Doing Business in Japan – Establishing a Base for Doing Business in Japan

When a foreign investor plans to expand its business into the Japanese market, one of its most important decisions is selecting the right approach to establishing a base for doing business in Japan.  A foreign investor establishing such a base in Japan can choose from among three approaches:

(i)    a representative office, 
(ii)    a branch office, or 
(iii)    a subsidiary company (i.e., a Japanese entity).

1.    Representative Office
The scope of activities of a representative office is limited to preparing to start carrying on a business in Japan, or ancillary activities that ease transactions with the Japanese market (e.g., transactions with Japanese distributors, sales agents, etc.).  Such activities typically include information gathering, market research, acting as a liaison office for facilitating communications, and similar activities.  Thus, establishing a representative office is an option that foreign investors can take as a first step when they seek to start doing business in Japan.  Unlike establishing a branch office or a subsidiary company, there is no requirement that the foreign investor follow any particular registration process to establish a representative office in Japan.  However, a representative office cannot open a bank account in Japan in its own name (normally the officer who manages the representative office will create an account in the officer’s name for the use of the representative office), which may cause operational issues in practice.

2    Branch Office
If the foreign investor plans to immediately start carrying out business activities intended to make a profit in Japan, then the foreign investor should establish either a branch office or a subsidiary company as its base for doing business in Japan.

To establish a branch office in Japan, the foreign investor must appoint a representative in Japan who resides in Japan and file registration documents relating to the establishment of the branch office with the Legal Affairs Bureau.  The following is a brief overview of the branch office registration procedure:

(i)    prepare a draft affidavit, including information about the foreign company’s name, address, capital amount, business purposes, representative (name, address, etc.), representative in Japan (name, address, etc.) and the address of its office in Japan;
(ii)    have the affidavit notarized; and
(iii)    file an application for registration with the Legal Affairs Bureau in Japan, together with the notarized affidavit and a certification of the seal of the representative in Japan.

The branch office registration process, which concludes with the issuance of the company registration certificate, normally takes about one months.  A registration tax of JPY90,000 must be paid in connection with the filing of the registration application referred to in item (iii) above.

A branch office is not an independent legal entity; thus, the legal rights and obligations incurred by the branch office will extend to the foreign investor’s head office.  On the other hand, a branch office can carry out business activities and make a profit in Japan essentially in the same manner as a subsidiary company, and it also can open a bank account in Japan in its own name.  Thus, from legal perspective, a branch office is one reasonable option for a foreign investor seeking to do business in Japan, and in practice many foreign investors do business in Japan through a branch office on a permanent basis, often for decades.  However, in deciding whether to establish a branch office or a subsidiary company, it is important to obtain accounting advice and analysis, especially with respect to taxation.