How to Set Up a Representative Office in Japan

Many foreign companies consider business opportunities in Japan as a gateway to Asia.

If you are thinking about expanding the operation to Japan, it is important to understand what a representative office is, since it is often the cost-effective and safer first step for exploring the Japanese market.

This article will explain what a representative office is and how it differs from a branch office or subsidiaries (Kabushiki Kaisha & Godo Kaisha), as well as how to set up one in Japan.

What is a representative office?

A representative office (駐在員事務所 Chuzai-in Jimusho) refers to a business base established by a foreign company in Japan for the purpose of gathering information and conducting market research when considering expanding business operations.

It is common for employees belonging to the foreign head office to be dispatched to the representative office, where they engage in marketing and information-gathering activities to assess whether Japan is a suitable market for expansion.

A representative Office is not legally recognized as a business entity and does not have corporate status. Therefore, it is prohibited from engaging in direct revenue-generating business activities.

Primary purpose of a representative office

The purpose of a representative office is usually for market research before a full expansion, information gathering, purchasing and storing goods, and advertising, coordinating with the head office or the parent company in a foreign country.

Many companies establish a representative office as a first step to a business expansion. Some companies start a representative office as a preparation stage for setting up a branch office or subsidiary.

A representative office vs. a branch office

The major difference between a representative office and a branch office is the purpose and the kinds of activities allowed.

A representative office is mainly for nonprofit business activities such as market research and PR. It does not require registeration with the Legal Affairs Bureau and cannot engage in activities that generate revenue or income, hold assets, or conduct business operations for profit.

A branch office is for expanding an operation to Japan without establishing a separate legal entity from the foreign head office. It is required to register the branch office with the Legal Affairs Bureau (法務局 Homukyoku) and be able to engage in sales activities.

A representative office vs. a subsidiary company (Kabushiki Kaisha or Godo Kaisha)

Unlike a representative office, a subsidiary company such as Kabushiki Kaisha (KK) or Godo Kaisha (GK) is an independent legal entity established under Japanese law, with few restrictions on business activities and the ability to operate with a localized management approach.

Benefits of setting up a representative office

Setting up a representative office is a cost-effective and generally easier way to enter the Japanese market without a full commitment.

Here are some benefits of establishing a representative office in Japan.

1. No registeration required, therefore no establishment cost

2. Simple required procedures

3. No requirement to pay corporate taxes or consumption tax in most cases (since sales activities are not allowed)

4. Perfect for testing the Japanese market before a full business entry

However, if you are thinking about revenue-generating activities right away, a representative office is not suitable.

How to establish a representative office in Japan

The process of establishing a representative office in Japan can be summarized in three basic steps as described below.

1. Appoint a director for the Japanese representative office

The chosen appointed director can be Japanese or a foreigner. In the case of a foreigner, they must have a residential address in Japan.

If the chosen appointed director is a foreigner, they must obtain an appropriate visa. (such as an Intra-Company Transferee Visa or Engineer/Specialist in Humanities/International Services Visa)

2. Register an address for the Japanese Representative Office

Since the representative office is not registered with the Legal Affairs Bureau, typically, it cannot sign a lease under its own name.

Instead, registering an address for a representative office is done under the following conditions:

• The lease agreement is signed by the foreign head office and the Japanese building owner.

• A guarantor is commonly required for foreign nationals. This is usually a Japanese national, who will sign in addition to your foreign main branch company.

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3. Open a personal bank account

Even though the representative office is not a legal entity, it is possible to open a Japanese bank account. Usually, the account is opened under the Japanese representative office director, often accompanied by the business name to enhance credibility.

For example: “Representative Office Name & Director's Name”

The required documents are usually as follows:

• Appointed Director's passport

• Residence Card (if the director is a foreigner)

• Lease agreement of the Japanese representative office

• Documents proving the connection between the foreign headquarters and the Representative Office

• Foreign headquarters’ company seal and bank seal

Each bank will vary slightly in requirements, so always check with the bank first to confirm additional documentation.

There is no legal requirement for the representative office to retain books and records in Japan, unless for claiming input tax credits. A representative office is not subject to taxation in Japan.

