

Term 3a. Sales

Yen

Yen

Yen

b. Cost of sales

Yen

Yen

Yen

c. Gross operating profit    (a - b)

Yen

Yen

Yen

d. Selling and generaladministrative expenses

Yen

Yen

Yen

e. Operating profit    (c - d)

Yen

Yen

Yen

f. Non-operating income

Yen

Yen

Yen

g. Non-operating expenditures

Yen

Yen

Yen

h. Ordinary profit and loss    (e + f - g)

Yen

Yen

Yen

i. Extraordinary profit

Yen

Yen

Yen

j. Extraordinary loss

Yen

Yen

Yen

k. Current term profit or loss
before tax
    (h + i - j)

Yen

Yen

Yen

l. Current term net profit or loss

Yen

Yen

Yen

25

3. Preparation of business plan

Q 22

A

   Will the business plan be submitted to government offices orother public organizations as application documents?

A business plan may be used in the following cases:(1) Obtain permission for the status of residence of“Business Manager”
If you apply for a“Certificate of Eligibility”or a“Change of Status of Residence,”you must submit

the business plan to the Immigration Services Agency that has jurisdiction as one of attacheddocuments. There is no specific format for a business plan to be attached to an application for“Business Manager”permission.
“Submission Materials for ‘Business Manager’”Immigration Services Agency
https://www.moj.go.jp/isa/applications/status/businessmanager.html
https://www.isa.go.jp/en/applications/procedures/nyuukokukanri07_00092.html
https://www.isa.go.jp/en/applications/procedures/nyuukokukanri07_00088.html
https://www.isa.go.jp/en/applications/procedures/nyuukokukanri07_00094.html(2) Obtain a so-called startup visa
When you wish to obtain permission for a“Designated Activities”visa (startup visa) to engage inactivities during the preparation period for starting up a business under the Tokyo Metropolitan
Government's“Program to Increase Foreign Entrepreneurs”utilizing the National Strategic Special
Zone system or the“Foreign Entrepreneurship Promotion Project”implemented by local
governments accredited by the Minister of Economy, Trade and Industry, you must submit thebusiness plan to the local governments.
“Application Document ‘Startup Activity Plan’”Business Development Center TOKYOhttps://www.startup-support.metro.tokyo.lg.jp/for_foreign/bdc_tokyo/jp/fhr/
https://www.startup-support.metro.tokyo.lg.jp/for_foreign/bdc_tokyo/en/fhr/(3) Receive a loan
If you apply for the startup loan of Japan Finance Corporation, you must submit the business plan as
an attachment to the loan application form.
“Funds for Startup”Japan Finance Corporation
https://www.jfc.go.jp/n/finance/search/01_sinkikaigyou_m.html“Download Forms”
https://www.jfc.go.jp/n/service/dl_kokumin.html(4) Receive a subsidy
You must submit the business plan as part of an application for“Startup Subsidies”(sometimes
referred to as“startup grant”) provided by local governments.
“Subsidy Program for Startups”Tokyo Metropolitan Small and Medium Enterprise Support Center
https://startup-station.jp/m2/services/sogyokassei/

26

4. Tax commentary

4. Tax commentary

Q 23

A

   I am wondering whether to start a business as a sole proprietorshipor a corporation. Please tell me the difference in terms of tax.

The differences in taxes paid by a sole proprietorship and a corporation are as follows.
Please refer to them.
(1) If you run a sole proprietorship
Type of tax
National tax

Income tax, consumption tax

Local tax

Resident tax, enterprise tax, fixed property tax, and local
consumption tax

Income tax, resident tax (per income levy only), and enterprise tax are imposed on the profit after
deducting expenditure from income. In other words, in principle, these taxes are imposed only if
profits are generated, and therefore they are not imposed in the case of a deficit.
Consumption tax is imposed on transaction amount. In principle, it doesn't matter if you are in theblack or in the red because you will pay the difference after deducting the consumption tax you paid
at the time of purchase (tax paid) from the consumption tax you charged to the customer (taxdeposited). In addition, the simplified taxation method can be selected in place of the basic taxation
method only for transactions of a certain size or less.
Fixed property tax is imposed if you own land, houses, and depreciable assets.
(2) If you do business as a corporation
Type of tax
National tax

Corporate tax, consumption tax

Local tax

Corporate residence tax, corporate enterprise tax, fixed property
tax, and local consumption tax

Corporate tax, corporate residence tax (per income levy only), and corporate enterprise tax (perincome levy only) are levied on the profit after deducting expenditure from the income. In otherwords, in principle, these taxes are imposed only if profits are generated, and therefore they are notimposed in the case of a deficit. Only corporations with over 100 million yen of stated capital are
subject to the pro forma standard taxation. Therefore, in addition to the above corporate enterprise tax
per income levy, corporate enterprise tax per value added levy and per capital levy are also imposed.
Consumption tax is imposed on transaction amount. In principle, it doesn't matter if you are in theblack or in the red because you will pay the difference after deducting the consumption tax you paid
at the time of purchase (tax paid) from the consumption tax you charged to the customer (taxdeposited). In addition, the simplified taxation method can be selected in place of the basic taxation
method only for transactions of a certain size or less.
Fixed property tax is imposed if you own land, houses, and depreciable assets.

