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Damalion Japan desk

Doing business in Japan

With a population of over 125 million, Japan is the third biggest economy in the world and is recognized for being a market leader and an important player in the manufacturing industries. Japan is one of the world’s economic superpowers and its success is founded on its productive industries.

With a GDP of approximately 5 Trillion USD, the strength of the Japanese economy is extraordinary. Japan is the third-largest economy and the country’s outstanding infrastructure, powerful economy, and reforms provides an incredible business environment for companies.

Japan is the third largest economy in the world, and this makes it quite eye-catching to business owners wanting to make their way into the Asian market.

The country has been ranked high for global competitiveness, it is a strong partner when it comes to multinational trade and is committed to safeguarding intellectual property rights.

Japan is business-friendly when it comes to all routines. It has low corruption, a pro-business attitude, astute consumer culture, and these traits have made Japan a desirable choice for investors.

The key advantages of doing business in Japan

  • Japan is a desirable sales market, it is also a country that offers foreign companies several opportunities in all its sectors.
  • In addition to being business-friendly, Japan offers a finance system that is available to businesses of any size.
  • Thanks to its geography, Imports and exports are easy to manage in Japan
  • With a recovery rate of over 90%, Japan ranks first in the world for resolving insolvencies.
  • In addition to its work ethic being exceptionally strong, Japan’s business culture is also focused on consistent improvement.
  • Based on its geographical location, Japan provides a gateway to the rest of the Asian market.
  • Japan has a stable business market that is receptive to foreign direct investment and its labor force is highly educational
  • Japan offers a reliable tax regime, a stable economy, and a society and culture of openness.
LEGAL SYSTEM

The modern Japanese legal system is mainly based on legal codes and legislation and is founded on the civil law system, pursuing the model of 19th Century European legal systems, particularly German and France legal codes.

Japanese legal system is a combination of continental and American law. In the past, the early German civil code and components of the French civil code were imported by Japan, along with several American borrowings. Currently, Japan’s legal system has been updated, to include revisions to codes on themes such as civil protocol and bankruptcy.

There is no federal system in Japan, so Judicial power is vested in the Supreme Court and lower courts founded by law.

Entity choice in Japan

Japan is accepting of direct foreign investments and no legislation restricts foreign shareholdings in a Japanese company. But, there are certain exceptions in certain industries, e.g, aviation, where there is a limited maximum foreign shareholding ratio.

In addition, a vast range of foreign direct investments in Japan is subject to initial announcement under the FEFTA (Foreign Exchange and Foreign Trade Act).

Foreign investors who plan on setting up a business in Japan can select from a large range of legal entities. The most popular legal entities in Japan are the following:

Representative Office

A Japanese Representative office like other representative offices is a structure that is founded for carrying out liaison activities on behalf of the head office.

Features

  • It does not authorize the performance of commercial business activities in Japan.
  • It is used as a temporary basis for the preparation of activities.
  • It is not permitted to open bank accounts or lease real estate in its name.
  • Registration is not mandated at the Legal Affairs Bureau
  • It is not subjected to corporate tax

Branch office

This is a separate compartment of a foreign company that can be established for business activities in Japan.

Features

  • It can start business operations after determining a base of operation and registering all the essential information.
  • A Japanese resident must be assigned as the branch representative.
  • It only requires a local physical address and a Representative in Japan.
  • It can open bank accounts and lease real estate in its name.
  • It is not necessary to establish a management body for its registration.
  • The parent company is accountable for all the debts and credits incurred by the business activities of the branch

Japanese Joint Stock Company (kabushiki-kaisha)

These are company types that are governed and owned by investors and owners.

Features

  • It is Japan’s most widely known type of company structure.
  • It can be registered with a capital of only 1 yen and with only one Investor as Director.
  • Only a Japanese address is required for its incorporation in Japan.
  • In case of incorporating a KK with 2 or more Directors, it will require a representative director who will have the right to engage in business and to enforce the respective activities.
  • Its Shareholders and Directors can all be non-residents.
  • It can raise extra capital through stock options, and other related methods.
  • At least one auditor is required when there is a board of directors and no accounting counselor.
  • Its formation process is based on the Articles of Association, and the Articles must be registered at the Japan Legal Affairs Bureau.

