Company Establishment for Foreigners
(Company Formation,Company Set up)

Company Establishment for Foreigners

About Company Formation for Foreigners

First, we would like to explain the requirements for establishing a company. (Company Formation, Company Start-up, Company Set up)

Is it difficult for foreigners to establish a company in Japan?

The procedures for establishing a company in Japan are the same for both foreigners and Japanese.
A company president must obtain the required visa status. Visa requirements will be explained.

1. Types of Business

There are 2 types of business: Personal and corporate business. (We will discuss Corporate Business.)

2. Types of Corporate Business

Corporate Business can be divided into two broad categories. One is PROFIT CORPORATION and the other is NON-PROFIT CORPORATION. There are incorporated Non-profit Organizations (NPO), General Incorporated Associations and General Incorporated Foundations.

3. Types of Company and Forms

There are 4 types of corporations: Limited company, Limited Liability Company(LLC), General Partnership, Limited Partnership.
If there are no special circumstances, we would recommend Limited Company; however, general partnership is becoming popular these days. Please refer to the table comparing Limited company, Limited Liability Company(LLC) and General Partnership for further details.

Company Forms Comparison Table

  KK (Limited, Incorporated Company) LLC (Limited Liability Company) LLP (Limited Liability Partnership・General Partnership)
Type Company with shares Company without shares Company without shares (Limited Liability Partnership、General Partnership)
Investor 1 or more shareholder(s) 1 or more member(s) 1 or more partner(s)
Legal Person yes yes no
Setting up the Structure Shareholders' meeting,
Rules about setting up board of directors
Can be set up freely by Articles of Incorporation Can be set up freely by Articles of Incorporation
Internal Regulations 1 General Director,(Company Law) 1 Auditor General members' meeting, no restrictions
(Decision is made with majority of the members)
Partner's general meeting
Directors Term of Office Longest 10 years
(reelection is required)
None None
Public Sales of Shares Allowed Not Allowed Not Allowed
Announcement of Financial Statement Required Not required Not required
Initial Articles of Incorporation Certification Certification by a Notary public is required Certification by a Notary public is not required Certification by a Notary public is not required
Initial Articles of Incorporation Certification  Fees AoI Certification / ¥50,000- 0 0
Revenue Stamp fee / ¥40,000- ¥40,000- ¥40,000-
Registration (Registration Certificate Tax) ¥150,000- ¥60,000- ¥60,000-
Indirect limited liability and limited liability partner Limited liability partners will be liable only within the amount of shares invested All members are limited liability partner (indirect limited liability partner) and  will be liable only within the amount   invested All members will be liable to a debtor without limitation(General Partner).
Profit and Authority Distribution
or Taxation System
Profit, authority will be proportionated with invested amount Profit, authority can be freely distributed Profit, authority can be freely distributed
The capital (investor) from investors invested within limited scope of liability and the management (manager) are separated. Profit gained from the management will be distributed to the investors Members are  both investor (shareholder) and director (executive).
*1. Can change into a company with shares in the future
*2. US system options (pass-through taxation) to choose profits flow through the business (orgatization tax) or through investors (individual tax) is not available. Only legal person (organization tax) is allowed.
*1. Not subject to corporate tax, but will be subject to individual tax of each member/partner (pass-through taxation).
*2. Can not change into company with shares.
Aggregation of Profit and Loss /Carry-Over System of Losses Allowed Allowed Not allowed, however, profit and loss from a member's business can be summed up.
It is same for Carry-Over System of Losses.
Performing Business 1 person or more member(s) member(s)
Social Insurance Allowed, required in some cases Allowed, required in some cases
However, in case of one-man company, public health insurance+public pension enrollment is allowed

