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Some Basic differences between Opening a Branch and

Establishing a Domestic Corporation in Japan

In terms of the range of business activities allowed, there are no basic differences between branch office and domestic corporation. But regardless of the firm being foreign or not, some companies, depending on the category of business, are required to secure authorization of the supervisory ministries at the time of founding.

 

A Branch office is not regarded as an independent legal entity, but as acting on the basis of decisions and instructions from the parent company (head office) to provide services and carry out business activities, including purchasing, importing, and sales etc. In transactions with other businesses, the branch office concludes contracts as the representative of its parent company (head office).

 

Some major differences between a branch office and

A domestic Japanese corporation

 

Either a branch office or a domestic corporation may enter into business activities by its own name as a legal business entity. Tax rates are also fundamentally the same for a branch office or a domestic corporation. However, the differences are in the following areas:

 

1) A new management body need not be set up for a branch office and there is no detailed statutory requirement for the management of a branch office. While a domestic corporation must have statutory officers or a management body such as directors, auditors, board of directors meetings and shareholders meetings, a branch does not require to do so but only needs a Representative in Japan.

 

2) Dividends paid by a domestic corporation to a foreign shareholder are subject to withholding tax, while remittance of branch profits after tax to its head office is not subject to withholding tax.

 

3) Expenses incurred by the head office for its branch may be allocated to its branch if it is spent for branch purpose.

 

4) Interest or royalty paid by the head office for activities of its branch, may be deducted by its branch although such interest or royalty is subject to withholding tax.

5) Local “Resident in Japan": Branch must have a "local resident in Japan" out of the max. two "Representative in Japan" that is allowed for registration. However, in case of a local “subsidiary co." as mentioned below under new law effective Mar'15 it is no more mandatory to have “a local “resident” director” in case of K.K. co. & “Member / Executive Officer” in case of G.K. co. But in case of a G.K. co. the investor must be an overseas corporation!

Time-frame for registration: For procedure please refer to registration flowchart of Branch Office and K.K. Co. & G.K. Co. Upon applying at Legal Affairs Bureau for registration it takes about 2(two) weeks to obtain the registration certificate.

Note: re exception allowed for “subsidiary co.” since the change of regulation effective Mar'15.

Japanese govt. has allowed foreign co. to register a local subsidiary co. in Japan without a local “Resident in Japan”. [In case of G.K. Co. the overseas investor must be a corporation]But in both cases it would require a temporarily a local Resident in Japan” for the purpose of completing the procedure of paid-up capital for K.K. Co. & equity for G.K. Co. In case of a K.K. Co. a “local resident shareholder” & in case of a G.K. Co. a “local resident member (equity holder)”.

For further information please contact us by mail.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Disclaimer: This information is for illustration purpose, no warranty is given that it is free from error or omission, and Sarkar Office® cannot be held liable for any decision made based on this information only!