Offshore Company in Japan

1. Why Japan?

• Thanks to the recovery programs implemented after World War II, the Japanese economy expanded rapidly. As a result, Japan became the world's most successful economy, dominating such fields as electronics, robotics, ITs, Car production, Banking and J-pop-cultures.
• Japan is safe and clean country and a strong work ethic with mastery of high technology. 
• There is big smart consumer market and high quality products/services are required.
• Japanese tax rate currently is relatively high need reliable professional firms.

2. Legal Framework

• Japanese law was based on the European legal system especially Germany and France. However, after the world War II, the Japanese legal system underwent major legal form and was revised by modeling American law. Therefore, it is possible to say the Japanese legal term is a hybrid of continental and Anglo American law.
• Important laws for foreign investors are,normally, business laws, labor laws and tax regulations.

3. Banking

• Japan's banking system is consisted of city banks, regional banks and foreign banking institutions.
• Bank transfer is probably the most common way to pay various expenses, through internet banking system. Also, payroll and related taxes can be paid though banks.

4. Financial Regulatory Authority

The Financial Services Agency is a Japanese government organisation responsible for overseeing banking, securities for exchange, and insurance. The agency operates with a commissioner and reports to the minister of financial Services. It oversees the securities and Exchange Surveillance Commission and the Certified Public Accountants and Auditing Oversight Board.

5. Taxation

5. a. Corporate Tax

• Companies engaged in economic activities in Japan (i.e. Branch) are subject yo Japanese taxes on the income generated in Japan only.
• Companies established in japan is subject to Japanese tax for all income all over the world, but foreign taxation deductions are available.
• Corporate taxes are consisted of income tax, inhabitant tax, enterprise tax and the effective tax rate is approximately 40%.
• Tax losses in each business year are carried forward for the next seven years of withholding tax is assessed on the dividend.

5. b. Personal Tax Rates

• Resident individuals are taxed on their worldwide income whereas non-residents are taxed only on japan-source income. There is no strict definition  of residence, but residence will be based on where a person effectively lives and has a home. Staying in japan for six months in a year would imply residence. Tax is charged at progressive rates up to a maximum rate of 40%.
• Employers and employees of the Company established in japan is are normally subject to withholding tax and personal tax, as well as inhabitant tax and social insurance is withheld by the Company from the Salaries.

5. c. Social Security

• Health Insurance and Employees pension Insurance apply to all companies and individual offices which regularly employ 5 or more persons. Those who are required to join this insurance, are employees employees who work regularly for an applicable company, and an employees' ordinary working days or hours are three quarters or more of those of full-time employees. The monthly premiums are determined in accordance with the employees wages, and are shared  equally between the employer and the insured person. As the employer must pay both the shared premiums together each month, the employer's premium shall be deducted from his/her monthly wages and bonus.

5. d. Customs & Excise Duties

• Goods imported into Japan are subject to customs duty and VAT (consumption tax). In addition to consumption tax, certain other internal taxes ( liquor tax, tobacco tax, etc.) are also applicable to dutiable imported goods.

5. e. V.A.T.

• VAT (Consumption tax in japan) imposed on most sales and services provided in japan and on imports. A taxpayer may offset the consumption tax paid on expenses against the tax he has to pay on his income. Consumption tax rate is flat 5%. Companies whose sales per year are less than 10 million yen are tax exempt.

5. f. Tax Incentives

• Tax Incentives are provided to encourage manufacturing companies to locate operations in specified industrial development regions outside of Tokyo and Osaka.

Notes: Japan contracted Double Taxation treaty with many countries all over the world (56 countries as of October 2009). For double taxation agreement see the list of the end.

6. Main Types of Corporate Forms

There are three different types of operation for a foreign company:

• Representative office
• Branch office
• Subsidiary (company established under the Japanese law)

Company in Japan can be currently 4 types, however, normally company limited (Kabushiki Kaisha, K.K.) is selected.

7. Company Incorporation

• The new Japanese Corporate law effective from 1st may 2006 has made it a lot easier to set up a company in japan.
• Numbers of restrictions such as minimum capital of 10 million yen, minimum number of 3 directors have been abolished, and it is possible from now on to establish a company limited (Kabushiki Kaisha, K.K.) with a capital starting from one yen and with only one director.
• A representative director can be foreign people; however, he must be a residence in japan.

8. Reporting & Auditing

• Financial reporting is required at least once a year for all companies. These financial statements are submitted to the tax authority with annual corporate income tax returns.
• External audits are required for list companies and large companies only in Japan.
• Large companies is defined as capital stock of yen 500 million or more, or liability of yen 20 billion or more, as of the latest fiscal year-end.

Double Taxation Agreement

Japan has double taxation treaty with different countries:

• Austria
• Brazil
• Bulgaria
• China
• Czech Rep.
• France
• Germany
• Hungry
• India
• Indonesia
• Israel
• Italy
• Malaysia
• Mexico
• Netherlands
• Poland
• Romania
• Russia
• Singapore
• Spain
• Switzerland
• Turkey
• UK
• USA