1.Foreign company entering the Japanese market
We often receive inquiries from foreign company representatives as followings;
“I want to start a business in Japan. Please instruct me detailed information how to set up a company in Japan.”
There are three ways for a foreign company to establish a presence in Japan: (1) Subsidiary company (joint-stock company or limited liability company), (2) Branch office, or (3) Representative office.
We recommend foreign company representative to establish a joint-stock company mainly because it is said to be the most reliable from bank.
The process of establishing a joint-stock corporation and starting a business can be generally divided into three steps as followings; (1) legal procedures before incorporation, (2) various procedures after incorporation and before starting business, and (3) various procedures after starting a business. And I explain procedure which different licensed professionals handle each step.
(1) Before incorporating a joint-stock company
Preparation for registration, certification of articles of incorporation (AOI), transfer and receipt of capital, application of registration, reporting acquisition of stock in accordance with the Foreign Exchange and Foreign Trade Act, and opening bank accounts which are handled mainly by lawyer or judicial scrivener.
(2) After incorporation and before starting a business
Various working visas and business permissions are handled mainly by administrative scrivener.
Initial registration to tax authorities, such as notification of establishment of corporation, blue approval application notification, salary payment office opening notification, which are handled by certified tax accountant.
(3) Procedures after starting a business
Preparation and provision of accounting books which is a requirement for blue tax filing, payroll calculation (including withholding income tax and social security insurance), year-end adjustment of salary income tax, and tax return filing, which are handled by certified tax accountant.
2. Capital of Japan Subsidiary
Depending on the amount of capital, a corporation is classified as either a small or medium-sized corporation, etc., or a non-small or medium-sized corporation, etc., under corporate income tax act, and the method of tax calculation and preferential treatment differ.
Specifically, due to corporate tax act, a corporation with capital of 100 million yen or less is classified as a small or medium-sized corporation, etc. and is entitled to various preferential corporate tax treatment, while a corporation with capital exceeding 100 million yen is classified as a non-small or medium-sized corporation, etc. and is not entitled to any preferential treatment. Due to consumption tax act, a newly established corporation with capital of 10 million yen or more is a taxable business operator and is obliged to file a consumption tax return (or able to file consumption tax refund).
3. Cashflow of Japan Subsidiary
Capital amount is important in terms of managing Japanese subsidiary operation.
It is also important to set the capital at an appropriate level commensurate with the business activities.
When starting a business with a small operation, the role of the Japanese subsidiary will often be pre and post sales support services for Japanese domestic customers implemented by foreign parent company.
In this case, it may be often the scheme that Japan subsidiary invoice foreign parent company an amount equal to a certain percentage of its selling, general and administrative expenses, etc. (cost-plus method).
Since this invoicing to foreign parent company (which become cash inflow) is a foreign-related transaction and subject to transfer pricing , it is crucial to determine a reasonable method of calculating the amount to be invoiced and keep it as a document before starting business.
Furthermore, as its invoicing to foreign parent company is an export tax-exempt sales, it is often the case that Japan subsidiary can file consumption tax refund return (which become cash inflow) in case that Japan subsidiary is a consumption tax business operator.
It is also crucial to plan prior to the start of business to be a consumption tax business operator and to submit the prescribed notification to the tax authorities by the due date.
Cashflow forecast is crucial to operate Japan subsidiary, and it goes without saying that knowledge of tax laws such as corporate income tax act and consumption tax act will improve the accuracy of projections in order to accurately determine future inflow and outflow amounts.
NAKAJIMA TAX & ACCOUNTING OFFICE has a lot of experience in providing one-stop accounting, taxes, payroll, outsourcing service for foreign company including cashflow forecast service and also reports to Head Quarter in English.
It may be often the case that operating a Japanese subsidiary starts with minimum number of staff.
With one-stop outsourcing service NAKAJIMA TAX & ACCOUNTING OFFICE provides, business operator can focus on core business, by realizing to build a safe and secure back-office.
I believe that It can be more cost effective than hiring bilingual accounting personnel.