When a foreign corporation conducts business (sales activities) in Japan, it must register either a "subsidiary" or a "branch office."
A "representative office" cannot conduct sales activities.
The appropriate form, subsidiary or branch, depends on the actual business practices of each company. However, a subsidiary is generally easier to manage.
In practice, conducting business in the branch format is limited to industries that require legally mandated licenses and permits, such as banks, or to businesses where the branch format is tax-advantaged under tax treaties (for example, an Indian corporation conducting software development for Japanese clients).
This article explains the entire process, from the procedure for establishing a subsidiary to opening a bank account to start the business, by tax accountant Takashi Yamajo, who has 100% foreign clients.
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1. What is a Subsidiary?
(1) A subsidiary is a company established under Japanese law.
A subsidiary is a company established under Japanese company law.
(2) Types of Companies
There are four types: stock company (Kabushiki Kaisha), limited liability company (Godo Kaisha), general partnership (Gomei Kaisha), and limited partnership (Goshi Kaisha). In the case of foreign-owned corporations, most are established as stock companies or limited liability companies.
① Stock Company (KK: Kabushiki Kaisha)
It's easiest to explain this to the parent company as a Joint Stock Company. Except when the parent company is a US company, this form is common and recommended.
(Some professionals—especially judicial scriveners—recommend limited liability companies from the perspective of saving on registration tax at the time of establishment, but due to the flexibility in operation, it is not recommended for foreign-owned Japanese subsidiaries.)
② Limited Liability Company (GK: Godo Kaisha) - Also called the Japanese version of LLC
It's easiest to explain this to the parent company as a Japanese LLC.
The Limited Liability Company (LLC), a new corporate structure established by the Companies Act of 2006, is also known as the Japanese version of an LLC. It offers advantages such as "limited liability," "rapid decision-making (due to its simple organisational structure)," and "freedom to set the distribution of profits and authority (i.e., the principle of internal autonomy)," making it a convenient business structure for small businesses.
On the other hand, disadvantages include the tendency to be perceived as less trustworthy than a stock company and the lack of shareholder meetings and financial statement approval procedures, which can lead to a somewhat lax internal process.
(3) When the Parent Company is a US Company
① Many US subsidiaries in Japan are in the Limited Liability Company structure.
When the parent company is a US company, it is necessary to confirm with the parent company, from a US tax law perspective, whether the Limited Liability Company structure is required. Both Seiyu, the Japanese subsidiary of Walmart, and Kellogg's Japan, the Japanese subsidiary of Kellogg's, are structured as limited liability companies.
② Reasons why a Limited Liability Company is chosen due to the parent company's circumstances.
One reason why a US company chooses a Limited Liability Company for its Japanese subsidiary is the tax advantages in the United States. US tax law includes a check-the-box rule that, if the requirements are met, allows pass-through taxation of Japanese subsidiary income (in which the income is not taxed on the company itself but on the income of its members). (Note: Japanese limited liability companies are still subject to regular corporate tax. This does not mean that taxation in Japan is eliminated.)
Since limited liability companies are not explicitly exempt from pass-through taxation under the US tax system, the US parent company benefits from this treatment.
The effect is that initial losses can be offset against the profits of US shareholders, similar to a branch office. While registering a branch office would result in a flat-rate tax based on the head office's capital, making it less advantageous, pass-through taxation avoids this, allowing the US company to enjoy the benefits.
This is an important consideration when expanding overseas.
2. Procedures for Establishing a Stock Company
(1) Preparations
• The shareholders (parent company) must decide on the basic matters. This includes company name, officers, business purpose, company address, paid-in capital/authorised capital, accounting period (fiscal year), etc.
* The similarity comparison investigation and drafting of the articles of incorporation are handled by a judicial scrivener.
* Necessary seals, such as the company seal and the representative director's seal, are ordered.
