Companies (Entities) are established to create a fixed place of business in Japan. If activities related to business development, sales, marketing, manufacturing, and construction or similar are being conducted on a continuous basis, there is a strong possibility an entity will need to be established. Tricor can assist with the establishment of Japanese corporations, special purpose companies (“SPC”) and branch offices as needed.
In other countries, a “Representative Office” could be a registered entity but in Japan a Representative Office is not registered, not required to pay taxes and does not have any statutory compliance requirements. Previously, before 2006 when the minimum capital to establish a Japan entity was 10,000,000 yen, this type of office was a more practical stepping stone to entering Japan. However, with the reduction of minimum capital requirements down to 1 yen, the Japanese Representative Office is becoming utilized less and less. Representative Offices in Japan are commonly referred to as non-registered entities.
When foreign-owned multinational groups want to bring their product to Japan sometimes they elect to begin initial distribution of their product through a third party Japanese distributor. The reasons for this are both administrative and commercial. Administrative in that it eliminates the need of setting up a branch or subsidiary, and commercial because the third party Japanese distributor will often have the industry connections and relationships necessary to establish the sales and distribution channels. Working through a third party Japanese distributor compared to setting up an entity and completely managing distribution internally has its pros and cons. In our experience a hybrid of the two strategies has shown the results foreign companies come to expect but it is not to say beginning initially with a distributor is the wrong way to approach this market.
The Representative Director of the Kabushiki Kaisha (called an Executive Manager for a Goudou Kaisha) of a Japanese entity must be appointed at the time of establishment. As of March 16, 2015 this person no longer needs to be a resident of Japan but it is suggested to appoint at least a Nominee individual locally in order to ensure a smooth set up procedure. If this individual is hired within your company they must give up their right to Unemployment and Workman’s Compensation and bears the risk that any litigation towards the company could fall upon them as they are not considered an employee, but the principle of the company. They also have the ability to bind the company to any contract no questions asked. Given this, foreign companies tend to find it hard to appoint someone living in Japan to this role that they trust whole-heartedly. With all of these risks, some companies still choose to appoint a Nominee Resident Director which ultimately resolves all these issues by practically putting the power of attorney back with the foreign office and removing any risk associated with appointing someone within the office.
Foreign companies that do not need a physical office space to operate their business must still register an address with the local authorities. This can be accomplished by a Nominee Address (usually Tricor’s own office address) so the foreign company can remain compliant while only paying a minimal amount for a registered address. Our receptionists will be able to then handle any government notices or forward personal mail appropriately.
Once an entity is formed it is required to file its initial tax filings within 2 months of the incorporation date or before fiscal year end. Failure to do so will label the entity as non-compliant and limit the tax benefits realized. If filings are submitted late, any benefits set to be received from such late filings will be pushed to the following fiscal year.
The Banking system in Japan is rather archaic in that it still requires people to physically go to the bank counter to make payments, but progressive in that there are virtually no checking accounts. Foreign companies occasionally want to utilize their global banking partners in Japan but often find that there are some challenges associated with this kind of banking structure including the inability to make utility, phone and tax payments among others. Tricor can help walk you through the important issues that need to be addressed prior to finalizing your banking structure in Japan.
Accounting support of foreign multinational clients in Japan often requires an understanding of not only JGAAP (Japanese Generally Accepted Accounting Principles) but foreign and international standards such as USGAAP and IFRS (International Financial Reporting Standards). With hurdles like the language barrier, Japan centric transactions like social benefits and consumption tax, and the requirement to record in the original JPY amount, accounting for a Japanese business can prove more difficult than one may expect. Over the last decade Tricor Japan has built a team specifically geared toward providing foreign affiliated clients with the support required to meet the needs of their global finance function.
Order and Inventory Management systems can be daunting to set up. This is especially true when entering the Japanese market which comes with a whole new set of hurdles (language barriers, cultural barriers, etc.). Multinational companies often think the only solution for the Japanese market is localization of their global ERP system. This however can be time consuming and costly. Those faced with this task have the option to instead entertain leveraging Tricor’s experience and Japan-localized ERP system when (1) first entering the market or (2) taking over the business from a distributor. This allows the process to get off to a smooth start while they determine the best strategy for the long run.
