Starting a business in Japan

Why start a business in Japan?

Japan is known for its thriving startup ecosystem with implemented initiatives from the government, such as J-Startup, to simplify registering and obtaining funding for startups. Moreover, specific visa options are available for foreign entrepreneurs who launch businesses in the Land of the Rising Sun.

Now, before starting your own business in Japan, a brief review of the genesis of your project will allow you to start on the right foot. Creating a company is already a challenge. Creating it in Japan is an additional adventure. Why Japan, first of all? Take time to ask yourself the right questions and write down all the answers that cross your mind:

• Do you plan to immigrate to Japan? Is it a long-term project?
• Have you ever traveled to Japan (short stay)?
• Have you ever lived in Japan (long-term stay)? What was your status?
• Have you already started a business, or is this your first project?
• Have you taken a training course in business creation in your country? Was it in Japan?
• Do you speak Japanese, or are you learning the language?
• In which industry do you plan to start your business?
• Do you have work experience in your intended industry?
• Does this sector require any prior qualifications? Do you have them?
• Is this sector competitive? What assets do you have that will help you stand out?
• Do you have start-up capital?
• Do you have a network in Japan in your field of activity?
• Do you know other professionals opening or opening a business in Japan (in your industry or not)?

Different types of companies in Japan

In Japan, four primary types of legal business entities exist, including:

• Stock companies (Kabushiki Kaisha);
• Limited liability companies (Godo Kaisha/LLCs);
• General partnership companies (Gomei Kaisha);
• Limited partnership companies (Goshi Kaisha). 

Foreign businesses typically choose to establish a Kabushiki Kaisha or a Godo Kaisha, with Kabushiki Kaishas being the more popular option. On the other hand, Gomei Kaisha and Goshi Kasha are not favored since the owners or shareholders of these companies bear unlimited liability for the company's debts and obligations.

Apart from these, there is also the concept of sole proprietorship (Kojin Jigyo), which differs from the entities above as the owner assumes complete responsibility for all aspects of the business.

Foreign businesses typically establish a stock company (Kabushiki Gaisha, or KK) or a limited liability company (Godo Gaisha, or GK). KKs are the most prevalent among these options, closely followed by GKs. This preference stems from owners or shareholders of limited partnerships (Goshi Kaisha) and unlimited partnerships (Gomei Kaisha) that bear total liability for the company's debts and obligations. 

Kabushiki Kaisha (Stock companies or KK)

The term "Kabushiki Kaisha" in Japanese can be directly translated as "Stock Company" and is commonly abbreviated as KK for simplicity. 

A KK company provides the highest level of flexibility compared to other business types and is also regarded as the most esteemed corporate structure. In contrast to managing a Godo Kaisha company in Japan, a KK stock company enables a business proprietor to publicly list their company on the stock exchange and offer shares for sale.

If you aspire to expand your business and establish a solid international presence, opting for a KK stock company is the clear choice for foreign companies in the Japanese market.

Requirements to create a KK company in Japan:

• Choose the company's name in Japan;
• Define the company's mission;
• Prepare the articles of incorporation in Japanese;
• Decide on the requirements of a board of directors;
• Obtain a registered address in Japan;
• Appoint a Japanese Resident Director.

While the Japanese government supports foreign companies, the process might be complex and time-consuming.

Godo Kaisha/LLCs (limited liability companies)

If you are not interested in creating a publicly traded company, a GK company can fulfill all your requirements, and you do not need a board, annual meetings, additional taxation, etc. 

Here are some advantages of a GK compared to a KK: 

• Lower startup cost;
• Lower maintenance costs (corporate secretary);
• Owners' liabilities are not linked;
• Tax advantage for a subsidiary of a US corporation.

For more details, a GK is created by signing articles of incorporation by its investors. Each investor can contribute capital in the form of money or property. 

The company will be authorized to open a bank account and enter into contracts as a legitimate business entity once the Legal Affairs Bureau has registered and processed the company's articles of incorporation and corporate seal. 

The company profits are subject to corporate tax rates, while dividends are subject to individual tax rates. Furthermore, if all members of a GK agree unanimously, it can be converted into a KK.

Kojin Jigyo (sole proprietorship or personal business)

Kojin Jigyo is not a separate legal entity, unlike the other types of companies mentioned above. It operates on a small scale and does not allow for partnerships or shared ownership.