Japanese Limited Liability Company (gōdō-kaisha)

Introduced in May-2006, and the Companies Act of Japan, a gōdō-kaisha is a company structure that is common among small and medium-sized companies in Japan.

Features

  • Its members have limited liability.
  • All its members are “Representatives of the Company” unless Executive Manager (can be either an Individual or a Corporation) has been appointed.
  • It can be registered without a “Local Resident in Japan”
  • It has a lower start-up cost, and its incorporation is faster and simple

Japanese General Partnership (Gomei-Kaisha)

This is a Japanese business structure that is usually formed by members unified under the same name, with the same goals.

Features

  • all its partners are jointly and severally accountable for any liability incurred by the company.
  • Due to the partner’s unlimited liability, creditors can go after each partner’s assets if the company’s assets are inadequate to meet the commitments.
  • The risks of incorporating this type of business structure are fundamental

Japanese Limited Partnership (Goshi-Kaisha)

This a Japanese business structure formed by two types of members, one with unlimited liability, or with liability only to the degree of their contribution to the partnership’s capital.

It is incorporated under the Companies Act of Japan, and as its name suggests, it authorizes the same limited liability exactly like the limited company, but with the advantages of a partnership.

Are you interested in establishing a company in Japan? Contact your Damalion experts now.

BANKING

Regarding its banking industry which is among the largest in the world, there is no country quite like Japan.

Japan’s banking system is well regulated, and it offers several options for personal and business accounts.

The Bank of Japan, which is its central bank is a juridical person founded based on the Bank of Japan Act, and it is not a government agency or a private firm.

The Bank of Japan Act details the obligations and laws of the banking sector, while the Financial Services Agency is the regulatory unit.

Types of banks and their functions in Japan

Commercial banks in Japan are governed under the banking act and overseen by the FSA. And they are commonly divided into:

  • City banks: these are the largest banks in Japan.
  • Trust banks: these offer trust and investment-related services in addition to formal banking services.
  • And regional banks I and regional banks II: these operate in a single region and provide banking duties to residents and local small and medium-sized businesses.

In addition to these are foreign banks, or other banks.

Bank accounts in Japan

Japan’s banking system is highly developed and stable, and it operates in the Japanese Yen (¥). Foreigners and residents in Japan may open a fully-fledged bank account in Japan that offers standard banking services, loans, mortgages, credit cards, overdrafts, and other debt-related services.

Types of bank accounts in Japan

While opening an account in Japan, the most common types you’ll find includes the following:

  • General deposit account (futsū yokin): this is the regular account that provides access to debit cards, direct deposits, and online payments.
  • General savings (Tsujo chokin): this is a post office account in Japan
  • Time deposit account (teiki yokin): this gives account holders higher interest rates if they regularly deposit according to a pre-determined schedule.
  • Foreign currency deposit account (gaika yokin): these banks offer foreign currency accounts.
  • Current account (Toza yokin): these are mostly used for businesses.

Opening a bank account in Japan

Opening a bank account in Japan is quite easy. All you need as a foreign resident is your seal, residence card with your address, and passport to open the bank account. If you’re an employee or a student, you will require documents that will prove your employment or school enrollment.

Once you’ve gathered the necessary documents, just go to your bank of choice and fill in the essential forms. You will then be given the choice of your 4-digit PIN and receive a bank book. The information on managing your account will be sent to you in about a week.

Note that Japanese banks may require foreigners to have lived in the country for at least 6 months to be able to open a bank account.

IMMIGRATION

Japan is an attractive destination to many foreign citizens due to many reasons such as its strong infrastructure, unique culture, and diverse economic opportunities.

Being a developed country, many foreigners want to immigrate to Japan. To be able able to pull this off, foreign residents, must meet certain requirements and apply for either of the following types of visas:

Employment-based visa

The type of employment visa you require in Japan will depend on the type of work that you do.

