How to Set Up a Company in Japan: An Overview 2023
Starting a business in Japan can be a challenging but rewarding experience. However, the process of setting up a company in Japan can be complex, especially for those unfamiliar with Japanese laws and regulations. This article overviews the process of setting up a company in Japan, including the different types of incorporation available, the differences between the types of corporations, and the steps you need to take to set up a corporation in Japan. Read on to find out the information you need to get your business up and running in Japan.
Foreigners are subjected to different requirements when setting up a company in Japan, depending on their residency status. If you are not a permanent resident or do not have a similar status without work restrictions, you may need to change your visa status before starting a business in Japan. A separate article will follow to provide more information on these restrictions. However, if you are a permanent resident (PR), a spouse to a PR or a Japanese national, or a long-term resident, you can immediately start the incorporation processes explained below.
Index
Types of Incorporation
Differences Between Sole Proprietorship vs. Other Corporations
– Setting up a Kabushiki Gaisha (KK)
– Setting up a Godo Gaisha (GK)
– Setting up a sole proprietorship
Types of Incorporation
While there are technically more options, this article will specifically focus on the two major types of incorporation:
- Sole proprietorship (個人事業) : This is a type of business where a single person owns and operates the business. It is the simplest and most common type of incorporation in Japan. Most suitable for freelancers and smaller operations.
- Corporation (会社法人): This is a type of business that is separate from its owners and is considered a legal entity. There are two main types of corporations in Japan: the “Kabushiki Gaisha” (株式会社, a joint-stock company; KK in short) and the “Godo Gaisha” (合同会社, a limited liability company; GK in short)
Differences Between Sole Proprietorship vs. Other Corporations
1. Legal entity and capacity
The sole proprietorship does not have a separate legal entity from its owner, which means that the business does not have the ability to own property, enter into contracts, or sue or be sued in its own name.
On a similar note, while you can choose to have and register a trade name（屋号; yagō) for the sole proprietorship, you cannot make a credit card or a bank account solely with the business name. Some banks allow you to set up an account with your trade name and real name combined. (e.g., EAVES JAPAN Jane Doe) On the other hand, a KK or GK, being a legal entity, can have its own corporate credit cards and bank accounts.
2. Employment
Both types of incorporation (sole proprietorship and corporations) can hire employees (both full-time and part-time). In fact, legal procedures associated with hiring and maintaining the workforce are the same (e.g., enrolling the employees in social welfare programs and insurance.)
3. Costs to setup
A sole proprietorship is virtually free to set up, while a corporation costs min. ¥70,000 (for a GK) or ¥192,000 (for a KK).
Here is a comparison of costs between the three ways of incorporation:
(Note: All of the following cases assume that: 1. the owner/founder is the only member of the company [without an employee], 2. the owner/founder prepares all the documents necessary for incorporation without professional help, and 3. the owner/founder uses their current residence as the company’s head office [i.e., not requiring to rent a separate office.]
Costs associated with setting up sole proprietorship: NONE
As explained below, setting up a sole proprietorship only involves preparing a “Notification of Opening a Business （開業届; kaigyo todoke）and filing necessary documents to the Tax Bureau. While the process is relatively straightforward and can be easily handled, you can still assign a proxy to prepare and file the documents for you. No license is required to be the proxy (i.e., the person doesn’t have to be a tax accountant, etc.)
Costs associated with setting up a KK:
| Revenue stamps for the Articles of Incorporation | ¥40,000 (¥0 if prepared and notarized electronically) |
| Notarization fee | ¥30,000 ~ ¥50,000 (depending on the amount of the company’s stated capital) |
| Fee for issuing a certified copy of notarized AoI | Approx. ¥2,000 |
| Registration license tax | ¥150,000 or 0.7% of the stated capital (whichever is higher) |
| Other associated fees | Approx. ¥10,000 |
| Capital | Min. ¥1 (one yen) |
| Total | ¥192,000 ~ |
Costs associated with setting up a GK:
| Revenue stamps for the Articles of Incorporation | ¥40,000 (¥0 if prepared and notarized electronically) |
| Notarization fee | N/A (GKs do not require notarization of the Article of Incorporation) |
| Fee for issuing a certified copy of notarized AoI | N/A |
| Registration license tax | ¥60,000 or 0.7% of the stated capital (whichever is higher) |
| Other associated fees | Approx. ¥10,000 |
| Capital | Min. ¥1 (one yen) |
| Total | ¥70,000 ~ |
4. Social Credibility
GKs and KKs are considered more socially credible than sole proprietorships. Some companies (especially larger or publicly listed companies) often refuse to do business with sole proprietors for this reason. Banks and investors also consider the social credibility aspect when considering financing a business, and a sole proprietorship can often be disadvantageous in that regard.
5. Liability
The main difference between a sole proprietorship and other types of incorporation in Japan is the level of personal liability assumed by the owner.
A sole proprietorship is a type of business where a single person owns and operates the business and is considered the simplest and most common type of incorporation in Japan. The owner of a sole proprietorship is personally responsible for all of the business’s debts and liabilities, meaning that their personal assets can be seized to pay off the business’s debts in case the business cannot do so.