27

4. Tax commentary

If doing business as a corporation, you will receive your salary from the corporation. In that case,income tax and resident tax will be imposed on the individual who receives the salary. Usually,
withholding at source is made according to the amount of monthly salary and is settled by year-end
adjustment.

Chart 4: N otification of income tax and withholding income tax when an individual newly starts
a business and the due date for submission
Submission
destination

Tax
item

Notification andapplication

Enterprise tax
and resident tax
Resident tax

Municipal
government
office(Local tax)

Prefectural tax
office(Local tax)

Withholding income tax

Tax office(National tax)

Income tax

Notification ofCommencement
or Termination ofSole Proprietorship
Business

Description

Due date for submission, etc.

(1) When starting a business(2) W hen establishing aworkplace, etc.

Within one month from thedate of the commencement ofbusiness

When obtaining approval forblue return(There are various benefits forblue return.)

In principle, by March 15 of
the year for which approval
is sought (If the business
was commenced on orafter January 16 of the year,
within two months from thecommencement of business)

Notification offamily employees'salaries of blue
return taxpayers

When the amount of salaries
for family employees of blue
return taxpayer is included innecessary expenses

By March 15 of the year inwhich you intend to include
the amount of salaries forfamily employees of blue returntaxpayer in necessary expenses(If the business wascommenced or had a new fulltime employee on and afterJanuary 16 of the year, within
two months from the date)

Notification of
Establishment,
Relocation or
Abolition of a
Salary-paying Office

When establishing, relocating,or abolishing an office or otherplaces that pay salaries(Excluding the case where a“Notification of Commencement
or Termination of Sole
Proprietorship Business” issubmitted)

Within one month fromthe date of establishment,
relocation, or abolition

Application forApproval Madein Relation to theSpecial Provision
for Due Dates
for Withholding
Income Tax

When a payer of salaries always
has less than ten people to pay
for salaries and applies for the
special provision that he or she
pays income tax withheld fromsalaries collectively twice a year

At any time
(If no notice is given by theend of the month following
the month in which theapplication is submitted, thisspecial provision shall apply
from the payment made twomonths after the application is
submitted.)

When starting a business

It varies by prefecture.
For Tokyo and Saitama, within
15 days from the date ofcommencement of business;
for Chiba and Kanagawa, within
one month from the date ofcommencement of business

When starting a business

It varies by municipality.
For Kawagoe City, Saitama,
within one month from thedate of commencement ofbusiness; for Chiba City, Chiba,no submission is required.

Application for thefiling of blue form
return for Income
Tax

Declaration ofcommencement ofbusiness

Declaration ofcommencement ofbusiness* If you run a business within the 23 wards of Tokyo, you don't need to submit notification and application to the ward offices.

28

4. Tax commentary

Chart 5: N otification of corporate tax, local tax, and withholding income tax when a corporationis newly established and the due date for submission
Submission
destination

Tax
item

Notification andapplication

Description

Due date for submission, etc.

When establishing a corporation

Within two months after the dateof incorporation

Application Form for
Approval of FilingBlue Return

When obtaining approval for blue
return(There are various benefits forblue return.)(1) T he date when three months
have passed since the date ofincorporation(2) T he last day of the businessyear of the first term ofincorporation
The previous day of the earlier
date of (1) or (2)Application forSpecial Provision for
Extension of the Due
Date for Filing a Final
Return Form

In cases where a corporation thatcannot file a tax return by thefiling due date because its articles
of incorporation provide that theshareholders meeting be held
within three months after the last
day of the business year, etc., andthe corporation wishes to apply
for an extension of the filing due
date

The last day of the business year
for which the first application issoughtNotification of theEstablishment of a
Salary-paying Office

When establishing, relocating, or
abolishing an office or other places
that pay salaries

Within one month from the dateof establishment

Application forApproval Made in
Relation to the Special
Provision for Due
Dates for Withholding
Income Tax

When a payer of salaries always
has less than ten people to pay forsalaries and applies for the special
provision that he or she pays
income tax withheld from salaries
collectively twice a year

At any time
(If no notice is given by the endof the month following themonth in which the application is
submitted, this special provision
shall apply from the payment
made two months after theapplication is submitted.)

