Subsidiary Or Branch Office

Branch Offices Versus Subsidiaries in Japan

The simplest method for a foreign company to establish a base for business operations in Japan is to set up a branch office.

The branch office can begin business operations as soon as an office location is secured, the branch office representative determined, and the necessary information registered with the Legal Affairs Office. A branch office does not have its own legal corporate status, but instead is deemed to be an extended arm of the foreign company.

To qualify as a branch office, the following conditions much be met:

  • Must be registered with the Japanese Ministry of Justice’s Legal Affairs Office
  • Must have a registered representative who is resident in Japan
  • Must have a registered office in Japan (can be the representative’s home address)

A branch office can operate a bank account, rent office space, lease equipment and do most other things a domestic company can do. It can also employ any number of employees but must adhere to all requirements of the Labour Standards Law. Branch offices are governed by Japan’s Commercial Code and are liable under Japanese law for its debts. In addition, they are subject to corporate income tax on all of their Japan income, including all revenue derived in Japan by the foreign parent company, however, they  are not required to deduct any withholding taxes when transferring revenue back to the foreign parent.

The head-office is allowed to assign some part of its general and administrative costs to the branch office to offset Japanese corporate tax.

Some additional regulations include a branch office being allowed to ‘roll-up’ any year’s losses and carry them forward for a maximum of 9 years to offset against profits when calculating corporate taxes.

An important point is that a branch office cannot be directly converted to a Japanese company, so any corporate tax benefit of rolled-up losses will be lost if for any reason a switch is made to a kabushiki gaisha or godo gaisha prior to the rolled-up losses being offset.