Establishing a Representative Office in Japan. →Fee for start

This page explains the legal status of representative offices in Japan, the differences between them and branches or subsidiaries (Kabushiki Kaisha = KK = joint stock companies and Godo Kaisha = GK = limited liability companies), and how to establish a representative office in Japan.

★Table of contents

１．What is a representative office?
２．Main purpose of establishing a representative office
３．Things you can and cannot do at a representative office
４．Representative office vs. branch office
５．Representative office vs. subsidiary (KK = a joint stock company or GK = a limited liability company)）
６．Should you choose a representative office or another business structure?
７．Advantages and disadvantages of establishing a representative office

８．How to establish a representative office in Japan
９．Social insurance and labour insurance enrollment for representative offices
10．Frequently Asked Questions (FAQ)
　Q１　How long does it take to establish a representative office?
　Q２　How much does it cost to set up a representative office?
　Q３　Is registration required for a representative office?
　Q４　Can a representative office open a bank account?
　Q５　Do representative offices need to file tax returns?
　Q６　Is it necessary to keep accounting records at a representative office?
　Q７　Can we enroll in social insurance through the representative office?？

１１．Support services for representative offices provided by our firm　

１．What is a representative office?

A representative office is a type of office used when an employee dispatched from the home country sets up an office in the host country to gather information and conduct public relations activities, and it is understood that no business activities are conducted there.

One tax restriction is that the foreign corporation does not qualify as having a permanent establishment (PE).
Regarding foreign corporations with a permanent establishment (PE):
Japanese corporate tax law defines a foreign corporation with PE as follows:
(1) A foreign corporation that has a branch, factory, or other fixed place of business in Japan (a foreign corporation with a branch, etc.)
(2) A foreign corporation that provides construction, installation, assembly, or other work, or the supervision of such work, in Japan for more than one year (a foreign corporation that performs construction work, etc., for a certain period or longer)
(3) A foreign corporation that has a person equivalent to itself in Japan (a foreign corporation that has an agent, etc.)
This is the main definition.

If you establish a permanent establishment (PE), your domestic source income in Japan will be subject to tax. As a PE, you will also be required to file and pay corporate tax returns as a Japanese branch of your parent company to the Japanese tax authority.

２．Main purpose of establishing a representative office

A representative office is used when an employee (staff member) dispatched from their home country sets up an office in the host country to gather information and conduct public relations activities. It is assumed that no business activities will be conducted there.

Although there are no customers in Japan yet, this location will serve as a business base for conducting feasibility studies to determine whether future expansion is possible.

If business expansion seems promising, you will establish a subsidiary or other entity capable of conducting sales activities and begin full-scale sales operations. If you determine that business expansion is not feasible, you will choose to withdraw at that point.

３．Things you can and cannot do at a representative office

A representative office is a physical office where you can hire employees and use it as a base for gathering information, conducting market research, and carrying out public relations activities.

One thing a representative office is not allowed to do is engage in sales activities. Visiting clients or potential clients for sales purposes, negotiating prices or contracts, and signing contracts are all considered sales activities and are prohibited for a representative office. If such activities begin, the office will be reorganised into a branch or subsidiary to continue these activities.

４．Representative office vs. branch office

When a Japanese office of a foreign corporation conducts business activities, it becomes a branch office (which retains the status of a company established under foreign law) and is required to register with the Legal Affairs Bureau and file and pay corporate taxes.

５．Representative office vs. subsidiary (KK = a joint stock company or GK = a limited liability company)

When a representative office conducts business activities in Japan, it can establish a subsidiary (KK = a stock company or GK = limited liability company) under Japanese company law to separate its responsibilities from the parent company to a certain extent, and begin business activities there.

Furthermore, if you already have agents or other entities in Japan and wish to have your Japanese subsidiary directly handle your business in the Japanese domestic market going forward, you can choose to establish a subsidiary (a stock company or limited liability company) and transfer your sales activities to it.

※Here's the difference between a subsidiary, a branch office, and a representative office.

６．Should you choose a representative office or another business structure?

When a foreign corporation starts business in Japan, it must determine whether it should be a "subsidiary", a "branch", or a "epresentative office". With the exception of special legal regulations, such as those governing banks and insurance companies, the type of company you should choose will depend on how the foreign corporation conducts its business.。

The chart on the page "Company Structures When Foreign Companies Start Business in Japan" is just one example of how to decide on your options, but please try it out.

７．Advantages and disadvantages of establishing a representative office

One advantage of a representative office is that it can be easily established or closed, as it does not need to be registered with the Legal Affairs Bureau.

The disadvantages include being unable to conduct business activities, the inconvenience of not being able to have a bank account in Japan, and being unable to be a party to real estate lease agreements, such as for office space.

８．How to establish a representative office in Japan

To establish a representative office in Japan, you need to designate a representative for the office, decide on an office address, and publicly identify it as a representative office. In other words, by creating business cards that list the office address and state "〇〇 Company Japan Representative Office," you can publicly announce the establishment of a representative office on your company's website and in press releases.

Representative offices do not need to be registered with the Legal Affairs Bureau. More accurately, they cannot be registered.
Therefore, there is no way to officially prove the existence of a representative office in Japan.