Withholding income tax

Tax office(National tax)

Corporate tax

Notification of
Corporation
Establishment

Enterprise tax and resident tax
Resident tax

Municipal government office(Local tax)

Prefectural tax office(Local tax)

It varies by prefecture.
To the Tokyo Metropolitan
Government Tax Office, within
15 days from the date ofincorporation
For Kanagawa, within two months
after the date of incorporation

Notification of
Corporation
Establishment

When establishing a corporation

Notification/
Application forApproval for
Extension of Due Datefor Filing a ReturnForm

In cases where a corporation thatcannot file a tax return by thefiling due date because its articles
of incorporation provide that theshareholders meeting be held
within three months after the last
day of the business year, etc., andthe corporation wishes to apply
for an extension of the filing due
date

Notification of
Corporation
Establishment

When establishing a corporation

Within two months after the dateof incorporation

Copy of “Applicationfor Special Provision
for Extension of theDue Date for Filing a
Final Return Form” forcorporate tax(Accepted)

In cases where a corporation thatcannot file a tax return by thefiling due date because its articles
of incorporation provide that theshareholders meeting be held
within three months after the last
day of the business year, etc., andthe corporation wishes to apply
for an extension of the filing due
date

It varies by municipality.

Corporate prefectural tax: Within
22 days from the last day of thebusiness year
Corporate enterprise tax: Until theend of the business year

* If you run a business in the 23 wards of Tokyo, you don't need to submit notification and application to the ward offices.

Various Notification Forms on the National Tax Agency Website
https://www.nta.go.jp/taxes/tetsuzuki/shinsei/index.htm
29

4. Tax commentary

Q 24

   Currently, I have an overseas office and am conducting businessoverseas. In the future, I am thinking of expanding business inJapan. In that case, please tell me what kind of business structure isA

suitable.

When a corporation conducts business, individuals contribute stated capital, or
foreign companies may contribute stated capital to expand into Japan. There are threemain types of business structures for foreign companies expanding into Japan: (1) establishing a
representative office, (2) establishing a branch office, and (3) incorporating a local subsidiary. In thiscontext, a local subsidiary is a Japanese subsidiary with foreign capital. Among these, (1) The
representative office is convenient because it does not require registration. However, since its
activities are limited to supporting activities such as liaison services and simple information collection,
it is not a favorable method for foreign companies that are actively expanding their activities in Japan.
Therefore, companies that plan to be active in Japan generally choose to either (2) establish a branch
office or (3) incorporate a local subsidiary. When foreign capital is involved, there are advantages anddisadvantages for the representative office, branch office structure, and local subsidiary, respectively.
It is desirable to first consider what kind of activities you want to do in Japan, such as the content of
your business activities, financing and remittance method, and the size of your transactions, and thendecide which structure is best to adopt. Practically, it is common to operate as a representative officesoon after the business is launched in Japan, and then to incorporate a local subsidiary when a certain
level of business is expected. In addition, the treatment of transactions with non-residents differs
depending on the country to which the payment is made and the person who bears the final cost.
Therefore, it is necessary to confirm tax treaties and Multilateral Convention to Implement Tax Treaty
Related Measures to Prevent Base Erosion and Profit Shifting on each transaction.

1. Characteristics of the representative office
The representative office does not require registration, so it has no juridical personality. In
principle, the representative office has the advantage of not being taxed in Japan, but on the other
hand, the business activities are strictly restricted, such as liaison services and simple informationcollection performed for the head office, and activities to find a base to establish a branch office ora local subsidiary in the future. The activities of the representative office are limited to auxiliary andpreparatory activities, so you cannot engage in any activities related to sales. Please note that if any
activities are beyond the scope of the above, there may be a risk that the representative office will
be recognized as a permanent establishment, and all the activities will be subject to taxation in
Japan.

2. Characteristics of the branch office
The branch office is treated as a foreign corporation because it is part of the same entity as thehead office and is established under the laws of other countries. For commercial registration
purposes, the company must be registered as a business office in Japan. In addition, as it falls under
the category of inward investment under the Foreign Exchange and Foreign Trade Act, priornotification or a subsequent report to the minister having jurisdiction over the workplace is required,depending on the industry. The taxes imposed on the business activities conducted by the Japanesebranch office are basically the same as those imposed on Japanese companies (domestic
corporations), but there are issues specific to the branch office with respect to several points.
30

4. Tax commentary

If you engage in activities in the structure of branch office, a buy-sell method is common. The buysell method refers to the method in which a branch office, in the case of a wholesale or retailbusiness, purchases goods from the head office in its own name and sells them to customers inJapan, or in the case of a service business, a branch office provides services to customers in Japan in
its own name and records the related cost of such services.
In the case of the buy-sell method, it is necessary to pay attention to the buy-sell transaction pricebetween head and branch offices. For example, when purchasing from the head office, thepurchase price is often set by adding the profit of the head office to the manufacturing and othercosts in the home country. However, if the purchase price is set high for the branch office and the
profit of the branch office is negative or extremely low as a result, the issue of the transfer pricing
arises as to whether the set purchase price is reasonable.
Recently, the Base Erosion and Profit Shifting (BEPS) project led by the OECD has been launchedto prevent excessive tax avoidance by multinational corporations using low-tax countries, and thetransfer pricing issue is strongly addressed.

