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January 23, 2025

DOING BUSINESS IN JAPAN

Japan which is the place for technological advancement, business transparency, and strategic location in Asia is the green land for business to expand their footprints. Moreover, Japan is having a flexible labor market, reliable infrastructure, and a highly developed financial system are the main advantages for the country that keep Japan the most attractive destination for global businesses. US$583, anything the global economy has ever seen, is Japan’s Gross Domestic Product (“GDP”) figure, the third largest globally.

UNDERSTANDING JAPAN'S ECONOMIC LANDSCAPE

Japan has a technologically advanced and the most developed economy which operates in a blend of traditional and modern industries. According to the reports, the main sectors are automobile, electronic(s), robot(s), pharmaceutical(s), and renewable energy. Despite the fact that Japanese consumers put much emphasis on this type of product, the quality and the level of precision for businesses to meet high standards are declining. The country usually takes its place at the top of the global competitiveness rankings, mainly due to its stable and business-like environment.

OPPORTUNITIES IN JAPAN

Technological Innovation- Japan is a global leader in robotics, Artificial Intelligence (“AI”), and automation, presenting opportunities for tech startups and established firms alike.
Renewable Energy- With a focus on sustainability, Japan encourages investments in renewable energy sources and energy-efficient technologies.
Healthcare and Aging Population- Japan’s aging population creates demand for healthcare services, eldercare solutions, and medical technologies.
Consumer Goods- Japanese consumers’ preference for high-quality and innovative products offers lucrative prospects for consumer goods businesses.

JAPAN’S STRATEGIC LOCATION TO FACILITATE GLOBAL TRADE

Japan’s geographic position in East Asia makes it a vital hub for global trade. It acts as a gateway to the Asia-Pacific region, providing businesses access to a vast market. With advanced ports, extensive shipping networks, and world-class logistics infrastructure, Japan ensures reliable international trade connections.

LEGAL FRAMEWORK AND BUSINESS SETUP

With government support and transparent regulations, starting a business in Japan is a straightforward process. It typically takes a few weeks to register a company. Key requirements include:

Choose a Business Structure
Kabushiki Kaisha (KK): Equivalent to a joint-stock company, ideal for larger enterprises.
Godo Kaisha (GK): A limited liability company, suitable for smaller businesses and startups.
Registration Process
Reserve a company name.
Prepare and notarize the Articles of Incorporation.
Deposit capital and file for registration at the Legal Affairs Bureau.
Obtain Necessary Permits and Licenses
Depending on the business type, you may require specific approvals (e.g., food services, import/export).

TAXATION IN JAPAN

Japan’s tax system is efficient and transparent, with rates designed to support public services and infrastructure. Key considerations include:

Corporate Income Tax: Ranges from 23.2% to 30.62%, depending on income levels and business size.

Consumption Tax (“VAT”): Currently set at 10%.

Personal Income Tax: Progressive rates can reach up to 55%, with special deductions available for expatriates.

LABOR LAWS AND EMPLOYMENT PRACTICES

Japan emphasizes employee rights and fosters a collaborative workplace culture. Employers must adhere to the standard 40-hour workweek and provide mandatory health and pension insurance. Labor unions and collective bargaining agreements are common, ensuring fair practices across industries.

NAVIGATING CHALLENGES

While Japan offers a favorable business environment, challenges include high operational costs, language barriers, and intense market competition. Strategic planning, cultural sensitivity, and leveraging Japan’s innovation-focused infrastructure can help overcome these hurdles.

CONCLUSION

Japan’s dynamic economy, transparent governance, and commitment to innovation create a conducive environment for business growth. Entrepreneurs and investors who integrate into the local ecosystem, respect cultural nuances, and align their offerings with Japan’s forward-looking values will likely achieve success.

HOW WE CAN HELP?

Our team of experts will guide you through the process of setting up a business in Japan, ensuring compliance with all requirements, including registration, licensing, and tax obligations.
We provide specialized advice to help establish successful businesses in emerging and popular sectors like renewable energy, healthcare, and technology.
Additionally, we offer insights into regulatory changes and guidance on navigating these shifts while minimizing potential risks.

For more information or queries, please email us at
[email protected]

Key Contact

Surendra Singh Chandrawat

Managing Partner

We have a team of professionals to help you with all your business needs. So, that you can focus on business expansion in Japan.

Please feel free to email us on [email protected]

Japan

Why japan?

Known as the “Land of the Rising Sun,” Japan is a group of many islands close to the east coast of Korea, China and Russia. It occupies a chain of islands in East Asia in the North Pacific Ocean roughly parallel with the eastern coast of Asia’s mainland. Japan is one of the most literate and technically advanced nations, its economy is a highly developed free market economy and the third largest in the world by nominal GDP.