However, once you hire an employee and begin paying their salary, you must submit a "Notification of Establishment of a Payroll Office, etc.'' to the tax office. Shortly after submitting this notification, the National Tax Agency's Corporate Number Management Office will issue you a National Tax Agency Corporate Number based on the information you provided in the "Notification of Establishment of Payroll Office, etc." and
The number will be published on the National Tax Agency Corporate Number Publication Site. It can be said that being published on this site is the only way to prove your existence to public institutions. There is also an English-language site, so you can use it to appeal to the whole world.

Various application forms for representative offices

（１）Tax office
①Notification of establishment of a payroll office
When you hire staff and begin paying salaries, you must submit "Notification of Establishment of Salary Payment Office, etc." to the tax office with jurisdiction over the representative office.
②Notification of commencement of electronic filing and tax payment (e-Tax usage commencement notification)
An e-Tax environment is suggested for filing and paying the withholding income tax deducted from staff salaries.
③Registration of the English version on the National Tax Agency's Corporate Number Publication Site　←　It is optional

９．Social insurance and labour insurance enrollment for a representative office

For companies with up to five employees, participation is optional. If desired, when you hire a second or subsequent employee, you can consider the first employee (i.e., the representative of the representative office) as a deemed business owner and voluntarily enrol them. If you choose not to enrol in social insurance as a representative office, you can enrol in the National Pension and National Health Insurance, or cover the costs by voluntarily continuing the social insurance from your previous company.

（For companies with two or more employees）
Even a representative office of a foreign corporation that is not legally registered can join social insurance by designating its representative as the deemed business owner. However, even in this case, the representative cannot join.

②Enrollment in labour insurance
Representative offices are also required to enrol in labour insurance (employment insurance and workers' compensation insurance).
Even a representative office of a foreign corporation that is not legally registered as a corporation must enrol in labour insurance (employment insurance and workers' compensation insurance) if it employs workers. Enrollment is mandatory for all employees from the second onward. The first employee (i.e., the representative of the representative office) cannot enrol in labour insurance (i.e., workers' compensation insurance + employment insurance).

（If there is only one employee representative）
※According to the Labour Standards Inspection Office, if there is a prospect that the company representative "qualifies as an employee," then "workers' compensation insurance should be established, and the representative's work-related accidents and commuting accidents should be covered" (by a partner social insurance and labour consultant)

However, there is a non-zero concern that, when an actual work-related accident or commuting accident occurs, the opinion of the person in charge at the Labour Standards Inspection Office making the determination regarding the accident may differ from the initial determination by the Labour Standards Inspection Office that recognised the person as an employee and approved the registration. For example, this could occur if there is a discrepancy between the initial registration status and the current situation, resulting in the person not being considered an employee.

Upon enrollment, the social insurance and labour consultant handling the notification will interview the representative to confirm whether they are an employee, and the notification will be submitted only after the overseas parent company has understood and agreed to the above concerns.
Please note that the representative is not eligible for employment insurance.

（If there are two or more employee）
※If the company representative is considered an employee, they can join the national workers' compensation insurance (Ministry of Health, Labour and Welfare) along with the second and subsequent employees. The second and subsequent employees are covered by workers' compensation insurance (workers' accidental insurance + employment insurance). The company representative, however, cannot join the employment insurance program.

※If the representative does not have "employee status," they cannot join the national workers' accident insurance (Ministry of Health, Labour and Welfare). However, if certain requirements are met, the representative may be able to join a workers' compensation insurance administrative association as a special case. Whether this is applicable will be determined through an interview conducted by a certified social insurance and labour consultant.
Furthermore, the concern regarding whether the representative has employee status at the time of an actual work-related accident is the same as that for the national workers' compensation insurance mentioned above.

Here too, the representative cannot join employment insurance.

10．Frequently Asked Questions (FAQ)

Q１　How long does it take to establish a representative office?
A１　Once the representative and office address are decided, you can set it up immediately. Please contact us for specific procedures.

Q２　How much does it cost to set up a representative office?
A２　No setup fees are incurred until you begin paying salaries. Please contact us when you start paying employee salaries.

Q３　Is registration required for a representative office?
A３　Registration with the Legal Affairs Bureau is not required, and in fact, it cannot be registered at all.

Sending money directly from the home country is impractical due to high international transfer fees. Furthermore, managing funds through the personal account of the representative of the representative office is not recommended from an internal control perspective.

Q５　Do representative offices need to file tax returns?？
A５　Corporate tax returns are not required for corporations. However, withholding tax on salaries, statutory reports, and salary payment reports for calculating employee resident tax are required. Furthermore, if you own business assets, you will need to file a tax return for depreciable assets.

In rare cases, some offices file consumption tax returns to receive a refund (e.g., large-scale exhibitions or national tourism boards).

A６　It is not necessary.

A７　Depending on the number of employees, this may be possible. Our partner social insurance specialist (who speaks English) will assist with the enrollment procedures for labour insurance and social insurance for your representative office.

１１．Support services for representative offices provided by our firm

In many cases, expense reimbursement is handled by the head office accounting department (overseas). However, payroll calculations, which involve deductions for Japanese income tax, social insurance, and employment insurance, cannot be handled outside of Japan.

If you're using a foreign company's benefit plan as is, the calculations can become complicated. Furthermore, tax calculations become particularly complex for expatriate employees. We recommend outsourcing these areas.

Fund management and payment operations for the representative office

We provide payroll and payment processing services for representative offices.！

Payroll calculation is a job that involves taxes and is quite troublesome and time-consuming, including tasks like paying monthly withholding income tax and the special collection of resident tax.