3. Characteristics of the local subsidiary
Since a local subsidiary is a separate corporation from the parent company and is incorporated
under Japanese domestic law, it is treated as a domestic corporation and thus taxed in the samemanner as an ordinary Japanese corporation.
If you engage in activities as a local subsidiary, the buy-sell method is common, as is the case withthe structure of branch office. From the perspective of transfer pricing, a local subsidiary must also
be careful about buy-sell transactions between parent and subsidiary companies. Therefore, it ismandatory to verify whether the purchase price from the parent company is made at the arm's
length price (the price set in the case of similar transactions with independent third parties). In
Japan also, the law has been revised based on the BEPS project described above. Therefore,
companies engaged in foreign affiliated transactions between parent companies and affiliatedcompanies are required to prepare certain documents concerning transfer pricing.
On the other hand, some local subsidiaries are not engaged in sales activities, but are engaged inmarket research, advertising, after-sales service, and other matters for their parent companies. Suchcompanies provide services on behalf of the parent company and may adopt a cost-plus method
instead of the buy-sell method. The cost-plus method is a method in which a local subsidiarycharges its parent company a service fee equal to the cost of activities incurred in Japan plus a
certain profit margin, and records sales.
In the past, the provision of services to a parent company this way was allowed as long as a profit
equivalent to 5-10% of the expenses of the local subsidiary had been added, but now it is required
to calculate the markup percent by taking into account the profit margin of third parties engaged
in similar activities (i.e., the profit margin under the Transactional Net Margin Method). However, inthe case of low-value-added operations (limited to cases in which certain documents such as
agreements are prepared and stored), not services incidental to the core business, the markup
percent can be 5%. Low-value-added operations include, for example, minor work costs such as
billing the parent company for expenses paid in Japan for the parent company. The provision ofservices, research and development, the purchase of raw materials, logistics, and marketing
associated with the core business are not considered as low value-added operations, so you need
to be careful.

31

4. Tax commentary

Below is a comparison of the establishment of a branch office and the incorporation of a local
subsidiary.

Chart 6: Comparison of establishing a branch office and a local subsidiary* For cases where the stated capital of the home country is less than 500 million yen and the stated capital of the local subsidiary is
10 million yen

Establishment of branch office

32

Incorporation of local subsidiary

Legal treatment

Foreign corporation

Domestic corporation

Structure

Buy-sell method

Buy-sell method andCost-plus method

Corporate image

Tend to be less acceptable than local
subsidiary

Tend to be more acceptable thanbranch officeHiring of employees

Tend to be more difficult comparedto local subsidiary

Tend to be easier compared to branch
officeStated capitalStated capital of the head office

Can be established from one yen

When a branch office or asubsidiary makes a profit

Tax payment by self-assessment must
be made in Japan and profits must be
included in the head office's financial
statements.
Double taxation can be eliminatedby foreign tax credit at the head office

Tax payment by self-assessment must
be made in Japan. Foreign tax credit
cannot be applied on the parent
company side.

When any loss is incurredby a branch office or asubsidiary

Can be included into the financial
statements of the head officeCannot be included into the financial
statements of the parent company

Corporate residence tax
per capita levy

Affected by the stated capital of thehead office

Depend on the amount of statedcapitalPro forma standard
taxation

Subject to taxation if the stated capitalof the head office is over 100 millionyen

Not subject to taxation if the statedcapital is 100 million yen or less

Local financing

It's very difficult to receive a loan froma bank.

It's easier to receive a loan than abranch office, but guarantees fromthe parent company are often
required.

Money receipts fromJapanese customers andwithholding income tax

May be withheld at source

Not withheld at source

Distribution of profits

Can be transferred to the head officeat any time

Remitted as dividend(Withholding at source may berequired)

Salary paid by the homecountry to a non-resident

20.42% withholding at source may berequired at a branch office

No withholding tax required at a local
subsidiary5. Public insurance

5. Public insurance

Q 25

A

   What is public insurance in Japan? Is there any public insurance
for foreign nationals?

