Japan Branch versus Subsidiary Company

Japan Branch Office versus (vs) Subsidiary Company Registration, Incorporation, Formation. Difference between Setting-up and Opening of a branch office and Subsidiary Company (Kabushiki-Kaisha [KK] or Godo-Kaisha [GK]) of a foreign company in Japan.

Some Basic differences between Opening a Branch Office and a Subsidiary Company of a foreign corporation in Japan

There are no fundamental differences between branch offices and domestic corporations regarding the range of business activities allowed. But regardless of whether the firm is foreign or not, some companies, depending on the business category, are required to secure authorization from the supervisory ministries at the time of founding.

A branch office of a foreign company handles commercial transactions in Japan as per the parent company's decision/instruction and is usually not expected to make independent decisions.

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

Difference between Branch Office and Subsidiary Company in Japan

Some major differences between Opening a Branch Office and a Subsidiary Company (Kabushiki-Kaisha [KK] or Godo-Kaisha [GK])of a foreign corporation in Japan.

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

• A new management body need not be set up for a branch office, and there is no detailed statutory requirement for its management. While a domestic corporation must have statutory officers or a management body such as directors, auditors, the board of directors' meetings, and shareholders' meetings, a branch does not need to do so; it only requires a representative in Japan.
• Dividends a domestic corporation pays to a foreign shareholder are subject to withholding tax. In contrast, remittance of branch profits after tax to its head office is not subject to withholding tax.
• The head office may allocate some expenses to its branch if they are spent for branch purposes.
• Interest or royalty paid by the head office for activities of its branch may be deducted by its unit, although such interest or royalty is subject to withholding tax.
• "Resident of Japan": The branch must have a "Resident of Japan" out of the maximum of two "Representatives in Japan" allowed for registration. However, in the case of a local "Subsidiary Company," as mentioned below, under new law effective March 2015, it is no longer mandatory to have "A Resident Shareholder/Director" in the case of K.K. Co. and "Member / Executive Officer" in the case of G.K. co.

The time frame for registration: For the procedure, please refer to the registration flowchart of the Branch Office and Kabushiki-Kaisha [KK] Co. & Godo-Kaisha [GK] Co. Upon applying to Legal Affairs Bureau for registration, it takes about 2(two) weeks to obtain the registration certificate.

Note: The exception is allowed that "No Resident of Japan" is a mandatory requirement for registration of a "Subsidiary Company" since the change of regulation effective March 2015.

The Japanese government has allowed foreign companies to register a local subsidiary company(Kabushiki-Kaisha [KK] or Godo-Kaisha [GK]) in Japan without a local “Resident of Japan."

Option regarding the formation of a legal business entity in Japan for ongoing commercial activities:  The choice is either to establish a “Branch Office” or a local “Subsidiary Co. (Kabushiki-Kaisha or Godo-Kaisha)." 

Japan Branch Office verses Subsidiary Company - Comparison At a Glance

Kabushiki-Kaiska (KK) verses Godo Kaisha (GK) - Comparison At a Glance

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