Establishing your Business in Japan: Overview of Corporate Structures Types and Related Taxes

This article is intended to introduce schemes and related Japanese taxes for foreign companies to set up business in Japan.

Foreign companies generally set up a business in the Japanese market in one of three forms as follows;
(1) Subsidiary
(2) Branch office
(3) Representative office
Let's take a look at these three forms.


The subsidiary is the most prevalent corporate form and have a higher social credibility than other forms.

When establishing a Japanese corporation, you can choose either the "Kabushiki-Kaisha" (KK) form or the "Godo-Kaisha" (GK) form. Both are entities with legal personalities and are independent of their shareholders. This means that Japanese corporate income taxes are levied on income generated by the activities of these types of corporations.

KK is a joint-stock corporation and equivalent to C-Corporation in the United States. On the other hand, GK is sometimes referred to as a limited liability company, but it is different from an LLC in the United States. For example, GK is not subject to pass-through taxation; instead, corporate tax is imposed on the profits of the GK. As a side note, "Yugen-Sekinin-JIgyokumiai" (Limited Liability Partnerships) is one of the entities to which pass-through taxation applies in Japan, but this is not widely used in general, so I will have a separate article to explain it.

If a parent company is in the United States, GK can be treated as a pass-through entity for the purpose of taxation in the United States. However, the GK is also subject to Japanese corporate taxes. Therefore, the advantage of this is that the parent company can take advantage of the tax loss of the subsidiary.

Through dividends is the main way in which a parent company receives earnings from a subsidiary. This payment is subject to a withholding tax of 20.42%.

Branch office

A branch is easier to set up than a joint-stock company and can conduct business. However, we do not recommend it for the following requirements.

  • Preparation of PE standalone financial statements
  • Documentation of external transactions attributable to PE
  • Documentation of internal transactions
  • Disclosure of the head office's financial statements
  • Preparation of the branch's financial statements
  • Frequent tax audits
  • Broad withholding obligations

Dealing with these requirements can be very administratively demanding, so unless you are in a regulated sector such as banking, we recommend a subsidiary.

A branch office in Japan, the income attributable to the PE ("Permanent Establishment") is taxed in Japan under AOA ("Authorized OECD Approach").

Representative offices

The representative office is the easiest way to set up a Japanese office however, a representative office is not permitted to engage in sales activities. Representative offices can only carry out limited activities such as providing information and market research. Therefore, they are usually used for preliminary investigations to establish a subsidiary or branch office.

Representative offices are not subject to taxation in Japan.


For reasons of reliability, scalability and administrative costs, subsidiaries are the most common form of entry into Japan.
In the next article we will compare GK and KK.

Thank you for reading.

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