In Japan, all people are covered by health insurance and pension, and we have asystem to help each other (universal health insurance system). This system also applies

to foreign nationals residing in Japan (excluding short-term visitors). The Japanese public insurance
system has health insurance, pension, and labor insurance. Here are some good points you should
know when joining these public insurances:(1) Regarding health insurance and pension, the types of insurance for which you can become an
insured person are different between a sole proprietorship and a corporation. In principle, a sole
proprietorship is covered by national health insurance and national pension, and a corporation iscovered by social insurance for employees (health insurance and employees' pension insurance). The
enrollment procedures for the national health insurance and the national pension are carried out by
the insured person himself or herself. Social insurance is applied to each workplace, and the businessproprietor takes the procedure to obtain the qualification of the insured person. The insured personof social insurance is a permanent employee. Part-time employees may or may not become theinsured person depending on the number of working days and hours. Representatives and officers ofa corporation are also insured by social insurance in the same way as employees, based on theconcept that they are used by the“corporation.”(2) Workers' accident compensation insurance and employment insurance are collectively called labor
insurance. There is no difference by business structure between sole proprietorship and corporation.
Enrollment in labor insurance is done by each workplace if you employ even one person. Amonglabor insurance, workers' accident compensation insurance covers not only permanent employees
but also all employees, including part-time employees. In the case of employment insurance, whether
or not an employee is insured depends on the period of employment and the prescribed working
hours. Business proprietor is required to go through the procedure to obtain the qualification of
insured persons.

33

5. Public insurance

Chart 7: Public insurance system(1) Employees' healthinsurance
Public health insuranceSocial insurance(2) National healthinsurance

For corporate representatives
and employees
Enroll in (1) + (3) as a set(3) Employees' pension
insurance
Public pension

For sole proprietors(4) National pension
system(5) Workers' accident
compensation insurance

Labor insurance(6) Employment insurance“Social insurance”in the broad sense refers to public insurance as a whole, while“social insurance”
in the narrow sense is a collective term for (1) employees' health insurance and (3) employees'
pension insurance. The public insurance system has many special provisions and exceptions.
Therefore, we recommend that you consult with your relevant authorities depending on yoursituation.

Chart 8: List of types of public insurance to be processed when becoming a business proprietor
Sole proprietorship(Fewer than five employees)

Corporate enterprise

By insured person
Business proprietor
himself or herself

National health insurance
National pension

Employees' health insurance
Employees' pension insurance

SpouseNational health insurance
National pension (need to bear insurance
premiums)

Employees' health Insurance (Dependent)
National pension (without insurance
premiums)

Worker's accident compensation insurance
Employment insurance

Employees' health insurance
Employees' pension insurance
Workers' accident compensation
insurance
Employment insurance

Labor insurance registration form
Labor insurance premiums estimate
declaration form
Employment insurance covered officeestablishment report

Labor insurance registration form
Labor insurance premiums estimate
declaration form
Employment insurance covered officeestablishment report
Notification of new application for
employees' health insurance andemployees' pension insurance

Employment insurance insured worker
qualification acquisition report

Employment insurance insured worker
qualification acquisition report
Employees' health insurance andemployees' pension insurance insured
worker qualification acquisition report
Application for dependent's coverage

Regular employee

Type of notification

Procedures relating
to applicable
workplaces

Procedures for
insured persons* Applicable workplaces are those that are covered by public insurance. When a new company is established, it is necessary tosubmit a notification to an administrative organ and receive confirmation of the applicable workplace.
* See Charts 9 and 10 on page 35 for the procedure and notification period.

34

5. Public insurance

Chart 9: Notification of application of social insurance and labor insurance for workplace

Socialinsurance

Documents to be submitted

Due date

Submission destination

Notification of new applicationfor employees' health insurance
and employees' pension
insurance

Within five days from thedate of incorporation of
the corporation or the dateon which the individual
workplace became
applicable

Japan Pension Service (JPS)
branch office having
jurisdiction over the locationof the workplace

Labor insurance registration
form

Within 10 days from thedate on which even one
employee was employed(the date on which theinsurance relationship wasestablished)

Labor Standards Inspection
Office having jurisdiction
over the location of theworkplace

Labor insurance premiums
estimate declaration form

Within 50 days from thedate on which even one
employee was employed(the date on which theinsurance relationship wasestablished)

A declaration is made bypaying insurance premiums
to a financial institution or
the Prefectural Labor Bureau
where the workplace islocated.

Employment insurance covered
office establishment report

Within 10 days from thedate on which even one
employee was employed(the date on which theinsurance relationship wasestablished)

Public Employment Security
Offices (Hellowork) having
jurisdiction over the locationof the workplaceLabor
insurance

Employment
insurance・As attachments, a “certified copy of company register” is required for a corporation, and a “copy of the residence certificate of allhousehold members,” and other documents such as a “wage ledger” and “roster of workers” are required for a sole proprietorshipworkplace. There are differences depending on the government office in charge. Please check in advance.

