Free zone company
Export oriented manufacturing businesses may establish a free zone company in one of the free trade zones in Japan. The paid-up capital amount is based on the requirements of the free zone authority. Each free zone encourages different types of businesses. For example, the Okinawa free zone is often used for logistic business re-exporting their production to other countries in Asia.
Limited liability partnership
Foreigners can register a limited liability partnership. One of the partners must be a resident of Japan. The partners’ liability is limited to their contributions to the company. This option is usually used by people who already have a partner in Japan. No minimum capital requirement is imposed.
Limited liability partnerships in Japan are tax transparent entities. Earnings are deemed automatically distributed to the partners, who must claim them in their personal or corporate income tax returns. The partnership must prepare financial statements.
Branch office
Branch offices provide services in Japan under the direction by the foreign company. A branch office can engage in profit-generating activities, but it is not expected to engage in independent decision-making; it is part of the parent company. The operations that this type of entity can engage in are based on the operations specified in the memorandum and articles of association. Its activities are limited to those of the parent company. A branch office is not technically a separate legal entity. Instead, it is encompassed by the foreign company’s corporation status.
This type of entity must have a base of operations in Japan and must be registered. A resident representative must be authorized to represent the branch. The parent company is liable for the debts of the branch office. A branch office in Japan can open bank accounts and lease real estate in the branch’s name.
This option is often used when a foreign company wants a simplified process of having a legal presence in Japan but wants to minimize accounting and bookkeeping obligations or when the company provides products or services that are subject to a licensing agreement with a high amount of capital involved.
Representative office
A representative office is not technically a separate legal entity. It does not need to be registered with the Legal Affairs Bureau and similar governmental entities.
A permanent agent must be appointed who is a resident of Japan. Any legal transactions are signed under the head office of the foreign company. Otherwise, the representative would sign under his or her individual capacity, which would subject him or her to unlimited liability for any such agreement.
This type of business establishment is not able to engage in commercial activities. It is restricted from engaging in sales or commerce activity and cannot open bank accounts, lease real estate under its own name or participate in other for-profit activity that would be taxable in Japan. Therefore, it is not permitted to engage in direct sales.
However, this office can complete the following activities:
Market research
Promoting the business of the parent company
Advertising
Test the Japanese market
The office does need to register with the tax office and is responsible for withholding taxes from employees.
This type of office is usually established as a preparatory step where a business can obtain important information about the market, conduct market research, begin networking and provide publicity to the business before it makes substantial investments into Japan.
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