4. Comparison Table of Cases of Foreign Corporations coming to Japan

  Representative Office Branch in Japan Japanese company (subsidiary company)
Name no restriction same as the head company no restriction
Legal Person status no yes yes
Registration no yes yes
Articles of Incorporation no
(employees business activites will be in accordance with that of head company)
(branch business activites will be in accordance with that of head company)
(as its own Articles of Incorporation)
Capital no no from 1 yen
Rights and Duties the representative will bear responsibility, if a contract is concluded in his/her name the head company in originated
country will bear responsibility
the Japanese company
will bear responsibility
Business Activities not allowed, except: data collection, advertisement, market research, purchase and storage of goods allowed allowed
Decision Making Conform with the head company in the originated country Conform with the head company in the originated country Decided by the Japanese company (subsidiary company)
Lawsuit In general, office representative will be responsible, but there are exception depends on details. The head company in originated
country will be responsible
In general, the head company in originated
country will not be responsible
Representative's visa Intra-company transferee visa
*Business manager visa in some cases
Intra-company transferee visa
*Representative must have a registered address in Japan. Business manager visa holder is valid in some cases.
Business manager visa
Bank Account
Not allowed; however, opening an individual account adding trade name might be able in some banks.
*trade name means company name or office name. Opening an account as [trade name+representative] is possible, but please be aware as there are some cases that are not allowed.
Allowed Allowed
Remittance to the Originated Country No problem Profits remitted to the originated country, in general, will not be taxed.
Profit transferred between foreign corporation and its branch in Japan is not subject to withholding tax.
Profits of the Japanese company remitted to the originated country will be subjected to 20% tax, but the rate could be lowered depends on taxation agreement.
Fiscal Year Conform with the head
company in the originated country
Conform with the head
company in the originated country
Decided by the Japanese
company (subsidiary company)
Tax Declaration
and Financial Statement
Since expenses are included in the head company's account book, journalization will be carried out under accounting regulations of the originated country. Income earned as an Independent business entity (PE) is subject to corporate tax, residential tax, business tax, and VAT in Japan.
*1. However, there is an exceptional system that allows paid Japanese corporate tax to be deducted from corporate tax of the originated country (foreign tax credit)
*2. The criteria for determining small-medium entity or size-based business tax・minimum tax amount is the capital amount of the foreign entity.
*3. If a Japanese branch sells or leases real estate, the other party must deduct withholding tax at the time of payment.
*4. Foreign corporate's (Japan branch) international tax duty is very complicated. Please consult with a specialist for details.
Income from all over the world will be taxed. Japanese company (subsidiary company)'s statement will be included in the overseas company(head company)'s account settlement book Such cases are called consolidated accounting.
*With exceptional cases
Aggregation of Profit and Loss /Carry-Over System of Losses Allowed in principle (the loss can be offsetted with the profit of the head company) Allowed (Profit and loss can be managed with the income of the head office) Not allowed (Accounting process is completed at the Japanese company, therefore, setoff with the head foregn company is not allowed)
It is same for Carry-Over System of Losses.
Optional, but must enroll, in case of 5 or more employees Must Must
Worker's Accident
Must Must
The representative can not
The representative can not
Must Must
The representative can not
The representative can not

5. Benefits of setting up a Limited Company (Company Formation, Company Set up)

① By setting up a limited company, you can gain high credibility with the public, and earn the trust of financial institutions and business partners. Advantageous when recruiting employees.
② Various income deductions are permitted for limited companies such as expenditures, financial losses, etc. which are not available to individual proprietorships.
③ You can also enroll in the government-managed health insurance and welfare pension system.
④ Your effective statutory tax rate may be reduced.
⑤ A corporation has a longer carry over and refund carryback of tax losses.
⑥ It is relatively easy for foreign employees to acquire a business manager visa status.
⑦ As a general rule, company officer's remuneration can be considered an expense.
⑧ The representative director can be changed, stock splits and stock transfers are allowed according to circumstances.


Aggregation of Profit and Loss Aggregation of profits and losses is a method of calculating taxable income from multiple sources, to determine overall net profits and/or losses. Tax consolidation is a system in which the profits and losses of affiliated companies are aggregated and consolidated to determine taxable income. Under this system, one can enjoy tax reduction when loss is incurred in one of the affiliated companies as they cancel out profits. However, tax consolidation as well as its benefits do not apply to resident tax and corporate tax.


Pass-Through Taxation Pass-through taxation is a method in which a firm’s profit flows to its owners and/or investors (or a flow-through entity) who are solely subject to income tax. It is also known as the flow-through entity taxation. It may take several processes before the profit reaches the flow-through entity, and during such process the profit is not taxable, thus preventing double taxation. Currently in Japan, the pass-through taxation is applied to businesses that comprise a Limited Liability Partnership (LLP).