Chart 10: Notification of application of social insurance and employment insurance for insured
persons
Documents to be submitted

Socialinsurance

Employment
insuranceDue date

Submission destination

Employees' health insurance andemployees' pension insurance
insured worker qualificationacquisition report

Within five days from theapplicable date

Mail to the JPS branch officeor administrative center
having jurisdiction over thelocation of the workplace

Application for dependent's
coverage

Within five days from thedate of transfer

Mail to the JPS branch officeor administrative center
having jurisdiction over thelocation of the workplace

Employment insurance insured
worker qualification acquisition
reportBy the tenth of the monthfollowing the month inwhich the applicable datefalls

Public Employment Security
Offices (Hellowork) having
jurisdiction over the locationof the workplace・The above procedures are carried out together with the application of the workplace at the time of business startup. In addition,
the notification for employees employed after the commencement of business is the same as above.

35

5. Public insurance

Chart 11. Various inquiries related to public insurance
Category

Pension andhealthcare
publicinsurance

Labor
insurance

36

Organization name/URL

Procedures forpension and social
insurance

Japan Pension Service (JPS)(Pension system and procedures)https://www.nenkin.go.jp/service/index.html
https://www.nenkin.go.jp/international/index.html(Nationwide consultation and procedure center)
https://www.nenkin.go.jp/section/soudan/index.html
Japan Pension Service branch office near you
https://www.nenkin.go.jp/international/aboutjps/offices.html

Procedures for healthinsurance benefits

Japan Health Insurance Association (Association-managed healthinsurance)(Prefectural branch offices)
https://www.kyoukaikenpo.or.jp/
https://www.kyoukaikenpo.or.jp.e.ame.hp.transer.com/

Procedures fornational healthinsurance

Local government offices(Example: Tokyo Metropolitan Government Bureau of Social
Welfare and Public Health)
https://www.fukushihoken.metro.tokyo.lg.jp/iryo/kokuho/index.
html

Procedures forworkers' accident
compensation
insurance

National Labor Standards Inspection Office, Ministry of Health,
Labor and Welfare (Regional Labor Standards Inspection Office)https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/
koyou_roudou/roudoukijun/location.html
https://www.mhlw.go.jp/bunya/koyou/gaikokujin12/pdf/
english_0010.pdf

Procedures for
employment
insurance

National Public Employment Security Office (Hellowork) (Local
Public Employment Security Office)https://www.mhlw.go.jp/kyujin/hwmap.html
https://www.mhlw.go.jp/content/000637894.pdf

6. Consultation desks and contact points

6. Consultation desks and contact points
I. Public support agencies and organizations[Regional Head Offices of the Organization for Small & Medium Enterprises and Regional Innovation]
Eligibility : Entrepreneurs, small and medium-sized enterprises who are taking a new step
Services :	Dispatch of experts, business startup consultation, provision of information on incubation
facilities, etc.
Location : 10 locations nationwide
Inquiries : https://www.smrj.go.jp/regional_hq/index.html
		 https://www.smrj.go.jp/english/about/network.html
		 https://www.smrj.go.jp/venture/index.html
		 https://www.smrj.go.jp/english/activities/[Prefectural Small and Medium Enterprise Support Centers]
Eligibility : Small and medium-sized enterprises who want to have business or financing consultations
Services : Business diagnosis, dispatch of experts, etc.
Location : All prefectures and ordinance-designated cities
Inquiries : “Local Support Centers”
		 https://zenkyo.or.jp/association/[Business Startup Support Center, Tokyo Chamber of Commerce and Industry]
Eligibility :	Small and medium-sized enterprises who have issues related to startup, business succession,
new business development, and financing
Services :	Consultations on issues at the time of business startup, such as procedures for starting abusiness, and the public loan system that can be used at the time of startup
Location : Marunouchi Nijubashi Building, 3-2-2 Marunouchi, Chiyoda-ku, Tokyo 100-0005
Inquiries : TCCI Business Support Desk
		 TEL. 03-3283-7767
		 https://www.tokyo-cci.or.jp/entre/		https://www.tokyo-cci.or.jp/english/our_main_missions_and_commitments/business_
support/[Mirasapo plus]
Eligibility : Small and medium-sized enterprises and small-scale enterprises
Services : Introduction of “support systems,” such as subsidies, grants, benefits, loans, and tax breaks
Inquiries : “The Small and Medium Enterprise Agency”
		 TEL. 03-3501-1511 (Main number)		 https://mirasapo-plus.go.jp[Small and Medium Enterprises 119]
Eligibility : Small and medium-sized enterprises, small-scale enterprises, etc.
Relevant services:		 Introduction of appropriate support organizations for problem solving
Inquiries : “Secretariat for Dispatch of Experts”
		 TEL. 03-5542-1685
		 https://chusho119.go.jp/
Remarks : Operation entrusted by Small and Medium Enterprise Agency

