Do you want to start a business in Japan as a foreigner? If YES, here is a complete guide to starting a profitable business in Japan with no money.
Okay, having provided an in-depth analysis of the top 50 best small business opportunities in Japan and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Japan. So put on your entrepreneurial hat and let’s proceed.
What will likely come to your mind when you hear of Japan is going to be technology. Japan is indeed one of the most desirable destinations when it comes to business and technology. Japan is the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings.
Why Start a Business in Japan as a Foreigner?
Due to the increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods such as optical instruments, hybrid vehicles, and robotics. Besides the Kantō region, the Kansai region is one of the leading industrial clusters and manufacturing centers for the Japanese economy.
No doubt, Japan’s economy is highly developed and it is indeed a market-oriented economy. It is the third-largest in the world by nominal GDP and the fourth-largest by purchasing power parity (PPP). As a matter of fact, Japan is the world’s second largest developed economy and a member of the G7.
A report released by the International Monetary Fund shows that Japan’s per capita GDP (PPP) was at $38,937(2016). Due to a volatile currency exchange rate, Japan’s GDP as measured in dollars fluctuates sharply. Accounting for these fluctuations through use of the Atlas method, Japan is estimated to have a GDP per capita of around $38,490.
The Japanese economy is forecast by the Quarterly Tankan survey of business sentiment conducted by the Bank of Japan. The Nikkei 225 presents the monthly report of top Blue chip (stock market) equities on Japan Exchange Group.
Japan is ranked 39 among 190 economies of the globe when it comes to the ease of doing business, according to the latest World Bank annual ratings. This goes to show that Japan is an ideal destination when it comes to establishing a business especially businesses in the technology sector.
If you are interested in starting a business from the scratch in Japan, or you want to open the branch office of an international company in Japan, you must follow due process and here are the steps you should follow;
Starting a Profitable Business in Japan as a Foreigner
Step One: Research on the Industry You Are Interested In
If you are considering starting a business in Japan, what is expected of you is to first and foremost conduct thorough research on the industry you are interested in starting a business in. This is very important especially if you are coming from the United States or Europe.
The truth is that there are different rules and regulations governing new business in Japan and you would not want to settle for an industry that you won’t be issued a business license as a foreigner.
This is because there are some line of businesses that are not open to foreigners hence the need to visit government agencies responsible for registering businesses in Japan to make your enquiries before starting the process of registering a new business.
Step Two: Choose a Name for Your Business
The next step to take when starting a business in Japan after you have settled for an industry is to choose a name for your business. The truth is that when it comes to choosing a name for your business, you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents.
Before choosing a name for your business, you can go online and check out the names of leading brands in the industry you intend starting a business in so as to be properly guided when choosing your own name.
Please note that whatever name you choose to register your business does not necessarily need to be the operating or promotional name of the company. You are expected to choose a name that is not assigned to any business in Japan.
Step Three: Look for an Office Address
In Japan, you cannot register your business if you don’t have an address that you will be operating from. As simple as securing an address is, it can truncate your dream of starting a business in Japan. Usually, if you are not sure of where to operate from, you can just go ahead to hire a serviced office address just for the purpose of processing your business registration.
Step Four: Choose a Business Structure/Entity
Before settling for a business structure in Japan, it is important to ensure that you examine the incorporation requirements and associated costs of the available Japanese entities. Examine the ongoing administrative requirements and associated costs of the available entities and also examine the Japanese business taxation characteristics of the available entities.
It will also be to your advantage to conduct a research on how the tax authority in your company’s home country treats income from the available Japanese entities. So also, it will pay you to estimate the overhead costs that each entity would incur to support your projected sales revenue.
Above all, compare each of the available Japanese entities’ fiscal efficiency, measured as the percentage of gross sales income received by your company (the parent) during the first 5 years doing business in Japan.
Basically, the three Japanese business entities that companies most often use when setting up in new businesses are the TMK tokutei mokuteki kaisha and TK tokumei kumiai, and The kabushiki kaisha, often abbreviated to “KK”, which is similar to a C corporation in the US or Company Limited in the UK.
Please note that:
- The godo kaisha, is often abbreviated as “GK” and it is called the Japanese LLC, which is similar (except in its tax treatment) to a US LLC or UK Ltd.
- The tokutei mokuteki kaisha, which is often abbreviated as “TMK”, is a special purpose company similar to a US REIT (Real Estate Investment Trust) but more flexible.
- The tokumei kumiai, which is often abbreviated as “TK”, is a silent partnership or limited partnership.
- The yugen sekinin jigyo kumiai, which is often called the Japanese LLP, is similar to a US LLP.
