Foreign investments in Japan are under control of the Foreign Exchange Control Law. Organizational and legal forms of companies which may be potentially interesting to a foreign investor in establishing business in Japan are such as:

• joint-stock corporation
• private company limited by shares
• foreign company branch
• foreign company representative office

Kabushiki Kaisha

A joint-stock corporation (Kabushiki Kaisha) is established with a minimum capital of ¥10’000’000 (US$1 is approximately ¥112). All capital must be subscribed by shareholders at the time of incorporation, and shareholders are required to provide, among other constituent documents, appropriate bank evidence that their shares are paid. The corporation may be either open, entitled to offer its shares to the public, or closed.

Minimum number of shareholders is 1, and their maximum number is not limited. They may be both physical and legal persons, residents and non-residents of Japan. The shares, unless it is limited by the statutory documents, may be offered to third parties without the shareholders majority approval.

The corporation is managed by the Board of Directors composed of at least three physical persons who also perform administrative duties of corporate president, treasurer and secretary. One of the directors must be a resident of Japan. The Board of Directors elects a chairman who is authorised to represent the corporation before third parties. The remaining directors also have that right provided that they are duly authorized by the Chairman of the Board of Directors. The directors are personally liable for appropriate administration of corporate affairs and are elected by shareholders for a period of not more than two years.

The corporation elects at least one statutory auditor, and if its capital is more than ¥500’000’000, it has to appoint at least three auditors (physical persons) and at least one statutory accountant-auditor either a physical person or a professional company.

Yugen Kaisha

A private company limited by shares (Yugen Kaisha) is established with a minimum capital of ¥3’000’000 to be paid up by shareholders at the time of incorporation. The maximum number of shareholders which may be physical and legal persons, residents and non-residents of Japan, is 50. Shareholders may not transfer their shares to third parties without the other corporate members’ consent. The company may be managed by one director but one of the directors must be a resident of Japan. The company is not required to appoint a statutory auditor and an accountant-auditor.

Foreign Company Branch

A foreign company branch is a popular and fairly simple form for a foreign company to establish its present in Japan. The branch must be duly registered with the Legal Affairs Bureau and have a rolled out office. The branch head is not required to be a resident of Japan but one of the branch’s managing directors is required to be a resident of Japan. The branch is not an independent legal entity in Japan but it may be engaged in independent economic activities.

Foreign Company Representative Office

A foreign company representative office is also a very popular simplified form of a foreign company’s presence in Japan. If the representative office’s proposed activities include market surveillance and other ancillary information and advertising functions without generating income in Japan, the representative office is not deemed to be a subject of corporate taxation in Japan. The representative office is not required to be formally registered in Japan (except for banks, insurance companies, stock exchange and other financial entities which have to obtain the Financial Services Agency’s approval to open it in Japan) but has to maintain a rolled out office. The representative office’s head is not required to be a resident of Japan but one of its managing staff is required to be a resident of Japan.

Generally speaking, the following taxes imposed on corporations, companies and branches should be highlighted in the multilevel system of corporate taxation in Japan:

• Federal income tax charged at a rate of 22%-30% depending on the profit;
• municipal income tax charged at a rate of up to 20.7% of the Federal tax paid;
• tax on business charged at a rate of up to 9.6% of taxable profit (this tax may be recognised as expenses and deducted when calculating the Federal tax).

Japan is not a tax heaven or offshore jurisdiction, and a concept of Japan tax exempt company (and/or Japan offshore company, International Business Company, trust, foundation etc. registration) does not exist in Japan as such. A company formation in Japan could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in Japan. To set up a company in Japan is possible by correspondence, but to open a bank account in Japan will, most probably, require a personal visit.

Japan Double Taxation Agreements

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