Starting a business in Japan

With a large consumer base of over 123 million, succeeding in this market could give your business a strategic advantage for further expansion across Asia and into other regions.

Why choose Japan?

As a leading producer of motor vehicles, electronic equipment, and steel, Japan plays a crucial role in these industries worldwide. Its service sector also holds a dominant position in the country’s economy, contributing the largest portion of Japan’s gross domestic product (GDP). Here are some of the key advantages of doing business in Japan:

Welcoming business environment

Previously, starting a company in Japan required a minimum capital of 10 million yen, which may have posed a challenge for some. However, changes to Japan’s corporate law have made incorporation more affordable. Now, you can set up a business with as little as one yen. This makes it easier for small businesses and startups to establish a presence in Japan without needing significant upfront investment.

These have cut down the requirements that companies must meet for successful registration. With Japan aiming to achieve 100 trillion ten in foreign direct investment by 2030, you may expect enhanced government support and initiatives when incorporating here.

To further support business expansion, certain regions like Okinawa have designated special zones to cater to various sectors. Examples include the Business Innovation Zones as well as the International Distribution Base and Industry Cluster Zone. Companies set up in these zones may be eligible for various financial incentives, including investment tax credits and income tax deductions of up to 40%.

Manageable tax liability

Japan has also entered numerous tax treaties with various countries including Hong Kong, China, the United Arab Emirates (UAE), and Ireland. These treaties may provide you with legal stability, ensuring that your business won’t face double taxation.

Depending on the agreement, income that is typically taxable in Japan would instead be taxed in your home country. This ensures your income is only taxed once, making it easier for you to confidently engage in cross-border business without the worry of unpredictable tax liabilities.

International financial centre

The government is also actively working to elevate Japan's status as an open international financial centre. The Financial Market Entry Office, for example, was formed to provide foreign financial firms with English-based administrative services. Other measures, such as the Policy Plan for Promoting Japan as a Leading Asset Management Centre, are being rolled out. This would translate into a more accessible and efficient pathway when entering Japan’s financial market.

Wide reach

Japan’s transportation of goods and services is supported by a well-developed system of highways, railways, subways, airports, harbours, warehouses, and telecommunications. With over 300 ports and four international airports, including major hubs like Haneda Airport and Narita Airport, you will have access to fast, global connectivity for imports, exports, and travel.

Japan has also signed trade agreements with countries like Singapore, Australia, the United Kingdom, and more. These ensure favourable conditions for businesses by reducing tariffs, removing trade barriers, and enhancing access into other markets. Starting in Japan could thus open doors for taking your business global.

Skilled workforce

With one of the highest rates of tertiary education enrolment in the world, the country offers a large pool of talented individuals backed by strong education. In particular, Japan has one of the largest concentrations of IT engineers, making it a great place for businesses focused on technology.

Japan is also expanding its work visa programme, with plans to draw in over 800,000 foreign workers in the coming years. Recent updates to the Specified Skilled Worker programme have made it possible for professionals to explore opportunities in a wider range of sectors.

This change gives more skilled workers the chance to work in Japan, with the opportunity to stay for up to five years. Depending on the sector you’re operating in, you may have broader talent base to tap into to diversify your workforce.

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Business structures in Japan

As you plan your expansion in Japan, you will need a business structure that aligns with your growth objectives. With options like the joint stock corporation, limited liability company, and branch office, Japan provides a range of legal entities to fit various types of business activities.

To help you move forward, below are the main entity types chosen by businesses operating in Japan:

Joint stock corporation

The joint stock corporation, known as Kabushiki-Kaisha (KK), is a well-recognised business structure in Japan, which may boost your credibility when you’re entering the local market. At least one representative director must be appointed as part of your company setup.

A joint stock corporation is best suited for you if your goal is to raise capital through the Tokyo Stock Exchange or by offering shares to external investors. This entity type protects its shareholders by limiting their liability to their investment in the company, offering reassurance to potential investors. While often associated with medium and large companies, you can still establish a joint stock corporation as a smaller business.

Limited liability company

Alternatively, you may consider incorporating a limited liability company. Also referred to as Godo-Kaisha (GK), this entity is suited for entrepreneurs and small businesses seeking to establish a quick, low-cost presence in Japan. Starting and managing a limited liability company is also a simpler process compared to other business structures.

Bear in mind that a limited liability company cannot issue shares or stock options, which will restrict your ability to raise external funds. This is a factor to consider when deciding on this entity type. That said, the limited liability company structure offers simple setup requirements and legal protections, which makes it a versatile entity for conducting various types of business activities in Japan.

Limited liability partnership

At least one person involved in the limited liability partnership must either have an address in Japan or have lived in the country for at least one year. A legal entity with its head office located in Japan may also fulfil this requirement. As such, this structure will be particularly advantageous if you already have a local partner in mind.

As a partner, you and all other partners will benefit from limited liability, meaning your personal assets are protected from any liabilities or debts related to the partnership’s business activities. As part of the formation process, take note you’ll need to prepare a written partnership agreement.

Branch office

With a branch office, you may kickstart operations once you’ve appointed a representative and secured your business location. A branch office will be treated as an extension of your parent company, which means its accounts will be consolidated with those of the head office, simplifying your accounting obligations in Japan.

However, it also means that any liabilities incurred by the branch are directly tied to your parent company. As such, you will need to consider the level of risk you’re comfortable taking on when expanding into Japan with the branch structure.

Representative office

If you’re wanting to explore the potential of your business in Japan, you may consider setting up a representative office. This approach minimises risk while giving you the flexibility to plan a more effective market entry. Through a representative office, you can perform the essential groundwork like conducting market research and building relationships with potential partners.

However, it’s important to note that this office is limited to non-commercial functions. You won’t be able to directly sell products, sign contracts, or provide services. When you’re ready to expand in Japan, you can then switch to a business structure that allows for full commercial operations.

“We’ve been working with Hawksford since 2012 when we decided to set up our own entities in Asia. The team is very professional and helpful. They took care of every step of business formation, giving us advice and responding to our needs in a timely manner."

Sophia Zhou, APAC Finance Controller, Moleskine China