(2) Company Registration
The entire process from "Founders' Meeting → Articles of Incorporation Certification → ... → ..." is entrusted to a judicial scrivener, a specialist in this field.
Previously, the procedure involved having a bank prepare a capital payment certificate, which was then used as proof for company establishment. However, nowadays, no bank will accept this procedure due to its complexity. Therefore, bank passbooks are used as proof, but the actual work is handled entirely by the judicial scrivener in charge.
Previously, directors (=officers) of Japanese companies had to be individuals residing in Japan (nationality was not a factor).
However, the Ministry of Justice's "Notification No. 29 of March 16, 2015" abolished the previous requirement that at least one representative director of a domestic company must reside in Japan. Now, applications for registration of the establishment of a domestic company where all representative directors do not reside in Japan, and for the reappointment or appointment of such representative directors, are accepted. Therefore, it is now possible to have a Japanese subsidiary composed solely of officers from its foreign parent company.
However, this has both advantages and disadvantages. Please refer to the explanation below.
3. Required Notifications After Company Establishment
(1) Notification to the Bank of Japan
Notifications under the Foreign Exchange Control Act must be submitted to the relevant minister via the Bank of Japan by the 15th of the month following establishment.
Report Forms and Instructions (Applicable from 2014): Bank of Japan
(2) Notifications to Tax Offices
* Establishment notification to the relevant tax office, prefectural tax office, or municipal tax department.
* **[Procedure Name]** Notification of Establishment, Relocation, or Closure of Salary Payment Office, etc. | Withholding Income Tax | National Tax Agency
* **[Procedure Name]** Application for Approval of Blue Return Filing | Corporate Tax | National Tax Agency
* **[Procedure Name]** Application for Special Provisions for Extension of Filing Deadline | Corporate Tax | National Tax Agency
* **Other Necessary Notification Forms - Required documents vary by company. Please consult a tax professional (tax accountant).
(3) Social Insurance Enrollment
When you hire employees, you must enrol them in social insurance and labour insurance. It is recommended to entrust the procedure to a social insurance and labour consultant.
* **Information on Enrollment in the Social Insurance System | Japan Pension Service**
↑ Pamphlets are available in six languages: Japanese, English, Chinese, Korean, Spanish, and Portuguese.
(4) Is Labour Insurance (Workers' Compensation Insurance and Employment Insurance) Covered?
1) When there is only one employee
While hiring an employee obligates enrollment in labour insurance (workers' compensation insurance and employment insurance), a corporation with only one employee (the representative director) cannot enrol in labour insurance. The procedure becomes possible once the number of employees reaches two or more.
2) When there are two or more employees
If there are two or more employees, enrollment in labour insurance (workers' compensation insurance and employment insurance) is required. For labour insurance procedures handled by government-managed labour bureaus, directors cannot enrol. However, if the labour insurance administrative association is managed by a social insurance labour consultant organisation, directors can enrol in certain labour insurance programs through a special enrollment system.
www.mhlw.go.jp
Note that directors cannot enrol in employment insurance at all.
4. Opening a Bank Account
The most difficult part of the subsidiary establishment procedure is opening a bank account.
Due to stricter government regulations aimed at preventing money laundering, banks are no longer opening accounts as easily. For example, after establishing a company, you might need to submit a company registration certificate and apply for an account → undergo internal banking (head office or branch) review → have an interview explaining your business plans a week later → undergo another internal banking review → and finally, after another week, the account is opened. You should be prepared for this process to take over two weeks.
Opening a corporate bank account has become increasingly stringent due to money-laundering regulations and efforts to prevent illicit activities. The process depends on the actual business operations (i.e., whether a physical office exists, whether business has started, the number of employees, etc.). We provide advice on how to proceed with opening accounts with various banks after the company's establishment. Please refer to our website for more details. As of April 2026, opening a bank account takes approximately two weeks to one month.
However, if you have a solid business plan and can conduct legitimate business, there should be no problem.
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