Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.
I assist foreign business owners with accounting and tax matters in Japan, including Japanese tax filings and international tax issues. English support is available for clients who find the Japanese tax system or accounting procedures difficult to navigate.
Many small business owners would like to move to Japan while continuing to operate their businesses. This can be particularly realistic for location-independent businesses, such as web development, IT, and other online services, because much of their work can be performed from anywhere in the world.
However, moving yourself to Japan and moving or expanding your business to Japan are two different issues. You need to consider the Japanese company structure, your visa, how income will flow between your existing overseas business and the Japanese company, and the tax consequences in both countries.
In this article, I will explain some of the practical options for a small business owner who wants to move to Japan and continue doing business through a Japanese company.
1. Establishing a Company in Japan
One option is to establish a company in Japan. It is also possible to operate a business as a sole proprietor, but if you need a Business Manager Visa, establishing a Japanese company is often the more practical structure.
The appropriate structure depends on your visa status, type of business, expected profit, and long-term plans in Japan. From a tax perspective, it is also worth considering the differences between operating as a sole proprietor and operating through a corporation before you establish the business.
For more details about the tax procedures you should consider when establishing a company in Japan, please see Starting a Company in Japan: 3 Essential Tax Steps for Foreign Entrepreneurs.
2. Obtaining a Business Manager Visa
If you need a Business Manager Visa, the company establishment and visa procedures should be planned together rather than considered separately.
The Japanese company also needs to have a business structure that can support your activities and compensation in Japan. In practice, the company’s sales, profits, and ability to pay reasonable director’s compensation can also become important when obtaining and renewing your status of residence.
Visa requirements are handled by immigration specialists rather than tax accountants, so the specific requirements should be confirmed with a qualified visa specialist.
3. Operating Your Business Through a Japanese Company
If you already operate a company in your home country, there are several ways to structure the relationship between that company and your new Japanese company.
Whichever structure you choose, the Japanese company needs a genuine business role. It also needs sufficient revenue and profit to sustain its operations and, where applicable, pay your director’s compensation.
This is where business planning, international tax, and accounting in Japan become closely connected. The flow of sales, expenses, services, and payments between the two companies should reflect the actual business activities of each company.
If you already have a U.S. LLC or another overseas business while living in Japan, you may also need to consider Permanent Establishment (PE), remittance taxation, and foreign tax credits. For a practical example, please see U.S. LLC Taxation in Japan: PE Risk, Foreign Tax Credits, and Remittance Rules.
– Making Your Home-Country Company Dormant
One option is to make your existing company in your home country dormant and move its business activities to the Japanese company.
In that case, you may need to transfer existing client relationships and contracts from the home-country company to the Japanese company. However, practical problems may arise, including international payments and clients who do not agree to change the contracting company.
Considering these difficulties, keeping both companies active and giving the Japanese company a specific business role may sometimes be a more practical option.
– Using the Japanese Company as an Outsourcing Company
Another option is to keep the existing business in your home-country company while outsourcing part of the work to the Japanese company.
In this structure, the Japanese company performs genuine services for the overseas company and receives appropriate compensation for those services. However, the prices between the two related companies should be set on a reasonable basis, taking transfer pricing rules into consideration.
You should also confirm whether this structure creates tax risks in your home country. Depending on the circumstances, questions may arise about Permanent Establishment (PE), tax treaty benefits, or whether the Japanese company has sufficient economic substance and a genuine business purpose.
You should also consider how you receive your personal compensation. If you receive director’s compensation from the Japanese company, continuing to receive salary from the home-country company may create additional international tax issues that should be reviewed in both countries.
Double taxation may arise in cross-border structures, but foreign tax credits and applicable tax treaties can often reduce double taxation to some extent.
The foreign tax credit calculation can become complicated when income is taxed in more than one country. If you would like to understand how foreign tax credits may work for individuals living in Japan, please see Foreign Tax Credit for Non-Permanent Residents in Japan.
For these reasons, the relationship between the overseas company and the Japanese company should be reviewed from both a business and international tax perspective before the structure is implemented.
Accounting and Tax Support for Foreign Business Owners in Japan
Koshida Accounting and Tax Office assists foreign entrepreneurs and small business owners with accounting and tax matters in Japan.
Our services include bookkeeping, Japanese tax filings, corporate tax planning in Japan, and consultation on international tax and accounting issues involving overseas companies, income, or transactions. We provide support in English for foreign business owners who find the Japanese tax system or accounting procedures difficult to navigate.
If you are new to doing business in Japan, you may also find some Japanese tax rules quite different from those in your home country. For an overview, please see 5 Japanese Tax Rules Every Foreign Business Owner Should Know.
Starting and operating a business in Japan may also require support outside the tax and accounting field. Through our professional network, we can connect clients with specialists in visas, company registration, social insurance, and legal matters. We also have connections with professionals in web marketing, website development, and business consulting for the Japanese market.
If you are considering moving to Japan while continuing your existing business overseas, it is better to consider the company structure, visa, accounting, and international tax issues together before implementing the plan.
Please feel free to contact us through the inquiry form.