Primarily designed for small business owners such as consultants, restaurant owners, writers, and freelancers, one advantage of a Kojin Jigyo is its potential tax benefits, as it allows for the deduction of expenses like a regular business. As a sole proprietor, you can hire full-time or part-time employees. Regarding social security, you can participate in the national health insurance and pension scheme as a sole proprietor.

However, the only people who can choose to be a sole proprietor are:

• People with a spouse of Japanese national visa, long-term resident visa, permanent resident visa, or spouse of permanent resident visa;
• People with a working holiday visa with no restrictions until the visa expires;
• People with a dependent visa, student visa, or cultural activities visa have permission from the Immigration office to engage in other activities for up to 28 hours per week;
• People with stable contracts with Japanese companies, such as freelance translators, IT engineers, freelance sports instructors, and similar professions, and one of those companies is willing to provide the necessary documents for obtaining or renewing an "Engineer / Specialist in Humanities" visa or a "Skilled Labor" visa;
• People with freelance work in addition to their full-time job.

To create a business as a sole proprietor in Japan, you must submit specific notifications to the tax office within two months of starting your business activities. Also, you must file a tax declaration once a year, between February and March, for the previous year's income.

You can visit the National Tax Agency's website for more information in English.

If your business activities fall under categories requiring a business license, obtaining the necessary permits from Japanese authorities, such as the kojin jigyou nushi (個人事業主) or Sole Proprietorship form (Japanese), is crucial.

Legal obligations to launch a business in Japan

When it comes to legal requirements for setting up a company in Japan, there are four steps you must consider:

• Renting or purchasing office space: Your company needs a rented or purchased physical office. A virtual one is not acceptable;
• Preparing a business plan: A detailed and well-thought-out business plan is necessary to establish a company in Japan. Make sure to include the outline of your business, growth strategies, profit projections, and funding or investment plans. Keep the plan practical and ensure it complies with Japanese law;
• Depositing capital and finding loans or investors: To deposit the capital investment for your company, you will need a bank account;
• Opening a bank account: Before you can open a bank account, you must obtain a visa. In addition, opening a bank account in Japan can be challenging as most banks do not operate in English.

Before establishing a business, it is essential to have evidence of the capital invested. You must provide the relevant documents regarding the invested capital during the initial company creation procedures. So once you have opened a bank account, deposit the capital and obtain a copy or scan of your bank book, then register your company at the Legal Affairs Bureau, along with your Article of Incorporation.

In addition, if you already have a company abroad and want to expand to Japan, you can choose to establish a Representative Office, a Branch Office, or a Subsidiary Company. Among these options, the Representative Office in Japan is not allowed to engage in sales activities. Also, if you want to start a new business in Japan, you must establish a company and obtain a specific visa. 

Work visas in Japan for entrepreneurs 

You will need a visa and a status to start your business in Japan. The visa allows you to enter the Japanese territory. The status will enable you to exercise the professional activity for which you are in Japan. For simplicity of language, we speak, for example, of "researcher visa" to define a visa with a researcher status. You work in Japan as a researcher and cannot do any other activity (unless you have a highly skilled visa).

There are two types of work visas in Japan for entrepreneurs: Business Manager visa and Start-up visa. 

Business Manager Visa in Japan

Business Manager visa is for those who want to start or run a business in Japan or manage an existing business. This visa suits founders, presidents, directors, managing partners, and branch office managers. 

To qualify for the Business Manager Visa, you must meet the following requirements:

• have at least 5 million JPY as investment capital;
• having a physical office space not located on a residential property;
• prepare a business plan written in Japanese;
• possess sufficient experience in your startup field;
• have a business partner residing in Japan if you currently live abroad.

This type of visa might last one, three, or five years. Usually, you will receive a visa for one year when you create a company, and each renewal will likely be one year at a time. The chances of visa renewal depend on the health of your company's business.

Starting in 2023, the VISA examination for business managers has become more challenging and demanding. A comprehensive business plan will now be necessary to create a new business and pursue a career as an applicant. 

Your educational background, business experience, motivations for starting a business, detailed business plans, and supporting documents, such as essential contracts with business partners, will be required during the examination process.

Startup visa in Japan

As mentioned, you must get a "business manager" residence status to start a business in Japan, but there are certain conditions you must fulfill, like having an office in Japan. With the "Startup Visa", you can stay in Japan for up to one year and make preparations for your business before meeting the requirements. During this time, the local government will provide vital support.

Launched in 2020, the startup visa is a new government initiative to encourage innovation and boost growth. 