On the other hand, other types of incorporation, such as a Kabushiki Gaisha or a Godo Gaisha, offers a degree of protection for the shareholders and the owners, meaning that their personal assets are generally not at risk in case the business is unable to pay its debts.
It is important to note that a sole proprietorship may not be the best choice for businesses that require a significant investment or are exposed to a high level of risk. In these cases, it may be more appropriate to consider other types of incorporation to limit personal liability.
Steps to Set Up a Business
Setting up a Kabushiki Gaisha (KK):
(1) Choose a company name:
You will need to choose a unique name for your company. You can use kanji, hiragana, katakana, English alphabets, and numbers. You will also need to decide whether to add the “KK” before or after the company name (i.e., EAVES KK or KK EAVES.)
(2) Order a company seal (stamp):
A company seal (印鑑; inkan or hanko) will be needed to register the company. There is no restriction on the design of the seal.
(3) Prepare the Articles of Incorporation (AoI):
You will need to prepare a document outlining the details of your company, including the names of the directors, the amount of capital, descriptions of the business, the accounting period, and the number of issued stocks. You can reference the templates available on the National Notaries’s Association’s website.
(4) Notarize the AoI:
Contact your local notary office and ask them to check your AoI before proceeding to notarization (and affixing a digital signature, if you’re preparing it electronically.) Once the content of the AoI is verified, make an appointment with the notary and visit their office with the necessary docs. If you are making an electronic AoI, sign the AoI digitally using specialized software (e.g., Adobe Acrobat) and submit the AoI and necessary docs via the software designated by the Ministry of Justice (more details can be found here.) Once notarized, visit the notary’s office to receive a copy of the notarized AoI and pay the notarization fee.
(5) Deposit the capital:
Deposit the stated capital to your personal account.
(6) Register the company:
You will need to submit the notarized Articles of Incorporation and other required documents to the local Legal Affairs Bureau or the Ministry of Justice to officially register your company. Once registered, you will be assigned a unique corporate number (法人番号; hojin bango). The 13-digit number will be made public via the Tax Agency’s website, along with the company’s name and head office address.
(7) Register the company seal(印鑑登録; inkan toroku):
This process is done alongside the company registration. Fill out the seal registration form, stamp your company seal and your personal seal, and submit it to the Legal Affairs Office. Once the registration is completed, you will be issued a card called 印鑑カード (inkan card), which allows you to obtain a corporate seal certificate (印鑑証明書; inkan shomei sho) needed to carry out the remainder of the incorporation processes.
(8) Obtain licenses and permits (optional):
Depending on the nature of your business, you may need to obtain licenses and permits from various government agencies in order to operate legally in Japan.
(9) Notify the tax office and social welfare programs:
You will need to notify the incorporation of your company to your local Tax Bureau by filling out a form. Japan does not have a tax ID system (instead, corporate numbers are used for the purpose.) You will also need to submit the necessary documents to your local Pension Services Office to participate in the pension program and/or health insurance.
(10) Notify your local government:
You will need to notify the incorporation (and submit some documents) to your local government (both ward/city/town government and prefectural government where your head office is located in.)
(11) Open a bank account:
Once you have officially incorporated and registered your company, you will be able to set up a corporate bank account.
Setting up a Godo Gaisha (GK):
The steps to set up a GK are almost identical to that for a KK, except for the notarization process. Notarization of your Articles of Incorporation is not required when setting up a GK. Thus, simply skip #4 of the procedures above, and follow the same steps.
Setting up a sole proprietorship:
Setting up a sole proprietorship is very straightforward. You will only need to deal with the Tax Bureau and submit a couple of documents:
(1) Prepare a Notification of Opening a Business （開業届; kaigyo todoke):
Fill out the template provided by the National Tax Agency. The document requires information such as your name, My Number, the trade name and address, descriptions of the business, the number of employees, etc.
(2) Prepare an application for the “blue return system” (青色申告承認申請書):
The government offers extra tax credits for individuals and businesses that maintain a certain standard of bookkeeping practice. The system is called the “Blue Return System (青色申告; aoiro shinkoku)” while the regular one is called the “White Return System (白色申告; shiroiro shinkoku).” If you wish to opt for the Blue Return System, you will need to fill out and submit a special application form, which can be found here.
(3) Submit the documents before the deadline:
Both documents above should be submitted to your local Tax Bureau, either in person or by mail, before the following deadlines:
開業届: Within a month of starting your business
青色申告承認申請書: Within two months of starting the business or before March 15 of the year you want to start filing taxes using the “Blue Return System.”
Conclusion
In Japan, there are two types of business entities that foreigners can establish: sole proprietorships and corporations. Both have their own advantages and disadvantages in terms of social credibility, legal capacity and entity, costs, and liability. Setting up a corporation is generally more expensive and complicated than a sole proprietorship, but it may be worth it for your particular business goals. If you want to Incorporate in Japan, we’ve outlined the steps for both types of businesses so you can decide which is best for you. If you have any questions about the processes, let us know in the comments – we’re happy to help!
*Information as of January 2023. This article does not guarantee the accuracy of the information contained within. Please refer to the websites and resources of the relevant authorities for the latest and most accurate information.
