Japan Tax Guide

Branch and entity in Japanese tax law

Creation date2021/03/29 Last updated2022/07/19


【Branch set-up in Japan】

Generally speaking, branch means that a foreign company has an operation site in Japan but is not incorporated as a company. For example, if the Japanese branch of an American company signed contracts with vendors and liabilities are incurred, those liabilities will belong to the company in America. As the Japanese branch is not a formal incorporation, the American company will be legally affected by the contract signed by the Japanese branch.

The advantages of a branch are listed below:
*Money can be transferred easily.
*If net losses occur, the losses in Japan can be written off when the American company makes a tax return. The ability to do this depends on the location(country) of the headquarter.
To conclude, for a foreign company that wants to run their business in Japan, if it takes time to make a net profit, or if the scale of business is small, it is better to set-up a branch in Japan.





【Entity set-up in Japan】

Entity means setting up an individual company in Japan. When a company is incorporated in Japan, it can issue shares that the America headquarter and other parent companies can hold. It is necessary to appoint a director and auditor, as well as any other functions required under the Japanese Company Act. This form of starting a business in Japan is very common.

The advantages of an entity are listed below:
*Formally incorporated companies can provide credibility to your potential clients and vendors and it has a good image.
*Companies with share capital under JPY100M will be deemed as small and medium enterprises (SME) under Japanese tax law, and lower tax rates will be applicable to taxable corporate income.