Here is a list of municipalities offering support for the "Startup Visa", along with their contact information:

• Hokkaido;
• Sendai City;
• Ibaraki Prefecture;
• Shibuya City (Tokyo);
• Yokohama City;
• Hamamatsu City;
• Gifu Prefecture;
• Aichi Prefecture;
• Mie Prefecture;
• Osaka Prefecture;
• Kyoto Prefecture;
• Kobe Prefecture;
• Fukuoka Prefecture;
• Oita Prefecture.

Work visa for freelancers in Japan

If you are not employed full-time by a single employer but work for multiple employers or have contracts with several clients as a freelancer, you can still obtain a work visa. This process is commonly known as self-sponsorship. 

However, it is essential to note that there is no specific "self-sponsor visa". Instead, you must apply for a regular working visa, such as the Engineer / Specialist in Humanities and International Services or the Highly Skilled Professional visa.

You need specific documents from your client company to apply for a work visa. Here are some examples of the required documents:

• Copies of withholding tax certificates for the previous year's employee salary income (receipt stamp copy);
• Application form provided by the client for your organization to prepare;
• Contractor agreement between you and the client;
• Payment records from the client;
• Your tax return, and so on.

Read also The Japanese labor market

Steps to starting a business in Japan

Apply for a visa with the Japanese immigration services. Here is the list of documents to provide. Depending on your profile, the visa you are applying for, and the nature of your business, the administration may ask you for other information, such as:

• Your business plan: company name, legal status, sector of activity, number of employees planned, starting capital, possible partners, projected budget, marketing plan, etc.;
• If applicable, the rental contract for your business premises, with the sign's name, logo, etc. If you plan to work from home, check with your landlord to ensure you can convert your home into a workplace. Many do not allow this. In this case, rent an address (mailbox) from a specialized company;
• A website;
• Register your company name at the National Institute of Industrial Property in your country (after checking that the name is available);
• The establishment of the statutes by a notary;
• A professional bank account;
• The professional inkan (the company seal, which will be used to sign);
• Registration of the company with the relevant ministry;
• All these elements prove that your business is already in operation. Regarding the place of business, you will have to rent it before getting the answer from immigration. The same goes for the website, which will have to be built. You are not presenting a business project but your already established business.

All these steps are done in Japanese. Make sure you have a good command of the language before undertaking them. You can go through a legal advisor specialized in administrative procedures (gyoseishoshi). They will take care of all the formalities for you and be the link between you and the immigration services. They will also send the application for company registration to the ministry you are spending money on (depending on your activity).

If you opt for the specialized legal advisor, you must send your entire file to him. The process can take 6 months on average. It is shorter if you use a specialized advisor (from 3 weeks to 1 month). The fees to be paid vary between 300,000 and 500,000 yen (expenses of the advisor and the cost of the company registration).

Business manager visa examinations in Japan

Business manager visa examinations typically last for 3 months from the time of application. However, if the immigration office is busy or requires additional documents, it may take over 3 months.

Here is the general flow of the business manager visa application process:

1. Business planning;
2. Company establishment (2–4 weeks);
3. Acquisition of business license permission from the regional government (if necessary);
4. Preparation of evidence documents for the visa application;
5. Application submission to the immigration office;
6. Examination period (3 months);
7. Request for additional documents, if needed;
8. Notification of permission or disapproval.

Setting up a company from business planning takes 2 to 4 weeks, while preparing the application documents for the visa takes about 1 month. It usually takes around 3 months from the time of application to receiving the permission notice.

The total time guideline for the entire process is approximately 4 to 5 months, but it can vary depending on the approval status. It is advisable to allocate extra time and funds before starting the business.

Starting a business in Japan: Additional advice

You're advised to learn Japanese before starting your business or getting help. The procedures are in Japanese and require a bilingual or expert level. Even if you are not entirely bilingual, have a sufficient level to keep your hands on the files and remain independent. Seek the help of a specialized advisor. Do not minimize the complexity of Japanese law. Even Japanese entrepreneurs seek this type of service.

Before (and after) arriving in Japan, learn about Japanese business culture.

Good to know:

Japanese immigration allows you to run a deficit for the first year, but no longer. You risk losing your visa if you are also in deficit the second year. In case of exceptional circumstances (health crisis, for example), the administration may grant you a deferment. It is up to you to provide solid proof of your finances.

Useful links:

JETRO: starting a business in Japan

Immigration Services Agency of Japan

Ministry of Economy, Trade and Industry of Japan

Japan visa

J-Startup

Startup VISA