Things to consider when you start a business in Japan
Japan is not only a dream destination among tourists and travelers. It’s also one of the countries in Asia where many foreign-affiliated companies are eyeing to expand their businesses, and where a number of start-up companies are putting up businesses in some key cities, as well.
In a survey done by the Japan External Trade Organization (JETRO) from May to June 2018 that was designed to determine the perception of foreign companies on the business environment in Japan, the result showed that Japan is perceived as a “highly profitable market”. The companies that joined in the survey also highlighted Japan’s strong points, which include its large scale market, which means high-income level and a large volume of customers, the opportunity for mid- to the long-term growth of the business sectors, and its aggressive role in addressing global challenges.
In the same survey, foreign-affiliated companies are confident of Japan’s business environment due to the improved living conditions for foreigners, and because Japanese companies and the society itself are now more open toward foreign investment.
In the 2018 Global Competitiveness Report of the World Economic Forum, Japan belongs to the top 10 most competitive economies in the world. This alone is enough reason why more foreign investors are eyeing the country for business endeavors.
In general, many foreigners consider Japan as relatively one of the safest countries for foreign nationals, especially for women and children. The country is known to have a low level of crimes. In fact, in the 2018 Global Peace Index by the Institute for Economics and Peace (IEP), Japan ranked as the 9th most peaceful countries in the world.
The efficient transportation system of the country, especially in some strategic business districts, is also an attraction for investors.
How to set up your business in Japan
Now that you have more than enough reason to invest and start your own business in Japan, here are some of the few things you must take into consideration.
1. Know the types of business operations in Japan and its systems of laws and regulations.
There are three types of business operations for foreign companies in Japan – representative office, branch office, a subsidiary company.
The representative offices can be established as locations to conduct market surveys and for marketing and advertising, among other preparatory activities for starting up a company. Putting up a representative office doesn’t require registration, however, it can neither open bank accounts nor lease real estate in its own name.
The branch office, meanwhile, is the simplest way to go for a foreign company that intends to put up a base that will operate the same business as that of the mother company. In accordance to Article 818 of the Companies Act, a foreign company wishing to engage in continuous transactions in Japan must register in the country, which means the company must as least register the appointment of a representative in Japan, a Japanese corporation, or a partnership. The branch office, once set up and registered, can begin business operations immediately. The Japanese branch office may also open bank accounts and lease real estate in its own name, but the mother foreign company is responsible for the financial dealings and liabilities of the branch office.
According to the Japan External Trade Organization (JETRO), here are the procedures for establishing a branch office in Japan.
Step 1. Prior notification of establishment of the branch office to the Bank of Japan depending on the category of industry
Step 2. Determination of branch office information to be registered
Step 3. Examination at the Legal Affairs Bureau of identical corporate names
Step 4. Establishment of branch office (date of branch office establishment is at the branch office’s discretion)
Step 5. Preparation of affidavit on the establishment of the branch office
Step 6. Certification of an affidavit by a notary public, etc. in the home country of the foreign company or embassy/consulate in Japan
Step 7. Application at the Legal Affairs Bureau for registration of branch office establishment; registration of company seal at Legal Affairs Bureau
Step 8. Acquisition of certificate on registered information and company seal impression certificate (approx. two weeks after application for registration)
Step 9. Opening of the bank account under branch office name
If the foreign company, meanwhile, choose to establish a subsidiary company, the options include (a) a joint-stock corporation (Kabushiki-Kaisha), (b) a limited liability company (Godo-Kaisha), or similar entity stipulated by the Japan’s Companies Act, (c) the unlimited partnership (Gomei-Kaisha) and (d) the limited partnerships (Goshi-Kaisha).
The cost involved in putting up a branch is approximately 420,000 yen compared to that of a subsidiary company that is pegged at 610,000 yen, according to JETRO.
Other options include investing in a joint venture with a Japanese corporation or engaging in equity participation in a Japanese enterprise.
2. Know the Visa or Status of Residence requirement.
Japan requires a visa from foreign nationals wishing to enter the country, except for those who come from countries with which Japan has visa exemption arrangements for temporary visitors. Foreign nationals who want to put up a business in Japan are no exemption.
Is it possible to obtain a visa before establishing a business? In principle, working visas cannot be obtained before a business is established, however, a foreign national can apply for a four-month Business Manager Visa.
There are also principal statuses of residence related to investment in Japan – Business Manager, Intra-Company Transferee, Engineer/Specialist in Humanities/International Services, Legal/Accounting Services and Skilled labor.
While a visa is required for entry into Japan and is obtained before entering the country, a status of residence is for foreign nationals who wish to enter and reside in Japan which contains the conditions on which a foreign national is allowed to stay in the country, and it is also a qualification allowing the foreign national to carry out the activities stated in the Immigration Control and Refugee Recognition Act and allowing the passport holder to reside in Japan for the purpose of carrying out those particular activities, like starting up a business.
