Subsidiary or Branch in Japan? What Changes for a Foreign Company

The answer

A subsidiary is a new Japanese company, usually a kabushiki kaisha (株式会社, KK) or a godo kaisha (合同会社, GK). A branch is the foreign company itself, registered in Japan. A branch needs a representative who lives in Japan, while every representative director of a KK subsidiary can live abroad, which makes a subsidiary the simpler route for a group with no one in Japan.

A branch: the foreign company, registered in Japan

A foreign company that intends to carry on transactions in Japan on a continuing basis must appoint a representative in Japan, and at least one representative in Japan must have an address in Japan (Companies Act, 会社法 Kaisha-hō, Art. 817(1)). That representative has authority to do anything, in or out of court, relating to the company's business in Japan (Art. 817(2)).

Registration is due within three weeks of first appointing a representative in Japan, at the place of the office in Japan or, if there is no office, at the address of the representative (Art. 933(1)). Until then, the foreign company cannot carry on transactions in Japan on a continuing basis. Anyone who transacts in breach of this is jointly liable with the foreign company for the resulting debts (Art. 818), and is subject to a non-criminal fine (Art. 979(2)).

The registration needs documents from the home country: proof that the head office exists, proof of the representative's authority, and the articles or other documents identifying what kind of company it is. These are certified by the competent authority of the home country, or by a consul in Japan or another competent official (Commercial Registration Act, 商業登記法 Shōgyō Tōki-hō, Art. 129(1) and (2)). They can be left out if a certificate from another registry office showing that the company has appointed a representative in Japan or set up an office in Japan is attached instead (Art. 129(3)).

A branch has no legal personality of its own, and in general the foreign company is ultimately responsible for its debts, as JETRO's setup guide explains. The foreign company is also liable for damage its representative in Japan causes to others while acting in that role (Companies Act, Art. 817(4)).

A subsidiary: a separate Japanese company

As a separate company, a subsidiary is liable for its own debts. A parent that holds shares in a KK is liable only up to the price of its shares (Art. 104), and a parent that is a member of a GK is a limited-liability member (Arts. 576(4) and 580(2)).

A Ministry of Justice notice of 16 March 2015 ended the practice of requiring at least one representative director of a KK to live in Japan, so today they may all live abroad. The Ministry's page for foreign nationals and expatriates explains how founders outside Japan sign and file.

Yearly disclosure

A registered foreign company whose closest Japanese equivalent is a KK must publish in Japan the equivalent of its balance sheet promptly after it completes the procedure that corresponds to a KK's approval of its annual accounts, unless it files annual securities reports (Art. 819(1) and (4)). Depending on its method of public notice, it can publish a summary instead, or keep the information online for five years (Art. 819(2) and (3)). A KK subsidiary publishes its own balance sheet (Art. 440(1)).

References

• Ministry of Justice, Procedures of commercial and corporation registration for foreign nationals and expatriates.
• JETRO, How to Set Up Business in Japan: Section 1. Types of Business Entities.
• Ministry of Justice, 外国人・海外居住者の方の商業・法人登記の手続について (Japanese), citing Notice No. 29 of 16 March 2015 (representative directors abroad).
• Companies Act (Act No. 86 of 2005), Arts. 104, 440, 576, 580, 817, 818, 819, 933 and 979; Commercial Registration Act (Act No. 125 of 1963), Art. 129 (e-Gov, Japanese).
• Companies Act (Act No. 86 of 2005), Japanese Law Translation.

This article is for general information only and is not legal or tax advice.

If a subsidiary fits, see GK or KK? and how our fixed-fee company incorporation works.