There are over a dozen of such types of visas, for example, research, engineering, education, business management, entertainment, international services, etc.

A college degree or significant professional experience in the applicable field is mandated to qualify for most work visa types in Japan. Also, the length of time for each visa will vary depending both on the visa type you are applying for and your individual needs.

Specified skilled worker visa

Japan’s government also has specified skills visas. This type of visa is meant to motivate foreign workers to come to Japan and fill employment gaps in specific labor sectors, including construction, nursing, and manufacturing. Applicants do not require a degree but must pass a technical skills test.

Student visa

Foreign nationals who want to study in Japan can get a student visa at a Japanese consulate outside of Japan to enter the country on a residence status that authorizes long-term studies.

Spouse visa

Foreign national who married Japanese citizens can obtain a spouse visa, which enables them to engage in any paid activity in Japan.

Self-employment/investor visa

Entrepreneurs and high-net-worth individuals can apply for an investor or business visa in Japan. This is a visa for individuals interested in starting or managing a business in Japan.

The Investor Visa

The investor visa is occasionally called the golden visa and is a Visa for entrepreneurs who either invest in or took on a senior role in managing a business (such as elected foreign company executives) in Japan, instead of working for a Japanese company as a skilled professional.

The Japan investment visa can be granted for 1, 3, or 5 years and is renewable.

Also, the applicant’s spouse and children can join in moving to Japan with dependant visas.

Requirements to apply for an Investor Visa in Japan

The requirements for this will depend on your type of activity. The General options are either starting your own company or overseeing an existing one.

If you are starting your own company, you will require the following:

  • A minimum investment of 5,000,000 yen (US$ 46,800).
  • Professional background and working history.
  • A detailed business plan, and appropriate business license.
  • An office, and a co-director (one of the company’s directors must be a Japanese resident)
  • The company must also have at least two full-time employees ( these must also be residents of Japan)

The co-founder can also get an Investor Business Manager visa

If you are overseeing an existing company, you will require the following:

  • Lesser investments on a minimum of 2,500,000 yen (US$ 23,400).
  • One full-time employee (he/she must be a resident of Japan)
  • A salary coequal to/higher than that of a Japanese individual in a similar position

Obtaining permanent residency in Japan

For a foreigner to obtain permanent residency in Japan, the foreign national must have lived in Japan for a minimum of 10 years. He/she must also have a Japan work visa for a minimum of five years during these 10 years.

In addition, the applicant must also look into Japan’s immigration point system. This system scores applicants based on some qualifying factors, such as their academic achievements and work experience. Applicants who score high have a high chance of qualifying for permanent residence in Japan in as soon as one to five years.

Do you have any inquiries concerning immigration to Japan? Contact your Damalion expert now.

TAX REGIME

The Tax regime in Japan is based mainly upon a national income tax and a residential (local) tax (this is based upon one’s area of residence). The national tax in Japan is paid to the national government, and the local tax is paid to the local governments and municipal authorities where a tax resident lives.

Tax residency

Irrespective of nationality, any individual who lives in Japan while working and getting paid during their stay is liable to the Japanese taxation system. All individuals are categorized as either residents or non-residents.

Non-resident taxpayers are taxed only on their income sourced in Japan. While permanent resident taxpayers are taxed on their worldwide income, and non-permanent resident taxpayers are taxed on their income other than foreign-source income that is not remitted into Japan.

Types of taxes in Japan

Outline below is an overview of some of the most applicable types of taxes paid in Japan:

Income Tax

Income tax in Japan is paid annually by individuals on income earned during a calendar year. And is paid on the national, prefectural, and municipal levels. Normally, the local inhabitant’s tax is imposed at a flat rate of 10% I. Japan, but the amount is evaluated based on the net income of the person.

Enterprise Tax

This is a prefectural tax paid yearly by self-employed individuals who are engaged in business activities, and the amount is evaluated based on the type of business and the individual’s net income.

Consumption tax

This is charged on sales/loans of products or provisions of services. The rate is normally 10% in Japan but 8 for food, drinks, and newspaper subscriptions.