The status of residence is determined depending on the applicant’s activities in Japan and not on the type of business operations mentioned earlier, however, representatives of each type of operation may also apply for a specific status of residences stated below.
(a) Representative of representative office can apply for the “Intra-company Transferee” status of residence.
(b) Representative of branch office can apply for the “Intra-company Transferee” or “Business Manager” status of residence.
(c) Representative of a subsidiary company can apply for the “Business Manager” status of residence.
3. Know the Taxation system.
In Japan, the scope of your taxable income and the location of your business are factors that will determine your effective corporate tax rate. In its taxation system, “the effective corporate income tax rate varies depending on the scope of taxable income and on the local government under whose jurisdiction your business entity is located.”
Take note that the types of taxes in Japan on income generated by the activities of a corporation include (a) corporate tax (national tax), (b) local corporate tax (national tax), (c) corporate inhabitant tax (local tax), (d) enterprise tax (local tax), and (e) special local corporate tax, which is a national tax, although filings and payments are made to local governments along with those for enterprise tax.
4. Know the Human Resource standards and processes.
In Japan, there are employment standards foreign companies need to be mindful of. The standards stipulate the necessary steps in hiring people, the wage standard, the conditions on working hours, breaks and day offs.
According to Japan’s employment standard, for instance, employers must pay directly to the employee not less than once per month and on a specified date on the contract between the employer and employee. An employee’s working hour must also not exceed 40 hours per week or eight hours a day, however, overtime is possible in accordance with the Labor Management agreement.
When looking for support in matching people searching for a job and the companies and open positions suitable to the former’s skills, foreign companies can also tap “Hello Work”, a government-managed public employment security office. In Japan, there are over 500 Hello Work agencies that cover almost all industries.
Foreign companies can also tap other agencies offering free employment matching services, as well as, colleges and universities that have an ongoing program that offers the same employment service, especially to its students. There are private-run agencies, too, which you can partner with, however, under certain conditions that may include collections of payment and fees.
Foreign companies may also tap job sites, like the Guidable Jobs, where employers can post position vacancies and seekers can look for a job suitable to them.
Another important thing to take note for a foreign national employer is Japan’s universal insurance system in which everyone residing in Japan must be part of. Its universal insurance system includes public health (medical insurance) and the pension insurance system.
Foreign companies, meanwhile, are obliged to take part in the following insurance systems – (a) Worker’s Accident Compensation Insurance, (b) Employment Insurance, (c) Health Insurance and Nursing Care Insurance, and (d) Employee’s Pension Insurance.
5. Know the cultural differences.
Doing business is universal, however, every country has a business and working culture that is unique to them. There are business practices in our home countries that may not be applicable in Japan. There’s also business etiquette in Japan that may not be practiced in our home countries.
For instance, instead of a kiss on the cheek or shake hands, the Japanese bow instead when starting and ending meetings and on most occasions. Japanese are very particular with their greetings and introduction, as well as, in handing and receiving business cards. These are just some of the few etiquettes to keep in mind.
Understanding the cultural differences and similarities is a great help and it will contribute to the efficiency of the business. It’s also a huge step in understanding the behaviors, the demographics, and the interest of the target Japanese market.
A foreign business owner’s keenness to learn and understand the culture and traditions of the Japanese shows a genuine interest in the endeavor, and this could mean a lot to the Japanese business partners or staff.
Immersing yourself with the locals is one way to understand their culture, and reading articles in magazines and even in online platforms like Guidable Japan may also help.
6. Learn Nihongo.
One of the most important things to consider is learning the Japanese language. It’s not an easy feat but it’s not an impossible endeavor either. Nihonggo may prove to be one of the most difficult languages to learn, but if you need it for the business it’s definitely a good investment.
Communication is vital in business, especially in marketing and in networking. It helps a lot if you speak or understand the language of your target market. Your basic Nihonggo may prove helpful in making calls, setting up meetings, making a good impression with investors, among other things.
You may have plans to hire Japanese staff but investing in learning Nihonggo is helpful for foreign business owners. There are schools in Japan that offer at least 6 months of Language course, specifically for business, or you may also self-study. Your language training will greatly help you learn to communicate effectively with Japanese-speaking clients and partners, help build a competitive advantage when targeting the Japanese market, and it also helps in strengthening and festering good relationship with the stakeholders.
Aside from these things mentioned above, foreign nationals who want to establish a business in Japan may also find a support system like the JETRO, which offers comprehensive services to support foreign companies in starting up branches or subsidiary companies in Japan.
Should you need to know more, never hesitate to get in touch with the government offices in Japan that can also help you like the Japan Fair Trade Commission, Ministry of Foreign Affairs, Ministry of Finance, Ministry of Economy, Trade and Industry, among others.
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