Setting Up a Representative Office in Japan
The representative office is the easiest way of establishing an office in Japan and is typically used when a foreign company wants to conduct market research in Japan before committing to a branch or subsidiary. Under Japanese law, a representative office can only engage in the limited business activities of purchasing and storing assets, and auxiliary services such as advertising, information gathering and market research.
A representative office cannot participate in sales activities but can supply information to distributors, communicate prices and terms of sale and identify sales opportunities. There is no legal restriction on the number of employees a representative office can have and as it is considered an extension of the parent company there are no shareholding requirements or restrictions.
There are no legal registration requirements for a representative office and there is no requirement to report the direct inward investment to the Ministry of Finance via the Bank of Japan. This is currently required under the Foreign Exchange Law for branch entities.
A foreign corporation – one with its headquarters in a country other than Japan – must appoint a representative director who is resident in Japan. On March 15th 2015, however, the law regarding domestic Japanese corporations – those headquartered in Japan – was revised, removing the requirement for a representative director resident in Japan. In simple terms, if you are setting up a Japan-based subsidiary of a pre-existing foreign corporation, you need a resident director. If you are establishing a new company with your head office in Japan, you don’t need a director who is resident in Japan.
Note that where there are employees receiving remuneration into a Japanese bank account, there are payroll and social insurance registration requirements.
A representative office needs to be able to show the following in order to prove existence:
- A lease for office space in its own name – the lease for a representative office’s space may be signed between the head office in the home country and the Japanese building owner. In many cases, however, the owner will require that the representative office have a guarantor resident in Japan
- A utility bill in the name of the representative office
- A copy of the contract between the representative and the foreign company
A representative office can hold a bank account in Japan but is not required to retain books and records in Japan unless the representative office claims input tax credits. There is no statutory audit requirement and representative offices are not subject to taxation in Japan.