Ranked 7th in the 2020 Best Countries Survey Power Ranking. Cars, consumer electronics, computers, semiconductors, copper, iron, and steel are the main export goods from Japan. Other key industries in Japan are petrochemicals, pharmaceuticals, bio industry, shipbuilding, aerospace, textiles, cosmetics, and processed food. Its automotive industry is one of the largest industries in the world. Japan was among the three countries with the highest production of cars since the 1960s, surpassing Germany. Japan is also known as one the most prospective countries to do business.

Advantages

Currently, Japan remains one of the world’s leading industrial powers and is an excellent location for international companies to invest. Some of the key benefits of doing business in Japan are mentioned below:

Gateway to the asian market

Japan not only offers a captive consumer base of 127 million citizens but, it also offers an exciting yet stable business market open to trade and foreign investment. Japan’s huge economy already boasts an established base of the world’s top companies especially in the fields of environment, healthcare, IT, and automotive.

Highly educated workforce

Japanese are highly educated and their workforce is extremely learned as well. There are over 600 universities in Japan. However, Japanese workers are highly devoted to the companies that they work for and strive toward the success of the group over the success of the individual.

World Class Companies and SMEs with Unique Technologies

In Japan, companies of all sizes produce unique and innovative products and services. Its strong technology based industries offer significant opportunities for foreign companies looking to partner with Japanese firms at all stages.

World’s third largest Economy

After the United States and China, Japan has the third largest economy and makes up about 6% of the total Gross Domestic Product. Having been called the “gateway to the Asian market” Japan’s 127 million citizens drive a market oriented economy, allows for abundant business ventures and opportunities.

Infrastructural Facilities

Japan offers robust infrastructural facilities for companies and different industries. Companies can easily operate in Japan as there is excellent infrastructure.
Major global companies such as Sony and Toyota from Japan have carried out business and diversified their presence throughout the world.
It has a highly developed, modern infrastructure of roads, highways, railroads, subways, airports, harbors, warehouses, and telecommunications for the distribution of all types of goods and services.

Absence of Double Taxation

Japan has signed different forms of double taxation agreements with other countries, which:

eliminates the tax barrier;
minimize the amount of withholding tax; and
tax free repatriation of money to the home country.

Simple Tax Regime

Individual Income Tax for Residents

In Japan, permanent resident taxpayers are taxed on their worldwide income. The tax is levied at the following rates:

Income less than JPY 1.95 million is liable to tax at rate of 5%;
From JPY 1.95 to 3.3 million is liable to tax at rate of 10% + JPY 97,500;
From JPY 3.3 to 6.95 million is liable to tax at rate of 20% + JPY 232,500;
From JPY 6.95 to 9 million is liable to tax at rate of 23% + JPY 962,500;
From JPY 9 to 18 million is liable to tax at rate of 33% + JPY 1,434,000;
From JPY 18 to 40 million is liable to tax at rate of 40% + JPY 4,404,000; and
More than JPY 40 million is liable to tax at rate of 45% + JPY 13,204,000.

Non residents

A non resident taxpayer is liable to pay the tax at a flat rate of 20.42% national income tax on gross compensation with no deductions available.
A non resident taxpayer may be liable to the local inhabitant’s tax at a rate of 10%, if they are registered as a resident as of 1 January of the following year.

Corporate Taxes for Resident Company

A domestic company in Japan is taxed on its worldwide income, including foreign branch income, while 95% of dividends received by a company from a foreign company in which it has held at least 25% of the outstanding shares for a continuous period of six months or more can be excluded from the company’s taxable income.

Foreign Company

A foreign corporation is taxed only on its Japan source income. A foreign corporation with a permanent establishment (PE) in Japan is liable for corporate income taxes only on the income attributable to the PE.

Japanese Companies

Being one of the most developed country in the world, Japan attracts thousands of foreign investors each year. Some important forms of business in Japan are followings:

Sole Proprietorship

This kind of company is the basic and simplest form of business in Japan, is formed by a single owner, who is fully liable for the business debts but who can keep the profit of the company. In case of liquidation, his personal assets are not protected from the creditors’ claims.

Joint Stock Company

A Joint Stock Company can be created with a small capital, as little as 1 JPY and it requires at least one founder who can also be the sole shareholder; who can be a natural or legal person. Directors of the open joint stock company are elected for an undetermined period of time and at least one director should be resident in Japan. The process for the joint stock company is based on the Articles of Association, which must state:

name of the company,
address of headquarter,
name and address of the founder,
goals of the company, and
value of the authorized capital, etc.

Limited Liability Company

As the name suggests, the members of a limited liability company in Japan have their liability limited by their contribution to the capital. It is managed by a manager, a natural person or a corporate body. The managers are elected for an undetermined period of time.

General Partnership

In Japan, a general partnership is formed by members united under the same name, with the same objectives. The difference between the usual general partnership and the Japanese general partnership is that the Japanese partnership may be formed by a single member. In case of dispute, if the partnership cannot pay its debts and obligation, the personal assets of the partners may be seized.

