Representative office vs Branch office.
PE (Permanent Establishment) issue should be investigated with a tax specialist before setting up a Japan office.
The essential issue which type of vehicle (Rep office, Branch or Subsidiary)
would be appropriate for a Japan office of a foreign company is whether
the Japan office do sales activities or not.
If sales activities are required for the Japan office by Japanese customers, it is suggested to set up Branch office or Subsidiary rather than Representative office so that to avoid any PE risks.
| Representative office (Rep office) | Branch office | |
|---|---|---|
| 1. Representative office's activities | A foreign company can establish a presence in Japan as a Rep office. The purpose of the Rep office is limited to gathering information etc. - Advertising - Market research - Other preparatory and supplemental tasks. Rep office is NOT permitted to engage in sales activities. |
If a Japan office engage in sales activities, they would be recognised as a Branch office from the tax point of view and required to file corporation tax return on their Japan source income. |
| 2. Tax perspective |
Do NOT be recognised as a PE of a foreign company
In connection with a definition of PE (Permanent Establishment) of a foreign company, please refer Article 141 of Japanese corporation tax law for detail. <Refer =comment of P328/1126> (translation is prepared by sozeishiryokan.or.jp) If a Rep office recognised as "Agent PE" of a foreign company, the Rep office would be a Branch under the Japan tax perspective and has to file corporation tax return on their Japan source income of the foreign company. Sales activities (including negotiation with customers, visit with price list and etc.) by a Rep office may cause any PE risk. |
Branch has to file corporation tax return on their Japan source income. |
Capita per levy on corporation inhabitant tax for Branch
Branch office has to pay per capita levy on local corporation inhabitant
tax even though their taxable income is less than Nil. Per capita levy
on local corporation inhabitant tax is mandatory for doing a business in
Japan.
Whereas Rep office is not required to pay per capita levy on local corporation inhabitant tax.
Capita per levy on corporation inhabitant tax for Branch.
Branch office has to pay per capita levy on local corporation inhabitant
tax even though their taxable income is less than Nil. Per capita levy
on local corporation inhabitant tax is mandatory for doing a business in
Japan.
Whereas Rep office is not required to pay per capita levy on local corporation
inhabitant tax.
| Category of corporation | Main office is located within the 23 wards | Other than left area | ||
|---|---|---|---|---|
| Capital Amount | Number of staff | Metropolitan tax | Metropolitan | City |
| Over JPY 5,000,000,000 | Over 50 | JPY 3,800,000 | JPY 800,000 | JPY 3,000,000 |
| 50 and below | JPY 1,210,000 | JPY 410,000 | ||
| Over JPY 1,000,000,000 or under JPY 5,000,000,000 |
Over 50 | JPY 2,290,000 | JPY 540,000 | JPY 1,750,000 |
| 50 and below | JPY 950,000 | JPY 410,000 | ||
| Over JPY 100,000,000 or under JPY 1,000,000,000 |
Over 50 | JPY 530,000 | JPY 130,000 | JPY 400,000 |
| 50 and below | JPY 290,000 | JPY 160,000 | ||
| Over JPY 10,000,000 or under JPY 100,000,000 |
Over 50 | JPY 200,000 | JPY 50,000 | JPY 150,000 |
| 50 and below | JPY 180,000 | JPY 130,000 | ||
| On and under JPY 10,000,000 | Over 50 | JPY 140,000 | JPY 20,000 | JPY 120,000 |
| 50 and below | JPY 70,000 | JPY 50,000 | ||
| Other than above | JPY 70,000 | JPY 20,000 | JPY 50,000 | |
