Laws & Regulations on Setting Up a Business in Japan

1. Types of Business Entities

Foreign investors can choose from several corporate structures. The most common are:

• Kabushiki Kaisha (KK) a jointstock company similar to a corporation. It offers limited liability and is the preferred form for larger enterprises.
• Godo Kaisha (GK) a limited liability company (LLC) introduced in 2006. Simpler to set up and maintain, suitable for smalltomedium businesses.
• Branch Office a nonseparate legal entity of a foreign parent company. It can conduct business but does not have its own shareholders.
• Representative Office can only engage in market research, promotion, and liaison activities. It cannot sign contracts or generate revenue.

2. Key Legislation

The principal statutes governing business formation are:

• Company Act (Kaisha Hou) regulates incorporation, corporate governance, shareholder rights, and dissolution.
• Commercial Code deals with commercial transactions, partnership rules, and merchant practices.
• Foreign Exchange and Foreign Trade Act (FEFTA) sets out notification and approval requirements for foreign investment in certain sectors.
• Labor Standards Act establishes minimum employment conditions, working hours, and safety standards.
• Tax Laws Corporate Tax Act, Consumption Tax Act, and local inhabitant tax regulations.

3. Incorporation Procedure

3.1. Preparation

1. Choose the entity type and confirm that the intended business activity is permitted under the Foreign Investment Promotion Law.
2. Reserve a company name through the Legal Affairs Bureaus online system. The name must be unique and include Kabushiki Kaisha or Godo Kaisha.
3. Draft the Articles of Incorporation (AoI). For a KK, the AoI must be notarized; for a GK, notarization is not required.
4. Open a temporary bank account (or use a certified public accountants escrow) to deposit the required capital. Minimum capital is 1, though most banks require a higher amount for practical reasons.

3.2. Registration

5. File the incorporation documents with the Legal Affairs Bureau:
   • Articles of Incorporation (original + translation if prepared in a foreign language)
   • Certificate of Deposit for capital
   • Director and auditor appointment certificates
   • Company seal registration
6. Pay the registration tax (approximately 150,000 for a KK; 60,000 for a GK) plus a stamp duty on the AoI (40,000 for a KK, 20,000 for a GK).
7. Obtain the Certificate of Company Registration (, tkibo thon). This is the legal proof of incorporation.

3.3. PostRegistration Tasks

• Apply for a corporate Hanko (seal) registration.
• Register with the local tax office within two months to obtain a tax identification number.
• Enroll in the social insurance system (health insurance, pension, unemployment insurance) if you will employ staff.
• If the business will engage in activities that require permits (e.g., food service, pharmaceuticals), file the relevant applications with the appropriate ministries.

4. Foreign Investment Restrictions

Japan maintains an opendoor policy for most sectors, but certain fields are subject to the Foreign Exchange and Foreign Trade Act. These include:

• Defense and security equipment
• Telecommunications infrastructure
• Finance (banks, insurance) may require a Japanese partner or special licensing.
• Energy (nuclear, oil & gas) often requires prior notification and government approval.

The notification threshold is generally 5billion in investment or 10% of the equity in the target company. Failure to notify can result in forced divestiture.

5. Employment & Labor Law Essentials

Key obligations for employers include:

• Written employment contracts specifying wages, working hours, and job duties.
• Compliance with the Labor Standards Act**: maximum 40hour work weeks, overtime premium of at least 25%.
• Providing mandatory benefits: health insurance, employee pension, workers compensation, and unemployment insurance.
• Observing the Equal Employment Opportunity Law** prohibition of genderbased discrimination.
• Annual Health Checkup obligations for employees.