37

6. Consultation desks and contact points[Japan Finance Corporation (JFC)]
Eligibility : Founding entrepreneur, etc.
Services :	Consultations on starting a business, support for loans to startup companies with difficulty inraising funds, etc.
Locations :	General Support Desk (152 locations nationwide), Business Startup Support Center (15 locations
nationwide), Business Support Plaza (6 location nationwide), etc.
Inquiries : “General Business Startup Support”
		 https://www.jfc.go.jp/n/company/national/initiation.html
		 https://www.jfc.go.jp/n/english/
		 “Business Support Plaza”
		 https://www.jfc.go.jp/n/finance/sougyou/ijuusougyou/location/index.html
		 “Enterprise Fund Consultation Dial” TEL. 0120-154-505
		 https://www.jfc.go.jp/n/inquiry/[Japan Federation of Credit Guarantee Corporations (JFG)]
Eligibility : Small and medium-sized enterprises and small-scale enterprises
Services :	Acting as a guarantor of loans to make it easier for companies to obtain business financing fromfinancial institutions
Location : 2-1 Kandatsukasacho, Chiyoda-ku, Tokyo 101-0048
Inquiries : https://www.zenshinhoren.or.jp
		 https://www.zenshinhoren.or.jp/english/
		 “List of Credit Guarantee Associations in Japan”
		 https://www.zenshinhoren.or.jp/nearest/[Tokyo One-Stop Business Establishment Center (TOSBEC)]
Eligibility : Those considering opening a business in Tokyo
Services :	Various procedures such as certification of the articles of incorporation, registration, taxation,pension, social insurance, and immigration management, which are necessary for incorporatinga corporation or start a business
Location : Japan External Trade Organization (JETRO) Headquarters
		 Ark Mori Bldg. 7F, 1-12-32 Akasaka, Minato-ku, Tokyo 107-6090
Inquiries : TEL. 03-3582-4934
		 https://www.startup-support.metro.tokyo.lg.jp/onestop/jp/
		 https://www.startup-support.metro.tokyo.lg.jp/onestop/en/[Japan External Trade Organization (JETRO)]
Eligibility : Those considering overseas business
Services :	Export/import and investment advice (such as trade promotion methods, overseas market
information, and investment-related information)
Location : Ark Mori Bldg. 1-12-32 Akasaka, Minato-ku, Tokyo 107-6006
Inquiries : “JETRO General Information”
		 TEL. 03-3582-5511
		 https://www.jetro.go.jp/
		 https://www.jetro.go.jp/en/
		 “JETRO Domestic Office”
		 https://www.jetro.go.jp/jetro/japan/list.html
		 https://www.jetro.go.jp/en/jetro/worldwide/japan/[Manufactured Imports and Investment Promotion Organization (MIPRO)]
Eligibility : Those considering starting a business
Services : Consultation on procedures for establishing and starting a company, etc.
Location : World Import Mart Bldg. 6th Floor, 3-1-3 Higashi Ikebukuro, Toshima-ku, Tokyo 170-8630
Inquiries : TEL. 03-3989-5151
		 https://www.mipro.or.jp/advisement/		 https://www.mipro.or.jp/english/advisement/index.html