Office Space in Japan can be a huge expense. Most leases can require as much as 8-12 months deposit, thank you money (a gift to the landlord just for being allowed to rent the space) and long commitments. With Tokyo having some of the most expensive office space costs in the world Tricor provides their small headcount clients a chance to retain office space without issue by offering a no-deposit, flat fee, all included service with only 30 days’ notice to move out. Which such flexibility clients find it an affordable option in Tokyo.
Competing serviced office space companies may offer bargain rates during the sales process, but don’t be fooled when you see the price they show you. As serviced office space is usually their core business they only make money when they charge for every thing they help their tenants with. These extra costs are usually triggered by using meeting rooms, internet connection fees and phone usage all the way down to simple things like having a glass of water served to you during meetings. Tricor Japan makes money by combining office space with the back office services in one location so we don’t need to charge extra for items that should already be included.
Bilingual IT support can be costly in Japan. For clients that do not have the size and scale to hire internally we offer outsourced IT support at rates less than one tenth the cost of hiring. From setting up infrastructure to remote and on-site support we can communicate in English with your head office and locally in Japanese to cover all of your IT needs.
Depending on the type of business in Japan, a business license may be required. Through the support of our in-house Tricor Gyoseishoshi Office, which holds the necessary government certification to provide license application support, we are able to help our clients identify and procure any business licenses they may need.
Japan Employment Contracts are the lawful bond between a company and its employees. Depending on the structure of the contract the company’s liability may be fixed or unlimited, its obligations to the individual may be minimal or generous and its term may be defined or without end. Constructing an employment agreement which is understood by the head office, compliant with labor law and minimizes the risks of the company is important for every multinational organization looking to do business in Japan. Tricor Japan can help make this process as transparent as possible to avoid surprises in the future.
For all Japanese companies that hire employees, payroll must be run and social benefits must be administered in accordance with labor law. With the support of the Tricor Labor and Social Security Office, which holds the license necessary to provide 3rd party administration of social benefits, Tricor Japan provides a bilingual end to end service to support Japan payroll calculation and social benefit compliance. Most companies that offer this outsource it. We have everything in-house.
All companies that hire employees must enroll initially into the Corporate Social and Labor Insurance programs commonly referred to as the “social benefits” of Japan. These programs consist of Health Insurance, Pension, Nursing Care (nursing care is for those employees over the age of 40), Workman’s Compensation and Employment Insurance. Tricor can support with the enrollment of both the company and its employees on behalf of its multinational clients setting up in Japan.
If foreign resources are required to help start, run or support business in Japan a work visa is most likely needed. In more serious cases, clients may also be experiencing immigration issues with employees or executives that have been or are in danger of being disallowed to enter Japan. This could be due to questionable business activities, repeated tourist visas, frequent trips to Japan within the same year, etc. In any case Tricor Japan can help with the necessary communication to the Immigration office to have things resolved. Through the support of our in-house Tricor Gyoseishoshi Office, which holds the necessary license to provide visa and immigration support, we are able to help our clients navigate the nuances of Japanese Immigration law.
Japanese Labor Law can be daunting to foreign companies. With Japan being home to ideologies like Life-Time Employment, 2-man labor unions, terminated employee reinstatement and employee centric labor law, foreign companies may tend to err on the side of caution with their human resource management as compared to how things are handled in their home country. We think it really comes down to fearing what you may not understand.
If you cannot seem to find the specific information you need on our website please feel free to reach out to us here with a detailed account of your current HR situation. One of our HR Advisory team members will respond as soon as they can.
Corporate Legal Changes are required from time to time. Anything from appointing or removing directors, changing the registered address to merger documentation drafting can be handled by the Tricor Shihoshoshi office. This office holds the necessary licenses to compliantly perform any legal work and government filing related to the change of registered entity information. Most companies that offer this outsource it. We have everything in-house.
Every year in July Japanese companies are required to collect and submit payroll information to the Health Insurance and Pension office for recalculation of Health Insurance and Pension contributions. This procedure is called the Annual Review of Social Insurance Premium.
Every year in July Japanese companies are required to collect and submit payroll information to the Labor Standards Inspection office for recalculation of Labor Insurance contributions for Employment Insurance and Workmen’s Compensation. This procedure is called the Annual Renewal of Labor Insurance.
Once a company has been in business for at least 6 to 12 months it may become eligible for industry specific health insurance associations. If your company is able to enroll into these specific associations the coverage would effectively replace the government health insurance program all companies have to enroll into initially. These associations attempt to group similar professionals (with similar risk profiles, e.g. employees who sit in an office all day as opposed to those doing construction) into the same association to reduce risk and thus increasing benefit while reducing cost to those enrolled. Pension, Employment Insurance and Workmen’s Compensation Insurance would remain unchanged and is still provided through the government. Tricor can help explain to the local or head office the options for any specific industry health insurance association and the benefits of each for your specific situation.