Property Tax

This is a municipal tax paid by individuals who own land, housing, and other types of assets annually.

Corporation tax

These are taxes exacted on income derived from corporate activities include Corporate tax, Local corporate tax, Inhabitant tax, Enterprise tax, and Special local corporate tax. The rates on these vary.

Alcohol tax

Japanese law imposes a tax on alcoholic drinks such as sake, beer, and whiskey. This liquor tax applies to beverages with an alcohol content of a minimum of 1 degree and is paid by consumers when they purchase alcoholic drinks. The tax rate is determined by the type of alcohol and intoxicant content of the alcoholic drink.

Tobacco tax

In Japan, there are national, prefectural, and municipal tobacco taxes that are paid by consumers when they purchase tobacco products, and the tax rate varies by brand and other factors.

Inheritance tax

In Japan, inheritance tax which is filed within 10 months of death, is imposed on individual heirs. The tax rates vary and will depend on the number of assets received, but in general, are charged at a progressive rate based on the fair market value of the inherited assets subtracting the funeral expenses and any debts related to the inherited assets.

Surtaxes in Japan

A surtax took effect on 1 January 2013 in Japan. The surtax is include a 2.1% tax that is evaluated on an individual’s national income tax.

In case of tax withholding at source, the restoration income surtax will also be charged on the amount of withholding tax on income and compiled together with the income tax.

Double tax Treaties

To prevent double taxation on the same income, Japan has finalized tax treaties with several countries to facilitate investment and economic exchange with those countries.

As of July 2021, Japan has finalized tax treaties with over 70 countries and territories, including Australia, Singapore, Finland, Luxembourg, Bahamas, South Africa, Germany, Spain, Belarus, Mexico, Hong Kong, Sweden, Hungary, Netherlands, Switzerland, Brazil, India, Pakistan, Canada, Isle of Man, Turkmenistan, Cayman Islands Israel Peru Ukraine, Chile, Italy United Arab Emirates, China, Jamaica, United Kingdom, Portugal, United States, Czech Republic, Qatar, Denmark, and Korea to avoid double taxation.

INTELLECTUAL PROPERTY

The most popular types of intellectual property rights in Japan are patent rights, utility model rights, design rights, trademark rights, and copyrights. The Japan Patent Office is the government agency responsible for granting patents, utility models, trademarks, and design rights in Japan and the Japan Copyright Office Copyright is the government agency responsible for granting copyright in Japan.

Trademarks in Japan

  • A trademark is any character, sign, 3-dimensional shape, sound, color, or any hybrid thereof, that is used about a company’s goods or services.
  • Trademark law in Japan protects a logo, recognizable mark, or design, and a trademark can be filed directly with the Japan Patent Office (JPO). Japan also follows a “first-to-file” system for trademark rights, which implies that whoever registers a trademark first holds the sole right to the use of the trademark.
  • The registration of a trademark in japan is valid for ten years after the date of application for registration, and this can be renewed any number of times for an extra ten years.

Patents in japan

  • An invention will meet the patentability requirement in japan if it was developed with the use of technical notions and the laws of nature.
  • An invention can be patented in japan if it involves novelty and a creative step, and is liable to industrial application.
  • The Japanese patent law is established on a first-to-file principle, and patented inventions in Japan can be registered with the JPO.
  • The registration will be valid for 20 years after the date of application for registration, and an extension of up to five years is available for medical products and agricultural chemicals.

Utility models

  • In Japan Utility models are comparable to patents in that they protect creative technological concepts and these are usually applied to simpler inventions that do not merit a patent.
  • Utility models are registered in Japan without a hitch examination from the JPO, as long as the basic requirements are fulfilled.
  • Utility models are protected for 10 years from the date of filing and are substantially less frequently used.

Designs

  • A design is any shape, pattern, or color of an object or any hybrid of those.
  • Design law in Japan protects the shape, forms, and color of an object, but the design must be novel and unique as well as eligible of being mass-produced.
  • Japan has a “first-to-file” patent system, and the registration of a design is valid for 20 years after the date of application for registration.
  • The applications for the registration of a design must be made directly through the Hague System for the International Registration of Industrial Designs in Japan or with the JPO.
  • In Japan, some designs, are deemed immoral by the JPO, and these cannot be registered.