Branch of a foreign company

Any foreign investor, who is interested to form an entity in Japan, can open a branch office in Japan. In this form of entity, one Japanese resident must be appointed as the branch representative. Branches in Japan are taxed at the same corporate income tax rate for the profits they derive from the country.

Subsidiary Company

This kind of company is organized as a separate legal entity, having a flexible relationship with the parent company. Subsidiary companies in Japan have a greater legal authority of acting independently than branches and can assume liabilities separately from the parent company. To form a subsidiary company in Japan, a foreign company requires to appoint a representative in Japan.

The liaison office

A liaison office in Japan can establish by international corporations who want to effectuate market research before opening a trading business entity or a branch or subsidiary. It can be established without any type of notification or registration with the Japanese authorities.

Other key industries in Japan are petrochemicals, pharmaceuticals, bio industry, shipbuilding, aerospace, textiles, cosmetics, and processed food. Its automotive industry is one of the largest industries in the world. Japan was among the three countries with the highest production of cars since the 1960s, surpassing Germany.

Author: Chandrawat & Partners

Topic: Doing Business in Japan

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Japan

We have a team of professionals to help you with all your business needs. So, that you can focus on business expansion in Japan.

WHY JAPAN?

Known as the “Land of the Rising Sun,” Japan is a group of many islands close to the east coast of Korea, China and Russia. It occupies a chain of islands in East Asia in the North Pacific Ocean roughly parallel with the eastern coast of Asia’s mainland. Japan is one of the most literate and technically advanced nations, its economy is a highly developed free market economy and the third largest in the world by nominal GDP.

Ranked 7th in the 2020 Best Countries Survey Power Ranking. Cars, consumer electronics, computers, semiconductors, copper, iron, and steel are the main export goods from Japan. Other key industries in Japan are petrochemicals, pharmaceuticals, bio industry, shipbuilding, aerospace, textiles, cosmetics, and processed food. Its automotive industry is one of the largest industries in the world. Japan was among the three countries with the highest production of cars since the 1960s, surpassing Germany. Japan is also known as one the most prospective countries to do business.

ADVANTAGES

Gateway to the asian market

Highly educated workforce

World Class Companies and SMEs with Unique Technologies

World’s third largest Economy

Infrastructural Facilities

Japan offers robust infrastructural facilities for companies and different industries. Companies can easily operate in Japan as there is excellent infrastructure.
Major global companies such as Sony and Toyota from Japan have carried out business and diversified their presence throughout the world.
It has a highly developed, modern infrastructure of roads, highways, railroads, subways, airports, harbors, warehouses, and telecommunications for the distribution of all types of goods and services.

Absence of Double Taxation

Japan has signed different forms of double taxation agreements with other countries, which:

eliminates the tax barrier;
minimize the amount of withholding tax; and
tax free repatriation of money to the home country.

SIMPLE TAX REGIME

Individual Income Tax for Residents

In Japan, permanent resident taxpayers are taxed on their worldwide income. The tax is levied at the following rates:

Income less than JPY 1.95 million is liable to tax at rate of 5%;
From JPY 1.95 to 3.3 million is liable to tax at rate of 10% + JPY 97,500;
From JPY 3.3 to 6.95 million is liable to tax at rate of 20% + JPY 232,500;
From JPY 6.95 to 9 million is liable to tax at rate of 23% + JPY 962,500;
From JPY 9 to 18 million is liable to tax at rate of 33% + JPY 1,434,000;
From JPY 18 to 40 million is liable to tax at rate of 40% + JPY 4,404,000; and
More than JPY 40 million is liable to tax at rate of 45% + JPY 13,204,000.

Non residents

A non resident taxpayer is liable to pay the tax at a flat rate of 20.42% national income tax on gross compensation with no deductions available.
A non resident taxpayer may be liable to the local inhabitant’s tax at a rate of 10%, if they are registered as a resident as of 1 January of the following year.

Corporate Taxes for Resident Company

Foreign Company

JAPANESE COMPANIES

Being one of the most developed country in the world, Japan attracts thousands of foreign investors each year. Some important forms of business in Japan are followings:

Sole Proprietorship

Joint Stock Company

name of the company,
address of headquarter,
name and address of the founder,
goals of the company, and
value of the authorized capital, etc.

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DOING BUSINESS IN JAPAN

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DOING BUSINESS IN JAPAN

UNDERSTANDING JAPAN'S ECONOMIC LANDSCAPE

OPPORTUNITIES IN JAPAN

JAPAN’S STRATEGIC LOCATION TO FACILITATE GLOBAL TRADE

LEGAL FRAMEWORK AND BUSINESS SETUP

TAXATION IN JAPAN

LABOR LAWS AND EMPLOYMENT PRACTICES

NAVIGATING CHALLENGES

CONCLUSION

HOW WE CAN HELP?

Key Contact

Surendra Singh Chandrawat

ADVANTAGES

SIMPLE TAX REGIME

Contact Us

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