In Japan each company is required to take care of a number of human resource compliance items during yearend. The start of internal procedures truly begins in October with the initial data collection for the Year End Adjustment (“YEA”, “Nenmatsuchosei” in Japanese). The YEA is actually the process where the company takes care of the individual tax returns on behalf of the employees; a stark contrast with countries such as the United States where employees take care of their own tax compliance. Beyond this there are filings to update the Inhabitant tax amounts of employees called the Annual Payroll Report to the Local Authorities (“Shiharai Hokokusho” in Japanese) and a filing to the tax office to disclose all withholding tax during the year called the Statutory Payment Record (“Houteichosho” in Japanese). Tricor can help its payroll clients handle these statutory compliance items each year.
Every subsidiary or branch office in Japan must file annual tax returns. This refers to the Annual Corporate (National and Local), Consumption and Fixed Asset returns. Tricor Japan, through the license held by Tricor Tax Corporation, can support with these filings on behalf of any company in Japan.
According to the Company Act of Japan the only type of entity which has statutory corporate secretarial compliance is the Kabushiki Kaisha (“KK”). This generally refers to the annual general meeting of shareholders and disclosure of the financial statement in the local gazette. If the KK has a Board of Directors, quarterly held Directors’ meeting minutes become statutorily required. Each of the other more popular entities (Goudou Kaisha and Branch Office) do not have any government mandated corporate secretarial compliance.
The Rules of Employment (“ROE”) is the basis of the internal HR policy that governs the relationship between your employees and the company. It is also the basis of any labor dispute should a claim ever be raised. Filing the ROE requires the consent of all employees and once filed, it is difficult to make changes since the employees need agree to the changes. Even though this document is not required to be filed with the Labor Standards Inspection Office until your Japan business reaches 10 employees, we encourage clients to think about drafting earlier rather than later to avoid any issue with employees.
With global back office trends finally catching on in Japan, online back office and HR software solutions are becoming required more and more by multinational companies. In respond to this shift, Tricor Japan has developed an in-house software as a service called Humatrix8 with electronic pay slip, leave management, time and attendance and expense modules to meet this growing global demand (modues referred to as “ePayslip”, “eLeave”, “eTime & Attendance” and “eExpense” respectively). The modules are housed within a bilingual interface allowing global companies operating in both Japanese and English to implement the software seamlessly. With English and Japanese interfaces monolingual managers or employees will be able to process applications without issue as they need. If you would like to see a demo please Contact Us to have one scheduled.
In recent history the frequency of tax audits of the Japan subsidiaries of foreign multinational firms has increased considerably. In general, any foreign firm should expect to have its first tax audit within 3-5 years from the date of incorporation. It is important to note that this is simply a guideline and a tax audit can happen anytime. Of our portfolio of companies we see a number of tax audits each year. During the tax audit we liaise with the tax office and carry out the in-person meetings at our or the client’s office. We always prepare in conjunction with the client representatives in order to act in the best interest of the client during the audit.
Effectively “terminating” or “firing” employees in Japan is more of an art than a science. Every employee is different from the way they feel, how they view their contribution to the company, how old they are, how re-employable they are, etc. It most cases it is best practice to agree to a separation instead of just letting someone go. Details like how long the employee has been at the firm, age, how employable they are, their salary, etc., should be taken into consideration to effective persuade employees to leave the company amicably. Despites everyone’s best efforts it does not always end pretty and a small percentage of employees will fight a labor battle. This is why keeping clear documentation and evidence of roles, responsibilities, targets, etc., are very important. Before rushing into any termination procedures it may be good to speak with one of our HR specialists to gain a local perspective on the situation you may not have otherwise.
In Japan, Article 13 of the Industrial Safety and Health Hygiene Law（労働安全衛生法）says that; a company with more than 50 employees must have a company doctor who will help them with their personal health management and who will advise the company on employees’ health management issues.
For all intents and purposes, a company with more than 50 employees is required to have a company doctor. This stems from the common ideology most Japanese believe in related to Corporate Social responsibility and Risk Management.
If you have any questions regarding the human resource compliance of your company as it grows in Japan, please send us a message by clicking the button below.