Also, it is important to note that upon trying to open a bank account, proof of the Japanese representative office space will generally be required. This can be proven by providing at least one of the following documents:

• The original lease for the representative office space (signed by both the company and the landlord)

• A utility bill in the name of the representative office

• A copy of the contract between the appointed representative office director and the foreign company

Additional Items For Consideration

Before starting the process of establishing a representative office in Japan, there are some important points to note regarding tax, insurance, and HR obligations that must be considered.

Accounting and Tax

Since representative offices cannot engage in revenue-generating business activities in Japan, they are generally not subject to taxation. As a result, there is no requirement to file tax notifications or prepare financial statements.

The financials of the representative office are typically consolidated with those of the foreign headquarters, so the fiscal year of both entities should align.

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Human Resources and Insurance

Representative Offices can legally hire staff in Japan. However, certain conditions must be followed.

The following conditions may apply:

• Enrollment in social insurance, workers' accident insurance, and employment insurance

• Submission of a Notification of Establishment of a Salary-Paying Office to the tax office with jurisdiction, if withholding tax arises from employee salaries

For specific requirements, consult the relevant tax office or a certified tax lawyer.

Support for a representative office setup in Japan

Working with a bilingual legal advisor is strongly recommended for navigating a representative office setup in Japan, especially if you are considering a representative office as a first step to a branch office or subsidiary establishment.

👉 English-speaking corporate lawyers

👉Bilingual accountants

👉Immigration lawyers

💡MailMate offers bilingual support and after services tailored for foreign business owners to expand to Japan

Mailmate's incorporation/branch office setup support + virtual mail services are a bilingual service for foreign entrepreneurs who want to start or expand a business to Japan.

• Incorporation support: MailMate helps with company registration applications, business addresses, and much more!

• Japanese phone number service with bilingual receptionist: MailMate will answer incoming calls and relay the message to you.

• Virtual mail service: MailMate receives your business mail at a virtual address, scans and uploads it to your dashboard, where you can read, forward, or request translation for Japanese documents.

• Bill payment service: MailMate also offers a bill payment service and will pay it on your behalf by taking it to the local convenience store, so that you will never miss a payment.

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Frequently asked questions (FAQ)

Q: Are sales and business activities permitted by a Japanese representative office?

In general, a representative office is only allowed to engage in non-profit-generating activities such as research, community engagement, or other non-commercial activities. It is not able to do sales or sign any kind of business contract under its name.

Q: Is registration with the Japanese Legal Affairs Bureau necessary?

No, it is not necessary to register with the Japanese Legal Affairs Bureau. This makes it very simple to set up a representative office, without bearing the usual costs of setting up a subsidiary.

Q: Who is eligible to be appointed as a representative director of the Japanese Representative Office?

In general, any person of your choice can be the appointed director, as long as they have a registered address in Japan. However, if the chosen director is a foreigner, the company must help them obtain an appropriate visa if they do not have one. In this case, Japan has many options in which the main company can apply, such as through Intra-Company Transfer. For more information, consultation with a Japanese immigration lawyer is advised.

Q: Is it possible to open a bank account for a Japanese Representative Office?

Yes, however, this must be under the director's name. Oftentimes, the business name is also included for credibility. However, this is optional, and the bank account will remain under the director's name.

Q: Does a Japanese representative office need to file corporate tax?

Both corporate and consumption taxes are exempt for a Japanese representative office. This is because it is not allowed to engage in profit-generating activities. However, taxation regarding employees' salaries is still required.

In Closing

Opening a representative office in Japan is the quickest way to enter the Japanese market, with very few tax or legal obligations. It allows a company to engage in market research, test the market, and build connections without the complications of setting up an official branch or subsidiary. For businesses considering expanding into Japan but needing time to establish a presence, a representative office is a great choice for expanding into the Japanese market.

However, it is important to note that a representative office cannot engage in business activities. Therefore, if the main company's goal is to engage in sales or sign contracts, it is better to establish an official branch or subsidiary.

Overall, establishing a representative office in Japan is a relatively straightforward process that can be both cost-effective and quick if the main company's initial goals are not profit-oriented. There are some things to consider, such as registering an address, bank account, and taking care of foreign employees.

To take care of the details, our services at MailMate can help make this whole process smoother. Reach out to us to start your representative office today!

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