Consolidated Accounting A corporation is typically made up of a parent company and its subsidiary or affiliated company (domestic or overseas). At the end of a fiscal year, a “closing entry” is prepared, which reflects the corporation’s business performance over the course of one year. Closing entries of an individual company in a group of corporations are deemed to result from un-Consolidated accounting, whereas the closing entries of a parent company and its subsidaries combined comprise consolidated accounting. In order to obtain the financial statement of the entire corporation, closing entries of individual companies are first created and then merged with one another. During this process, profits and losses between the parent company and its subsidiaries are canceled out, yielding a new balance sheet and profit and loss statements that present a consolidated financial statement of the entire group of companies. (Updated September 2019)


Intra-Company Transferee Visa The Intra-Company Transferee Visa is a work visa that allows foreign-affliated companies to transfer their non-Japanese employees from an overseas branch to be seconded a Japanese office. The occupational fields for eligible this types of residence status are: engineering, humanities, and international services.


General Partner A general partner is a member with unlimited responsibilities concerning company affairs. This means that if the company goes into bankruptcy and is unable to pay off its liabilities, the liabilities must be paid by the general partner on the company’s behalf. This is in contrast to liabilities of the limted partner which is limited to the amount of capital contributed to the business. While the risks associated with a general partner may be large, they hold a managerial position and power to actively participate or intervene in the daily operetions of the business. The law stipulates that unlimited partnerships and limited partnerships have a general partner as a member. In other forms of companies, generally a company’s liability is considered to be a limited liability.


Limited liability Partner A limited liability partner is a member who is responsible for liabilities proportional to their investments in the company. For this reason, if the company goes into bankruptcy, their liability is restricted to the amount of their investment in the company, in contrast to that of the general partner. Under law, a shareholder of a joint-stock company, a member of what is formerly known as a limited company, and a limited liability partner of a limited partnership are recognized to have limited liability. In 2006, a new Japanese corporation law was established, which abolished all forms of limited companies and caused them, to be organized or reorganized as joint-stock companies. Moreover, a new form of company known as the limited liability company was established.


Carry-Over System of Losses A deficit or loss occurs when the total amount of money spent by a business or government is more than the money it receives. A “carry-over system of losses” is a system, where businesses are allowed to even out the losses with profit earned from future earnings for up to a period of 9 years (10 years if the loss occured after April 1st, 2018, offsetting is allowed for a period of 10 years. If the loss occured before April 1st, 2018, offsetting is allowed for a period of 7 years. Close observation will be carried out from the start of implementation of the carry-over period, and permitted carry-over amounts and other details may change.


Foreign Tax Credit The Foreign Tax Credit system enables certain amounts of foreign income tax to be deducated from the domestic (Japan) income tax to prevent double taxation. The income of resident or corporation, whether domestic and/or overseas income, is subject to taxation by respective local governments. To illustrate, if you have domestic and international income, you will be subject to pay income tax to both Japan and overseas authorities, resulting in double taxation. The Foregin Tax Credit thus eliminates double taxation, by reducing the amount of income tax on domestic earnings, in the presence of overseas income tax obligations.


Articles of Incorporation Certification Articles of Incorporation is a document that establishes a company’s constitution and defines the nature of its enterprise. In order to prevent fraud or disputes regarding interpretation of the documents, it must be authenticated by a notary public (Corporation law, Article 30, section 1) to fully come into effect. Under Japanese law, a corporation is established together with the articles of incorporation that have been signed (digital signatures are acceptable) or sealed by the incorporator(s), (Corporation Law, Article 26, sections 1~2). Generally, the articles of incorporation that were drawn up at the founding of a company is referred to as Initial Articles of Incorporatin.


Permanent Establishment (PE) A permanent establishment (PE) is a fixed place where the business of a company is wholly or partly carried out. For purposes of taxation, a permanent establishment may be classified as (1) a DIRECT PE (such as a subsidiary or branch, an office, a factory or any other fixed place of business of a foreign corporation in Japan); (2) a CONSTRUCTION PE (such as a place in Japan where a foreign corporation conducts construction or installation work); or as (3) an AGENT PE (such as a person authorized to conclude contracts and does so for and on behalf of a foreign corporation or usually plays the main role leading to the conclusion of contracts without any substantial changes made by the foreign enterprise. Generally, therefore if a foreign corporation is not considered to have a PE in Japan, any income earned will not be subject to tax in Japan, except for a transfer of domestically-owned real estate in Japan.


For more information

Telephone Consultation03-5453-6931
From Overseas +81-3-5453-6931
(Weekdays: 10:00 to 18:00)
Business operations on Saturdays is temporary unavailable to conform with government policy in preventing spread of COVID-19.
E-mail Formclick here
We can assist you further if desired.

PG Group & Partners