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Setting-up Business in Japan

Japan continues to attract the interest of foreign investors, wishing to establish or expand their own business presence in this market. Japanese corporate law provides for a broad variety of legal types of investment, the most prevalent of which are described in this newsletter. These include the representative office (I.), the branch (II.), the joint stock corporation (III.) and the limited liability company (IV.). Whereas the stock corporation traditionally enjoys the highest reputation with banks and business partners and for this reason is most frequently chosen for the establishment of a new legal entity, also the limited liability company has been gaining popularity due to its flexible structure and ease to administer.
I. Representative Office 
A representative office in Japan can be opened by a foreign investor without particular registration in the Japanese commercial registry being required by appointing a chief representative residing in Japan. Legally, the representative office does not constitute a separate legal entity, but qualifies as overseas office of the foreign investor.
A representative office may not engage in continuous business activities in Japan, since such business activities would require a registration in the Japanese commercial registry, Article 818 (1) Companies Act. In addition, any activities beyond the mere information gathering, market research and similar preparatory tasks by the representative office on behalf of the foreign company in Japan may result in the qualification as permanent establishment by the Japanese tax authorities, resulting in taxation of the deemed profits of the foreign investor in Japan.
Despite the limitations regarding its scope of activities, the representative office may acquire assets, rent an office, open a bank account and employ staff etc. on behalf of the foreign investor in Japan.
II. Branch
To conduct actual business activities in Japan without establishing a separate legal entity, a foreign company can register a branch with the Japanese local Legal Affairs Bureau.
In order to establish a branch, the foreign company must appoint at least one legal representative residing in Japan whose name and address, together with the seat of the branch, will be registered in the commercial registry. The registration proceedings with the commercial registry require the submission of an affidavit of the representative(s) of the foreign investor or of the local representative, including certain information concerning the foreign investor, certified by a notary public of the home country of the signatory.
Since all legal transactions entered by the branch are directly binding on the foreign company, investors preferring to limit the scope of their exposure to the Japanese market may consider establishing a separate legal entity in Japan (c.f. items III. and IV. below).


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