A subsidiary in Japan represents an independent entity set up according to the Japanese legislation, with a foreign entity owning its shares.
The foreign entity may be the sole shareholder of the subsidiary in Japan, though it may be possible to have other shareholders as well, be it an individual or a company, local or foreign.
In this article, our company formation advisors in Japan present you with the main aspects of setting up a subsidiary in this country.
Table of Contents
Establishment of a subsidiary in Japan
Subsidiaries in Japan are generally set up as a Kabushiki Kaisha (KK), which represents a joint stock entity, or a Godo Kaisha (GK), which is a limited liability entity.
|Subsidiary in Japan – characteristics||A subsidiary in Japan is an independent entity from the parent entity, that owns shares or ownership interests in the subsidiary.|
Types of business entities
– Kabushiki Kaisha (KK),
– Godo Kaisha (GK).
Limited to its own assets and operations;
Responsible for its own actions, contracts, and obligations;
Legally independent from its foreign parent company.
|Maximum shareholders||No limit|
|Minimum share capital||
|Number of representative directors||
– 2 (for KK),
– no limitations (GK).
|Directors must have Japanese residency (YES/NO)||
YES, at least one
|Documents needed to establish a subsidiary||
– application form,
– parent company’s statutory documents and certificate of incorporation,
– Japanese company’s seal,
– incorporation documents of the subsidiary,
– director appointment letter, etc.
|Corporate income tax||
23.2%, but might vary depending on paid-in capital and other circumstances
|Other possible taxes||
– consumption tax,
– stamp duty,
– custom duties,
– payroll taxes,
– property tax, etc.
|Notifications for foreign direct investment||
– artificial satellites,
– computer programming and other software services,
– agriculture and forestry,
– information and communication,
– finance and insurance, etc.
|Can hire foreign employees (YES/NO)||
YES, if the employees legally immigrated to Japan
|Special business licenses and permits||
For specific industries (food, production of alcoholic beverages, financial, crypto, cosmetic, pharmaceutical, etc.)
|Advantages of opening a subsidiary in Japan||
– flexibility in business operations,
– tax benefits,
– access to Asian market,
– fast process to open a company in Japan,
– skilled workforce, etc.
|Assistance||We offer assistance in company formation in Japan as well as other legal services.|
Subsidiaries are perceived as offering more security in the local market compared to other types of entities because of their status as a Japanese company. Our company registration representatives in Japan can offer more details on this matter.
A subsidiary in Japan can be structured as a separate business with active connections to the parent company.
A subsidiary in this country has more legal authority to act independently and may assume liabilities and responsibilities separate from the parent company.
Registration of KK subsidiaries in Japan
In order to open a KK subsidiary in Japan, the following criteria have to be met:
- – a minimum share capital of JPY 1;
- – there are no limitations on the shareholders’ numbers;
- – it is possible to name non-resident directors, as long as the representative director is a resident of Japan;
- – usually, two representative directors are appointed;
- – if foreign staff is employed to work in Japan, they have to obtain a visa or a status of residence;
- – if required by the activities undertaken by the business, certain business licenses or permissions from the local authorities have to be obtained.
The steps required to open the Kabushiki Kaisha company are the following:
- Name: Choose the company name and check for availability with the Legal Affairs Bureau;
- Incorporation documents: these are the company’s articles of incorporation and will include the name and the scope of the company as well as details about the directors and other information;
- Parent company documents: gather the parent company’s registration certificate, prepare the needed affidavits and the specimen signatures of the parent company representatives;
- Notarize: the subsidiary’s articles of association are notarized by a Japanese notary;
- Provide the capital: apply to a bank for capital custody and remit the subsidiary capital;
- Appointments: appoint the company directors and other key personnel such as other officers or auditors;
- Registration: the subsidiary is registered with the Legal Affairs Bureau; the company seal is also registered with the Bureau;
- Bank account: open a corporate bank account in Japan for the subsidiary; the capital will be deposited herein.
The certificate of registration and the company seal will be released once the application is successfully processed.
