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  • July 12, 2016

Startups Entering Japan

Setting up a new office in a foreign country can be an exciting experience. Tokyo certainly has one of the best startup ecosystems outside of Silicon Valley.  The ease of starting a business here has never been easier, but getting through the bureaucracy of setting up a company in Japan can be somewhat of a daunting experience, especially from overseas. I hope with this latest entry that I can provide a basic overview of what to expect when setting up a Japanese operation.

 

Choosing the Right Company Entity:

During my time working at a consulting company in Tokyo, my team helped various clients set up their businesses here as either a Limited Liability Company (Godo Kaisha) or Joint-Stock Company (Kabushiki Kaisha).

 

The Difference Between a Kabushiki Kaisha and Godo Kaisha

A lot of clients that want to gain more credibility with Japanese customers will usually choose setting up their entity as a Kabushiki Kaisha due to its longer history in Japan than the Godo Kaisha. While there have been exceptions with internationally-recognized companies that set up their Japanese operation as a GK (i.e. Abercrombie & Fitch), it boils down to if the local brand awareness of the company is strong enough with the Japanese population, or if the clientele is mostly non-Japanese. Furthermore, if a company does register initially as a GK, but later wants to convert their business to a KK, it would involve additional costs and paperwork.

 

Tax Set Up :

I’m surprised I don’t see more of this stuff online alongside with the explanations of a company set up, but any potential Japanese operation will always be asked 2 out of the 3 following items in regards to taxes and the nature of their business:

  1. Consumption Tax : If a company chooses to become a c-tax payer during the first year of business, that company can be given a tax refund for the purchases made in Japan (just think sales tax or VAT).
  2. Cost Plus: Choosing this type of tax structure only allows a company to act as a liaison on the behalf of its HQ for any marketing, technical service, or information-gathering activities performed.  The tax authorities will only tax based on the company’s operational expenses plus 7% to 10%, as this type of entity does not engage in any sales.
  3. Buy-Sell Entity:  This tax method is for companies that intend to perform any sales activities in Japan (buying and reselling products to customers).

 

Visas & Staff

This can depend on the amount of capital contributed to the company. Normally, 1M JPY (~$10,000) is enough for the establishment of the Japan office. But this is only given, that the staff hired for its Japan operations are all local hires.

Now if someone overseas wanted to work in Japan, 5M JPY (~$50,000) will be required as capital instead to secure a visa to work here.

Offices 

Many consulting companies can rent out small office spaces in their building to clients with low headcounts starting out.  Rent can range from 20K JPY (~$200) to 100K JPY (~$1,000) per month. Similar alternatives can be found below:

 

http://www.compassoffices.co.jp/en/rentaloffices/

http://www.agora-tokyo.com/en/

https://burex.jp/en/building/toranomon_bx

 

For more details about the entire setup process, go to  JETRO (Japan External Trade Organization) . And for businesses that provide English language support, go to their business directory for more info.

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