A liaison office, most commonly known as a representative office, in Japan is generally opened by foreign legal entities as a preliminary step to actually doing business in the country. A representative office can effectuate market research, collect data and purchase and advertise products. In this article, our company formation advisors in Japan present several details regarding opening a liaison office in Japan.
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Setting up a liaison office in Japan without opening a legal entity
A liaison office in Japan must have a representative who is a resident in this country.
If the representative office intends to pay wages to employees and offer them social insurance and retirement benefits, a certain procedure, which is quite complex, must be followed.
To achieve this, the liaison office must present the local authorities with the following documentation:
• A lease for office space in its own name;
• A utility bill which is issued on the representative office name;
• A copy of the agreement between the representative and the parent company.
The representative of the liaison office must also prove his or her good standing with the social insurance, tax and legal authorities by filing documents like:
• The registration with the local ward office;
• The registration with the social insurance;
• Proof of payment of the resident tax. Our company registration consultants in Japan can provide more details on what these documents consist of. We can also assist entrepreneurs who are interested in starting a company in Japan.
Differences between a representative office and a branch office in Japan
Opening a representative office in Japan is, maybe, the most basic way of establishing the presence of a company in this country.
As stated previously, such an entity is able to effectuate surveys, collect data, purchase and advertise goods and so on.
However, a liaison office in Japan is not allowed to engage in sales activities.
Setting up a liaison office here does not imply a company registration in Japan.
On the other hand, a branch office in Japan enables a foreign company to do business in the country while maintaining the control of the decisions and having the entire liability. However, one similarity between branch offices and liaison offices in Japan is that they do not have their own separate legal status. A branch office is considered an extension of the foreign parent company and operates under its legal framework.
If you wish to know more about Japanese company formation and the types of business structures available in the country, do not hesitate to reach out to our specialists.
The following video summarizes the characteristics of the liaison office:
Taxes and costs related to liaison offices in Japan
As mentioned above, representative offices in Japan do not conduct business activities in Japan and are not considered permanent establishments. Therefore, they are generally not subject to corporate taxes in Japan.
They are also not required to report direct inward investment to the Ministry of Finance via the Bank of Japan under the Foreign Exchange Law. Therefore, there is no need to submit reports on their financial transactions or investment activities.
However, financial institutions such as foreign banks, insurance companies, or securities companies are subject to different regulations. They are required to submit a report in advance to the Ministry of Finance when establishing a representative office due to laws specific to banking, insurance, and securities operations.
As for costs associated with liaison offices, companies can own or rent their space in Japan. Please note that while renting, in some cases the building owner may ask the representative office to provide a guarantor who has Japanese residency.
Other costs may include the employee’s salaries and contributions, maintenance costs, utilities, advertising, or marketing budget.
Please contact our specialists for more details regarding taxes, including taxes associated with company registration in Japan.
Advantages of opening a representative office in Japan
Opening a liaison office in Japan is an excellent idea for foreign companies wishing to expand their business in the country, without having to conduct any commercial activities. Here are more advantages of representative offices:
- Low costs – By having a representative office, businesses can avoid the burden of setting up and maintaining a full-size company in Japan. They don’t have to maintain a detailed financial ledger in Japanese Yen or pay taxes in Japan initially, reducing administrative and financial obligations;
- Facille employment process – With a representative office in Japan, businesses can hire staff without going through the process of registering with the Legal Affairs Bureau, which is required for full-scale company formation in Japan. The only registration needed is with the tax office to pay the withheld income taxes of the employees;
- Flexibility to test the market – A liaison office is a great opportunity to explore and test the Japanese market before making any substantial investments.
Additionally, investors can take advantage of the country’s exceptional economic status if they are interested in opening a company in Japan. Here are a few statistics and data that highlight this idea:
- In 2022, Japan’s GDP was estimated at 4.23 trillion dollars;
- A preliminary survey report conducted in 2022 on 25,905 Japanese companies demonstrated that sales per company increased by 5.2% compared to the previous year;
- The same report shows that sales in the manufacturing sector increased by 8.8%;
- Another increase was in the retail sector, with a growth of 1.8% compared to the previous year.