Documents needed to open a subsidiary in Japan
No matter the type of structure employed for the Japanese subsidiary, the parent company must prepare and file the following documents with the Trade Register:
- – the application form issued by the local office of the Trade Register in Japan;
- – the parent company’s statutory documents and certificate of incorporation;
- – the letter of appointment of the subsidiary’s directors and their acceptance letters;
- – the notification of the Japanese company’s seal, also known as inkan;
- – the incorporation documents of the subsidiary which must be notarized.
The company registration process of the subsidiary can take 4 weeks, however, this may be longer when the authorities request additional documents from the parent company abroad.
The process to open a Godo-Kaisha is quite similar, however, our team can give you more details if you wish to set up the subsidiary in Japan in the form of an LLC, as opposed to a joint-stock company.
Why open a subsidiary in Japan?
Setting up a subsidiary in Japan has several advantages, among which:
- – the company can undertake different activities than the parent company;
- – it will be treated as a tax resident company in Japan;
- – it can benefit from Japan’s network of double tax treaties;
- – the Japanese subsidiary is allowed to have non-resident directors.
The Business Manager visa can be used in order to open a subsidiary, however, this type of document that allows for Japanese residency is subject to a set of clearly defined conditions. Thea applicant must be able to show that the corporation satisfies the minimum investment amounts and will also be asked to provide other supporting documents. We can give you more details about the application procedure.
Those interested in Japan immigration, who are contemplating applying for a Business Manager visa, should know that they will be allowed to apply for permanent residency after ten years lawfully spent in the country. This is the standard minimum period after which one can apply, however, in some cases, it is possible to apply earlier if one meets the requirements (for income, as well as others).
The subsidiary is subject to the local tax laws, including those applicable in case of the Japan consumption tax. You can read below more about the taxation of companies in Japan.
Subsidiary taxation in Japan
A subsidiary, just as any locally registered company, is subject to the following taxes:
- – Corporate income tax: with a rate of 23.2% or between 30 and 34% including the local taxes;
- – Dividends: when a company owns more than 33.3% of the shares in the company making the dividend payment , it is excluded from taxable income; other, progressive rates apply depending on the percentage of share ownership and may be relevant in case of subsidiaries in Japan; our team can give you more details;
- – Consumption tax: the standard rate is 10%, with two reduced rates of 8% and 0%; the reduced 8% rate applies in case of beverages (although not to alcoholic drinks);
- – Social security: the employer withholds the employee’s contribution and also makes its own contributions; in most cases, the highest percentage paid by the employer is 16.24% of the salary;
- – Others: a stamp duty applies on contract executed in the country (200-600,000 JPY) and a real property tax applies at an annual rate of 1.4%.
Companies in Japan can also be subject to certain license taxes, depending on the business field in which they activate. There is no net wealth or net worth tax. A fee for company registration will also apply. Japan has signed more than 75 income tax treaties.
A subsidiary in Japan sets its fiscal year upon starting its business operations in the country, however, the accounting period may not exceed 12 months. A difference between the branch and the subsidiary is that the accounting period for the branch, or its tax year, will be the same as that of its head office, while there is no such requirement or limitation for the subsidiary.
Companies are required to file the annual tax return within two months after closing the fiscal year. The taxes are paid within two months from the end of the sixth month of the fiscal year. The payable amount can be either 50% of the tax paid I the previous year or the effective tax liability incurred within the first six months of the concerned tax year. Japanese companies can file a blue or white return, with the blue one offering access to certain deductions. However, in order to benefit from this special filing regime, companies need to apply at the start of the tax tear. Newly formed subsidiaries can apply before the end of their first fiscal year.
Our accountant in Japan can give you complete details about subsidiary taxation in Japan and, as needed, a comparison with the branch taxation.
Foreign investment regulations in Japan
Foreign investors should know that there are certain industries in which foreign investments need prior notification. examples include the manufacturing of certain types of goods or services (weapons, artificial satellites, computer programming and other software services, agriculture and forestry, fisheries, mining, information and communication, finance and insurance, and others). The Bank of Japan handles part of these notifications, for the relevant industries under its supervision.
Inward foreign direct investment from certain countries is subject to prior notification within 6 months of the transaction. Our team specializing in company formation in Japan can give you more details about the list of countries.