Starting operations in Japan

When establishing a physical presence in Japan as a foreign company looking to start up local operations, there are multiple factors to consider, such as the type of entity you want to establish (a representative office, a branch or a local corporation), the filing of various reports with local tax offices, enrolment of your local staff in the social insurance and labour insurance systems, and the commercial structure of your business in Japan (for example, whether you will directly contract with customers, use local distributors, use third-party customs brokers for product imports, etc.).

However, at the initial stage of setting up operations, it may not be economical to hire personnel who are knowledgeable in these areas. To assist with these challenges, the PwC Japan Group provides one-stop services to foreign corporations wishing to do business in Japan. These services are provided through the various independent entities that make up the PwC Japan Group and include outsourcing services (accounting, payroll and cash management services) provided by PwC Outsourcing Services LLC, labour and social insurance services provided by PwC Labor and Social Security Attorney Corporation, legal services provided by the general corporate practice of PwC Legal Japan, tax and transfer pricing services provided by PwC Tax Japan, and customs services provided by the Japan branch of PricewaterhouseCoopers WMS Pte. Ltd.

The PwC Japan Group also participates in PwC’s global Pathfinder programme, working closely with the PwC global network and overseas Pathfinder groups.

Advice for entity establishment

By speaking with you to understand your objectives in establishing a presence in the Japanese market, we can advise on the impact of the different types of legal entity that can be established and can provide recommendations on what type of entity would best fit your purpose. If you decide to set up a branch or corporation, we can also help with the necessary legal procedures by the general corporate practice of PwC Legal Japan.

The following are some of the considerations to keep in mind when deciding what kind of entity to establish:

Representative office

Not subject to legal registration or tax in Japan
Limited in the activities it can perform (purchase and/or storage of property or other activities of a preparatory or auxiliary nature, including market research, advertising and information gathering, and other non-income generating activities)
Can only open a non-resident bank account in Japan

Branch

Requires at least one Japan-resident individual to act as branch representative
Must be formally registered within three weeks of appointing the above representative
Public gazetting of balance sheet required if the parent company is equivalent to a kabushiki kaisha (KK) (see details below)
Possible commercial impact of establishing a branch as opposed to a KK

Corporation: Joint stock company or kabushiki kaisha (KK)

The most common form of corporation in Japan; few commercial considerations
All directors can be non-resident
Annual shareholders’ meeting required
Public gazetting of balance sheet required
May be subject to statutory audit
Registration tax on 50% of initial paid-in capital and 50% of all future capital contributions
Dividend withholding tax on profit repatriation to shareholders

Corporation: Limited liability company or godo kaisha (GK)

All managers and staff can be non-resident
Can be treated as a pass-through entity for US tax purposes
Dividend withholding tax on profit repatriation to members
Possible commercial impact of establishing a GK as opposed to a KK

Corporate secretarial services

Once you have determined the type of entity you want to establish, we can prepare any and all registration documents required to establish a branch, KK or GK, in addition to board of directors’ meeting minutes and/or shareholders’ meeting minutes for each term, registration documents related to the appointment or resignation of officers, and other relevant documents related to your Japanese entity’s corporate and legal operation by the general corporate practice of PwC Legal Japan.

Submission of tax reports to tax offices

Following registration, we can prepare the initial tax and other business reports that you will need to submit to the Japanese government, as well as discuss with you the filing of certain optional reports and applications that may benefit your business. These include:

Notice of commencement of business
Application for blue form tax filing status
Application for extension of filing corporate income tax return
Election to be treated as a consumption taxpayer (if optional)
Application for a qualified invoice issuer number
Application for extension of filing consumption tax return

We can also advise you regarding the requirements of Japanese consumption tax legislation and, even if your Japan entity is not required to register as a consumption taxpayer, we can advise you as to whether such registration is still recommended in light of your business operations and the Japanese qualified invoicing system to be introduced from October 2023.

Labour and social insurance procedures

Newly established companies are required to enrol in the social insurance system, including health insurance, long-term care insurance and welfare pension insurance, and the labour insurance system, including employment insurance and industrial accident compensation insurance. We can assist with initial enrolment, as well as with the ongoing procedures for individual employees (and their dependents) when they are hired or leave the company, and the filing of the required annual reports for both insurance systems.