38

6. Consultation desks and contact points

II. Professional Associations[Japan Federation of Certified Administrative Procedures Legal Specialists Associations] (Administrative
Attorney)
Services :	Consultations on obtaining various types of licenses and approvals, such as application for Certificate
of Eligibility, application for change of status of residence, and application for business permission,etc., and creation of articles of incorporation
Location : Toranomon Towers Office 10th Floor, 4-1-28 Toranomon, Minato-ku, Tokyo 105-0001
Inquiries : “Japan Federation of Certified Administrative Procedures Legal Specialists Associations”
		 TEL. 03-6435-7330
		 https://www.gyosei.or.jp/
		 https://www.gyosei.or.jp/about/language/english
		 “Prefectural Association of Certified Administrative Procedures Legal Specialists”
		 https://www.gyosei.or.jp/about/disclosure/membership.html[Japan Federation of Shiho-Shoshi Lawyer's Associations] (Solicitor)
Services : Consultation on registration, acting as agent for registration procedures, etc.
Location : 4-37 Yotsuya Honshio-cho, Shinjuku-ku, Tokyo 160-0003
Inquiries : TEL. 03-3359-4171
		 “List of Shiho-shoshi Associations in Japan”
		 https://www.shiho-shoshi.or.jp/association/shiho_shoshi_listh/		 https://www.shiho-shoshi.or.jp/global/english/
		 “List of Shiho-shoshi General Consultation Center”
		 https://www.shiho-shoshi.or.jp/activity/consultation/center_list/[Japan Federation of Certified Public Tax Accountants' Associations] (Certified Public Tax Accountant)Services : Tax consultations, acting as agent to prepare tax documents including tax returns, etc.
Location : Nihon Zeirishi Kaikan Bldg. 8F, 1-11-8 Osaki, Shinagawa-ku, Tokyo 141-0032
Inquiries : TEL. 03-5435-0931
		 https://www.nichizeiren.or.jp/
		 https://www.nichizeiren.or.jp/eng/		 “List of Certified Public Tax Accountants' Associations in Japan”
		 https://www.nichizeiren.or.jp/nichizeiren/location/
		 https://www.nichizeiren.or.jp/eng/region.html[Japan Federation of Labor and Social Security Attorney's Associations] (Labor and Social Security Attorney)
Services :	Procedures for labor and social insurance, labor management consultation, pension consultation,
etc.
Location : Shakai Hokenromushi Kaikan Bldg., 3-2-12 Nihonbashi Hongoku-cho, Chuo-ku, Tokyo 103-8346
Inquiries : TEL. 03-6225-4864 (Main number)		 https://www.shakaihokenroumushi.jp/
		 https://www.shakaihokenroumushi.jp/en/tabid/296/Default.aspx
		 “List of Labor and Social Security Attorney's Associations in Japan”
		 https://www.shakaihokenroumushi.jp/organization/tabid/238/Default.aspx[Japan Small and Medium Enterprise Management Consultant Association] (Small and Medium sizedEnterprise Consultant)Services : Provision of management diagnosis and management advice to small and medium enterprises, etc.
Location : Ginmatsu Bldg., 1-14-11 Ginza, Chuo-ku, Tokyo 104-0061
Inquiries : TEL. 03-3563-0851
		 https://www.j-smeca.jp/
		 https://www.j-smeca.jp/contents/018_english_contents.html
		 “List of Prefectural Small and Medium Enterprise Management Consultant Association”
		 https://www.j-smeca.jp/open/static/sibuindex.jsf[Japan Federation of Bar Associations] (Attorney)
Services :	Legal consultation, legal services such as settlement and out-of-court negotiations, litigation
activities, and appeals to administrative agencies. etc.
Location : Bengoshi Kaikan Bldg. 15F, 1-1-3 Kasumigaseki, Chiyoda-ku, Tokyo 100-0013
Inquiries : TEL. 03-3580-9841 (Main number)		 https://www.nichibenren.or.jp/
		 https://www.nichibenren.or.jp/en.html
		 “Himawari Hotline (Dedicated contact for SME managers)”
		 TEL. 0570-001-240
		 “Himawari SME Center”
		 https://www.nichibenren.or.jp/ja/sme/about_himawari.html
		 “Online Consultation Office”
		 https://www.nichibenren.or.jp/ja/sme/contact.html
		 Local Bar Associations
		 https://www.nichibenren.or.jp/en/legalinfo/legal.html
		 Legal Consultation for Foreigners
		 https://www.nichibenren.or.jp/en/legalinfo/counceling.html

39

Trade and Business Startup Consultation Desk

MIPRO consulting services for trade & starting business
TEL: 03-3989-5151
FAX: 03-3590-7585

Consultation available weekdays from 10:30 A.M. to 4:30 P.M.
https://www.mipro.or.jp/

This document has been prepared based on the information as of April 30, 2022
and with the utmost care regarding accuracy. However, when actually starting abusiness in Japan, please inquire with the relevant public offices concerning
necessary documents, matters, etc. or consult with an administrative attorney orother specialists.
MIPRO shall not be liable for any direct or indirect damage arising from the useof information and other materials presented in this document.
＊

Unauthorized reproduction of this document is prohibited.

This material has been prepared by receiving subsidies for FY2022 Promotion Business Expenses from the Foundation for International Trade and Industrial
Co-operation, a general incorporated foundation.

The Mipro Guide toStarting a Business in Japan

Manufactured Imports and Investment Promotion Organization (MIPRO)
6th Floor, World Import Mart Bldg., 3-1-3, Higashi-Ikebukuro, Toshima-ku, Tokyo 170-8630, Japan
TEL.03（3971）6571 FAX.03（3590）7585
URL：https://www.mipro.or.jp/〜Startup Q&A〜
The Mipro Guide to Starting a Business in Japan〜Startup Q&A 〜

外国人のための起業ガイドブック（起業Q&A編）

外国人のための起業ガイドブック（起業Q&A編）
MIPRO