Guide to Establishing Business Operations in Japan for European Startups

Private Clients

This guide outlines essential information for establishing a company in Japan or offering tech products to the Japanese market. Due to the stable economy and innovation Japan’s business environment offers significant opportunities.

Type of companies

Japan’s Companies Act defines four main types of corporate structures, each with distinct characteristics suited to different business needs.

Kabushiki Kaisha (KK): The KK structure is similar to a C-Corporation in the US or Public Limited Company in the UK, and is the most prestigious type of business entity in Japan with the highest credibility with Japanese clients and banks. It is used especially by larger or international businesses. This type of legal form is suitable for raising capital, it can issue shares and can be publicly listed. The shareholders’ liability is limited, the company shall have at least one director as well as a registered office in Japan. 

Godo Kaisha (GK): The GK structure is equivalent to a Limited Liability Company (LLC) and offers greater flexibility and simplicity as well as faster incorporation compared to KK. It has lower setup and maintenance costs and fewer disclosure requirements, is most suitable for small to medium operations, startups, and subsidiary operations. The structure consists of members who can also serve as directors. All members have limited liability. 

Less Common types of entities are Gomei Kaisha – general partnership where all partners have unlimited liability and Goshi Kaisha – limited partnership combining unlimited liability general partners and limited liability partners. These structures are rarely used by foreign businesses due to their unlimited liability components.

Start-ups can also test the market before full incorporation by establishing a Branch Office – not legally separate from the parent company but can conduct business operations and a Representative Office – cannot engage in revenue-generating activities and is limited to market research and networking.

Requirements for Establishing Company in Japan

To establish a business entity in Japan, you’ll need:

• A registered address – physical office location in Japan (virtual offices may be acceptable)
• Articles of Incorporation –  legal charter outlining company structure; this must be in Japanese
• Company Seal (Inkan) – required for official documents and transactions. This may be dispensable in some cases
• Representative Director – at least one representative director
• Initial Capital: No legal minimum, but ¥5 million is recommended for Business Manager visa applications

Incorporation steps

Appointment of basic company details: it includes: company name, business purpose (should be specific but can include multiple activities), head office address (physical office In Japan), capital amount (no minimum but ¥5M+ is required for business manager visa), members (at least one, can be a foreigner or foreign company), representative member (must reside in Japan or have a Japan-based representative for registration purposes).

Drafting of Articles of Incorporation: they shall be drafted in Japanese and contain basic rules and structure of the company. They shall include company name, address, purpose, capital, members, etc.

Deposit of the capital: each member deposits their capital into a personal bank account of the representative. Bank statement or transfer receipt is submitted later.

Company registration: it is filed at the Legal Affairs Bureau in the location of the head office. The application for registration is accompanied by Articles of Incorporation, member agreement (optional but often included), capital deposit certificate, members’ personal identification documents (passport, residence card, etc.), company seal (hanko) impression registration.

Obtaining company seal: It is mandatory for most filings and contracts. Can be made at local shops or online.

Receipt of the Certificate of Incorporation and company registry: it is issued by the Legal Affairs Bureau after written request in person, by post or online via the Legal Affairs Bureau System. The service is on the same day when requested in person or by post within 3-7 working days, online delivery is 1 business day.

Application for Tax & Social Insurance Registration: a registration to the tax office is required for payment of corporate, consumption tax (Japanese VAT), local business tax, social insurance contributions.

Application for a relevant business visa: Several visa pathways exist for foreign entrepreneurs:

• Business Manager Visa: Requires ¥5M+ capital, office lease, business plan, and management experience (1-5 years duration)
• Highly Skilled Professional Visa: Points-based system evaluating education, experience, and income (fast-track to permanent residency)
• Start-up Visa: Available in designated zones including Fukuoka City, Kobe City, Hokkaido, Ibaraki Prefecture, Kyoto Prefecture, Hamamatsu City with streamlined requirements for early-stage businesses. Startup Visa is a scheme that the Ministry of Economy, Trade, and Industry offers to support startups in Japan by foreign entrepreneurs. The approved entrepreneurs can obtain residency status for up to one year

Opening a corporate bank account: Opening a bank account in Japan can present challenges for foreign businesses, particularly without established local presence. Traditional Japanese banks typically require:

• Completed application form
• Residence card (zairyu card)
• Seal (Inkan) – some banks accept signatures from foreigners 
• Passport
• Proof of address (utility bill in your name)
• Business registration documents for corporate accounts

Challenges and Alternatives: Most traditional banks require long-term residence permits, some banks require 6+ months of residency in Japan before opening accounts. Opening a corporate account often requires in-person visits and Japanese language proficiency. Alternative financial services like Wise and Revolut can provide stopgap or even permanent solutions for holding and transacting in JPY.

Requirements to Open a Corporate Bank Account for a GK

• Completed Company Registration – Certificate of Company Registration and Company Seal Certificate
• Company Seal (Inkan) – must match the seal registered during incorporation (although it is becoming less and less necessary, it is still customary in Japan)
• Corporate Bank Account Application Form – provided by the bank (in Japanese)
• Personal ID of Representative – passport, residence card, proof of address (utility bill, etc.). If you are a Japanese local, you may also provide: driver’s licence, ID with a face photo
• PoA if you are a company representative, but not the company owner
• Business Plan / Overview – brief outline of your business activities. Some banks may request a formal business plan if you’re a new or foreign-run company
• Website or Promotional Materials (if any) – it helps establish credibility
• Office Lease Agreement – must match your registered business address
• Capital Proof – copy of the deposit record showing you funded the company’s capital. Often shown during incorporation, but banks may re-verify

Tax Considerations

The Japanese tax system involves multiple levels of taxation for businesses. The national Corporate tax ranges from 17% to 23.2% on annual net business income. Total Effective Tax Rate is between 22.46% and 36.81% (including local taxes, in Tokyo). For SME a reduced rate – special 17% rate for small and medium enterprises (instead of regular 19%) until 2027 is applied. Other tax considerations shall be taken into account – the consolidated taxation system was replaced with a group relief system (effective April 2022), thin capitalization rules limit interest deductions when borrowing exceeds three times capital from foreign shareholders and annual tax filings are mandatory even if no income is generated.

Cultural and Business Environment Considerations

Understanding Japan’s unique business culture is crucial for successful market entry. Traditional business culture in Japan is formal and hierarchical, emphasizing long-term relationships. Decision-making is consensus-based and methodical, often slower than Western processes. Relationships are built on trust and require consistent follow-through and patience. Among the most useful pieces of advice are: be specific in communication to avoid delays in bank or visa approvals, do not miss filing deadlines as Japanese business administration requires strict adherence to schedules, be prepared for costs for professional translation services and be aware that Japanese employment regulations are stringent.

Conclusion

Japan offers significant opportunities for European startups, particularly in technology sectors, though careful navigation of regulatory requirements is essential. The choice between KK and GK structures will depend on your business goals, with KKs offering greater prestige and GKs providing more flexibility. Proper planning for tax compliance, and cultural adaptation will contribute significantly to successful market entry. European startups entering Japan should consider leveraging support from organizations engaging local experts for incorporation assistance, and potentially utilizing the Startup Visa programme in designated zones to streamline initial market entry.

NBLO’s Expertise

NBLO has an exclusive partnership and strong relationships with local Japanese consultants and lawyers and we are dedicated to lead our clients through the process of understanding the Japanese market, establishment of business and empowering the investment potential to achieve goals. 

Please, do not hesitate to contact us for any questions at [email protected]