If your company has ten or more employees, you will also be required to prepare official rules of employment and file them with the appropriate administrative office. Labour management issues related to working hours, mental health, sexual harassment, abuse of power, resignation and discharge and non-competition are becoming increasingly prominent. To help you prevent such labour-related issues from arising, we can prepare work regulations and other various rules and employment agreements that both address these issues and reflect your corporate philosophy.

We also provide consulting services on various issues related to the labour and social insurance systems.

Payroll

We can provide a full range of payroll services, including calculation of gross salary, withholding tax, social insurance, labour insurance and other withholding amounts for each employee based on your company’s salary structure, from which we calculate the net salary for each employee and prepare a salary breakdown. Upon request, we can also handle the payment of salary and bonuses to each employee’s bank account, and handle the payment of withholding tax and inhabitants tax on your behalf. When an employee resigns, we can also handle the collection of withholding tax from the employee’s retirement allowance.

Our services also cover the required annual withholding tax adjustment procedures, including preparation of a salary and withholding tax statement, and preparation and submission of a salary payment report for inhabitants tax purposes. In addition, if required for your internal purposes, we can also prepare a breakdown of the total salary, compensation and any other benefits paid out to each employee during the fiscal year.

Preparation of books and accounting records

We provide a full range of accounting and cash management services, including:

Bookkeeping services based on invoices and receipts
Cash management and bank reconciliation services
Preparation of a monthly trial balance, balance sheet and income statement
Preparation of a general ledger and sub-ledger based on your chart of accounts
Confirmation that the accounting records we prepare are Japanese tax compliant
Preparation of the annual financial statements to be attached to your final corporate tax return
Preparation of reporting packages for your group accounting purposes

Tax compliance services

Our tax compliance support can be catered to your company’s particular circumstances. We routinely provide corporate income tax and consumption tax return preparation, as well as support for tax audits and other forms of interaction with the tax authorities, such as advance pricing agreements. However we can also provide a broader range of managed tax services that cover not only tax reporting services, but also strategic and planning functions and forecasting.

For companies in the financial services industry, we can also provide support from dedicated teams with a wealth of experience in specific tax compliance issues facing the investment management (including real estate), banking and insurance industries.

You will need to file the following annual corporate and consumption tax returns, most of which are due within two months of the fiscal year end:

National and local corporate income tax returns
Enterprise tax return
Inhabitants tax return
Fixed assets return (if applicable)
Business premises return (if applicable)
Consumption tax return

Note that certain interim filings may also be required.

Further details on Japanese tax requirements can also be found on PwC’s Worldwide Tax Summaries page: https://taxsummaries.pwc.com/japan

The latest tax developments can be found here:
https://www.pwc.com/jp/en/knowledge/news/tax-jtu.html

Transfer pricing consulting and compliance

Our dedicated transfer pricing team can provide ongoing support for transfer pricing compliance, including the filing of country-by-country reports and master files for taxpayers falling within the scope of those rules, as well as the preparation of local files. Our transfer pricing team also has experience helping taxpayers identify the most appropriate transfer pricing policy for any new Japan entity, the most common of which are described below.

Service fee approach

Generally calculated on a cost-plus-markup approach
Commonly used when the activities of the Japan entity are services provided to a foreign affiliate (may not be appropriate for all services)

Buy-sell approach

Generally calculated using a return-on-sales percentage
Commonly used when the activities of the Japan entity primarily involve the buying and reselling of products

We also provide support for transfer pricing audits, and for taxpayers wishing to enter into an advance pricing agreement with the Japanese tax authorities.

The latest transfer pricing developments can be found here:
https://www.pwc.com/jp/en/knowledge/news/tax-transfer-pricing.html

Trade and customs support

If your business involves the import of physical goods, our customs team can support proactive engagement with the customs office to ensure your supply chain operates as smoothly as possible. Your responsibilities when importing goods will differ depending on whether you establish a branch or a corporation. Branches are considered non-resident importers in Japan and therefore require the appointment and registration of a local Customs Affairs Representative, for which we can provide support.

In addition to determining the registration requirements, the following areas are frequently of concern to new importers into the Japan market:

Determining the correct local harmonized tariff schedule classifications
Customs valuation (including declaration of transfer pricing adjustments)
Properly claiming free trade agreement benefits
Product-specific import restrictions on foods, (alcoholic) beverages, sugar, pharmaceuticals, consumer electronic products and other products that require special approvals to import

In addition to the above key areas for new entrants to the Japan market, we also provide support with customs audits and a wide array of other topics related to global trade.