These are the available business structures or entities that you can build your business on in Japan. Just ensure that you are well guided to choose the business structure or entity that is most ideal for the type of business you want to run.
Step Five: Hire/Partner with a Resident Representative Director
The law in Japan does not permit a foreigner to start a business in Japan without the input of a resident representative director as part of the board of your new business or in some cases a third party business consultant of investor who is a Japanese that will help you provide a bank account to deposit the capital that is expected from a foreigner who wants to register a business in Japan. One of the main reasons why you need a resident representative director is so that he can easily provide an account for you.
Step Six: Prepare the Articles of Incorporation (Teikan)
The next step that you are expected to follow if you have been able to partner with a resident representative director is to start preparing the Articles of Incorporation which is known as Teikan in Japanese language.
The articles of incorporation are the documents that determine how the company will be managed and other sundry matters. Your Article of Incorporation must clearly define the roles and expectations of shareholders/investors and most importantly their relationship with directors of the company.
Step Seven: Notarization of The Articles of Incorporation
The next step after you have prepared your Articles of Incorporation is to notarize the document. In Japan, your articles of incorporation are meaningless if the document is not notarized. Notarization of the Articles of Incorporation can be done at the Notary Office / Koshonin yakuba. This can only be done for KK, and it is not required for godo kaisha (GK).
Please note that the notarization fee for articles of incorporation is 50,000 JPY (Yen). Revenue stamps (also required for godo kaisha – GK): 40,000 yen (Note). You are expected to go along with the necessary support documents when sourcing for notarization of your articles of incorporation.
Step Eight: Deposit the Required Capital
If you are able to successfully notarized your articles of incorporation, you will be cleared to deposit the required capital for the business in an account. The fact that the company’s bank account cannot be opened until the registration is completed, makes it necessary to use one of the investors personal bank account to deposit the initial capital.
In the case of a foreign company’s subsidiary, the Representative Director’s personal bank account can be used for this purpose. That is why it is important to sort out partnership with a Japanese before starting the process of registering a business in Japan.
Step Nine: Prepare the Needed Documents for the Company’s Registration
Aside from completing an application form when registering a business in Japan, it is necessary to prepare various documents such as the notification of the company’s seal (inkan) that also needs to be registered, and a letter of agreement from the directors assuming their office.
Once the documents are ready, you can then go ahead to complete the application for the company registration at the Registry Office / Homukyoku. Thereafter, you will be required to pay a registration fee of a minimum 150,000 JPY (Yen) for KK and 60,000 JPY (Yen) for godo kaisha (GK).
After completing the registration at the registry, you can now obtain a registry certificate and company’s seal certificate, which are required at various business situations such as opening a corporate bank account, or signing business or employment contracts in company’s name.
Step Ten: Sort Out Tax Issues
Tax is an important factor when starting a business in Japan and as a foreigner who is looking towards starting a business in Japan, you should be aware that tax efficiency is always a consideration when deciding whether starting a Japanese company or branch-office is the best route for setting up in Japan.
Interestingly, Japan’s effective corporate tax rates are relatively low at 30.86 percent or 34.1 percent depending on whether paid-in capital is less than or greater than one million Japanese Yens, but careful structuring, including relocating parts of your company’s corporate operations such as marketing and R & D to Japan, could result in effective tax rates less than 10 percent.
When starting a new business in Japan, the entity used and the structure of the agreements and ownership between it and your company, can dramatically affect its Japanese corporate tax and withholding tax liabilities. Consider several factors including: Japan’s effective corporate tax rates 30.86 percent or 34.1 percent, depending on whether paid-in capital is less than or greater than one million Japanese Yens.
Step Eleven: Open Corporate Bank Account, Apply and Obtain Social Insurance and Required Business Licenses and Permits et al
The next and almost the final step you are expected to follow when opening a new business in Japan is to open a corporate bank account under the company’s name, apply for social insurance and get the required business license and permits for your business.
Opening a bank account under the company’s name, applying for visa and status of residence for non-Japanese directors and employees, applying for business licenses if the type of business requires an operating license, etc. are procedures that require a total of 2 to 4 weeks, although it could take longer if some of the investors are living overseas. You are expected to pay 40,000 JPY (Yens) for the fiscal stamps.
Please note that if the nature of business you want to start requires some sort of professional license, you will be required to wait between 2 to 3 months before being able to fully operate the business. This is necessary to ensure that you are on the right side of the law.
Step Twelve: Open Your Doors and Start Welcoming Customers
If you have been able to successfully carry out step one to eleven, then you have indeed come a long way and it shows that you are truly ready for business. You cannot generate sales from your products or services if you do not open your door for business. In essence, the last step to take on your quest to start a business in Japan is to ensure that you open your door for business.