How Foreign Companies Enter the Japanese Market

Japan is an attractive country with a large economy and a mature consumer market. However, for foreign companies, the business environment and legal regulations in Japan may seem complicated.

In this issue, we will explain three ways for foreign companies to take the first step toward starting business in Japan.

There are three ways for foreign companies to establish a presence in Japan: establishing a branch, establishing a subsidiary, and establishing a representative office. The appropriate method depends on the size and purpose of the company.

Branch Establishment

Establishing a branch office is the easiest way to expand into Japan. There is no need to establish a local subsidiary, and the procedures are relatively simple. In addition, since it can be operated in unison with the head office, communication is smooth.

1. Easy to establish and operate.

There is no need to register the incorporation in accordance with the Companies Act, and no need to prepare and certify the articles of incorporation. In addition, registration of directors is not required, which generally lightens the maintenance burden. By appointing a representative in Japan and registering the foreign company, it is possible to conduct business in Japan. Since a corporation can be the representative in Japan, it is also possible to entrust the operation of the company to a Japanese corporation.

2. The tax amount depends on the size of the head office.

The profits and losses of the branch office are combined with the income of the home country. Losses incurred by the Japanese branch may result in tax savings at the head office in the home country. In addition, remittance of profits to the home country is, in principle, tax-exempt. On the other hand, foreign companies are less likely to receive loans from financial institutions in Japan. In addition, the amount of equalization of local taxes is determined by the amount of capital of the parent company, which may be high. Membership in social insurance, workers’ accident compensation insurance, and unemployment insurance is mandatory.

Advantages

• Easy to maintain
• Can be operated in unison with the head office
• Quick decision-making is possible under the control of the head office.

Disadvantages

• Responsibility falls on the head office
• Taxes can be high

Establishment of a Subsidiary

This is a method of establishing an independent corporation and entering the Japanese market. The procedure is more complicated than establishing a branch office. However, since the subsidiary is an independent legal entity, its responsibilities are limited. Decision-making takes the same amount of time as for a Japanese corporation, but establishing a limited liability company can also simplify the maintenance procedures.

Advantages

• Limited liability
• Flexible management is possible

Disadvantages

• Requires a certain amount of capital
• Communication can be difficult

Establishment of a representative office

A representative office is an office in Japan to gather information, conduct market research, and communicate with the Japanese market. No special procedures are required.

Advantages

• Easy procedures
• No capital required
• Information gathering and market research are possible

Disadvantages

• No sales activities
• No employment contract
• Which method is best for you?

Which method is best depends on the size of the company and its objectives. For example, if the company is small or only plans to expand for a short period of time, establishing a branch is the best option. On the other hand, if the company is large or is planning to expand for a long period of time, establishing a subsidiary is the best option.

For information gathering and market research purposes only, establishing a representative office is more suitable.

Conclusion

There are three ways for foreign companies to establish a presence in Japan: establishing a branch, establishing a subsidiary, and establishing a representative office. Each has its own advantages and disadvantages, and the appropriate method depends on the size and objectives of the company. It is important to consider carefully when choosing a method of expansion.