Copyright

  • Copyright laws in Japan commonly protect compositions of several types. Some common examples include original literary, scientific, and artistic works in which sentiments are expressed imaginatively.
  • The Copyright Act in Japan gives rights to an author of a work and the Copyright Act becomes available without registration on the creation of the work.
  • The protection for the work continues until 70 years have passed after the publication of the work.
  • Generally, copies of other works cannot be copyrighted but adaptations and musical remixes can receive copyright protection as they include the extra expression of the person who modifies the original work.

If you have inquiries concerning the registration of Intellectual Property in Japan, contact your Damalion expert now.

LABOR AND EMPLOYMENT

The main Japanese statutes relevant to employment and labor law are the Civil Code, the Labor Contract Act, and the Labor Standards Act which stipulates the compulsory minimum working conditions applicable to all individuals working in Japan.

A Japanese employer that hires at least ten employees on a consecutive basis at one workplace must formulate work rules applicable to that office and file them with the relevant local Labor Standards Inspection Office in Japan.

Employment contracts in Japan

In Japan, there is no legal requirement for an employment contract to be committed to writing in order to become significant, however, Japanese law does expect that an employer gives an employee a written statement of some of the terms of the employment contract. Stated next are the main types of employment contracts in Japan:

  • Formal Employee Contracts (Sei-sha-in): these types of employment contracts are usually harder to terminate but are generally preferred by employees.
  • Fixed-Term Employee Contracts (Keiyaku-sha-in): these types of contracts are for certain projects or periods of time, and are easier for employers to terminate. There are no limitations on the conditions into which fixed-term contracts can be entered, and the maximum length of it is three years.
  • Trial Periods: in Japan, it is possible to include trial periods in contracts of employment, and it is generally between three and six months and cannot surpass one year.
  • Temporary Staff Contracts (Haken-shain): these types of employment contracts applied to individuals hired out to companies by agencies and can apply to individuals who have one or two jobs with different companies.

Termination of employment in Japan

In Japan, an employer must have a justifiable and logical cause to dismiss an employee. Also, when an employer dismisses an employee, it is mandated to give at least 30 days’ notice or payment in lieu thereof.

Employment benefits in Japan

  • Working hours: the statutory maximum working hours in Japan are eight hours per day or 40 hours per week. If an employee works more than 40 hours a week then the company is required to pay for the overtime unless they work in a Management position.
  • Paid leave: employees are privileged to a minimum of 10 days paid leave per annum after six months. Paid leave is provided to workers who have worked 80% or more of all working days.
  • Maternity and paternity leave: before childbirth, there is a leave allowance of 6 weeks initial to the expected date of birth, also, employers shall not have the mother work within 8 weeks after childbirth. The maternity allowance is paid if the employee has health insurance at the workplace and the mother won’t be paid during maternity leave. Employees may return to work earlier after getting authorization from a medical doctor.
  • Social Security: here are two systems, run by the Japanese government, concerning social security in Japan. The two main types of social security include:
    • Citizens’ health insurance (Kokumin kenko hoken): this is primarily aimed at self-employed people or part-time workers in Japan.
    • Social Security (Shakai Hoken); this is the more detailed national insurance scheme in the country. Half of the cost of monthly premiums is handled by the employee through deductions from salary at source and the remaining half by their employer.
  • Sick leave: there are no sick leave rights in Japan, so Japanese employees use their paid vacation to take leave of absence if they get sick.
  • Child care leave: child care leave begins from the day after the maternity leave ends to the day before the child reaches the age of 1.

To know more about labor laws in Japan, contact your Damalion expert now.

So, are you thinking of entering the Japan market?

Are you planning on expanding your business into Japan? Damalion can assist. We have the expertise that allows us to guide clients during the activity of building a company in Japan. Our Damalion experts are also highly skilled in providing various integral business solutions across major the world.

Contact us now to register your company in Japan.

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