How to Set Up a Subsidiary in Japan

A Japanese subsidiary offers more than just a local presence, it provides legal separation from your parent company, along with stronger credibility in the Japanese market and greater potential for long-term growth.

So, let’s go through everything you need to know to set up a subsidiary in Japan. From legal requirements and registration steps to tax obligations, HR rules, and ongoing compliance, we’ll break it down clearly so you can make informed decisions and avoid costly mistakes.

Contents:

• What is a Subsidiary in Japan?
• Why Foreign Companies Choose a Japanese Subsidiary
• Pre-Setup Considerations
• Step-by-Step Guide to Registering a Subsidiary in Japan
• Legal and Compliance Obligations
• Using a Service Provider: Do You Need Local Help?

Need Some Guidance on Setting Up a Subsidiary in Japan?

What is a Subsidiary in Japan?

A Japanese subsidiary is a locally incorporated company that operates as a separate legal entity from its foreign parent. It can sign contracts, hire staff and conduct business independently under Japanese law.

Unlike a branch office (which is an extension of the parent company) a subsidiary has its own legal and financial responsibilities. This separation limits liability and gives the subsidiary more autonomy in the local market.

Foreign companies typically choose between two types of subsidiaries in Japan:

• Kabushiki Kaisha (KK): The most common structure, preferred for its credibility and familiarity in Japan.
• Godo Kaisha (GK): A simpler, more flexible alternative, often used by smaller businesses or startups.

Most foreign businesses incorporating in Japan go for a KK setup due to its alignment with Japanese expectations, especially when working with local banks, clients or government entities.

Why Foreign Companies Choose a Japanese Subsidiary

When entering the Japanese market, many foreign businesses face a key decision: open a branch office or establish a subsidiary. While both structures are viable, a subsidiary offers unique benefits that often make it the preferred option for companies with long-term plans.

Key advantages of a Japanese subsidiary include:

• Limited liability: The subsidiary is a separate legal entity, which helps isolate financial and legal risks from the parent company.
• Independent operations: It can sign contracts, open bank accounts and manage day-to-day affairs locally.
• Credibility in the market: Japanese partners, clients and institutions typically view a KK as more stable and trustworthy than a foreign branch.
• Eligibility for local support: Subsidies, tax incentives and business grants are more accessible to locally incorporated entities.
• Hiring is made easier: A subsidiary simplifies compliance with Japan’s employment and social insurance requirements.

For foreign businesses that aim to build a real presence, not just test the waters, a subsidiary offers the structure and autonomy needed to grow with confidence in Japan.

Pre-Setup Considerations

Before incorporating your subsidiary in Japan, it’s essential to make a few foundational decisions. These early choices will shape your tax position, governance model and operational flexibility.

Here’s what to consider upfront:

• Business scope: Clearly define your subsidiary’s activities. This determines licensing requirements and what you include in the Articles of Incorporation.
  
• Entity type: Choose between a Kabushiki Kaisha (KK) and Godo Kaisha (GK). KK is more common and respected, while GK is simpler but less recognized.
  
• Capital structure: Decide how much capital to inject and who will provide it. Japan has small or zero minimum capital requirements for most entity types, but credibility matters.
  
• Governance model: Identify directors and shareholders. Note that a KK requires at least one director and can have a board structure.
  
• Registered address: You’ll need a local Japanese address for legal registration. This can be a physical office or a virtual address, depending on your setup strategy.
  

Careful planning at this stage can help prevent delays, rework and compliance issues down the line. Some of these steps sound simple, but foreigners frequently run into unexpected delays and complications due to local attitudes and cultural nuances (e.g. getting a registered business address).

Step-by-Step Guide to Registering a Subsidiary in Japan

Setting up a subsidiary in Japan involves several legal and administrative steps. Here’s a clear breakdown of the process:

1. Prepare Articles of Incorporation

• Include essential details: company name, business purpose, address, capital, directors, and fiscal year.
  
• Draft the document in Japanese legal format. Professional translation may be required if starting from English.
  

2. Notarize the Articles (KK only)

• Required for Kabushiki Kaisha (KK); not needed for Godo Kaisha (GK).
  
• Notarization is typically done in Japan at a notary office, though remote options are available in some cases.
  

3. Deposit Capital

• Funds must be transferred into a Japanese bank account in the name of a designated representative.
  
• Proof of capital deposit is required before you can complete registration.
  

4. Submit Incorporation Documents to the Legal Affairs Bureau

• Required documents include:
  
  • Articles of Incorporation
    
  • Seal certificate of directors
    
  • Proof of capital deposit
    
  • Director consent forms
    
  • Registered office documentation
    
• Processing typically takes around two weeks once submitted.
  

5. Post-Registration Tasks

• Register for national and local taxes, including corporate tax and consumption tax (if applicable).
  
• Enroll in social insurance and labor insurance systems.
  
• Set up your company seal, corporate bank account, and internal HR processes.
  

Each step must be completed in sequence, and errors, especially in document formatting, can result in costly delays. Consider working with a local partner to streamline the process.

Legal and Compliance Obligations

Once your subsidiary is registered, staying compliant with Japanese laws is essential for continued operation. Japan has strict requirements around corporate governance, tax reporting, and employment practices.

Here’s what your subsidiary must manage on an ongoing basis:

• Statutory bookkeeping: Maintain accurate financial records in accordance with Japanese accounting standards.
  
• Annual filings: Submit financial statements and corporate tax returns each year.
  
• Corporate tax: Pay both national (23.2%) and local enterprise taxes. Consumption tax may also apply, depending on revenue.
  
• Employment compliance:
  
  • Draft employment contracts that align with Japanese labor laws.
    
  • Observe rules on working hours, overtime, and paid leave.
    
  • Register and contribute to social security programs (health, pension, employment, and workers’ compensation).
    

Japan’s regulatory environment is stable but unforgiving. Even minor lapses—such as missed deadlines or incorrect filings—can lead to penalties or loss of good standing. Proactive compliance is not optional; it’s critical to your success.

Taxes for Subsidiaries in Japan

Understanding the Japanese tax landscape is essential for managing costs and staying compliant. Unlike pass-through entities in some countries, subsidiaries in Japan are treated as separate taxable entities.

Key tax considerations include:

• Corporate income tax: The national corporate tax rate is 23.2%, with additional local taxes depending on your location and capital size.
  
• Local enterprise tax: This varies by prefecture and is based on income, capital, and number of employees.
  
• Consumption tax: Japan’s equivalent of VAT is currently 10%. Businesses with taxable sales over ¥10 million in the base period must register and collect it.
  
• Transfer pricing: If your subsidiary trades with its parent company or other group entities, transactions must be priced at arm’s length. Documentation and reporting are required to avoid penalties.
  

Japan’s tax system is transparent but documentation-heavy. Foreign businesses should plan for regular reporting, anticipate tax liabilities, and ensure full alignment with Japan’s transfer pricing rules.

HR and Hiring Considerations

Hiring in Japan requires full compliance with local labor laws—regardless of your parent company’s policies. Employment practices are closely regulated, and failure to meet obligations can result in legal and reputational risks.

Here’s what to keep in mind:

• Employment contracts: Must be in writing and include details such as job description, working hours, compensation, and notice periods.
  
• Working conditions:
  
  • Standard workweek: 40 hours (8 hours/day).
    
  • Overtime must be pre-agreed and compensated according to labor laws.
    
  • Paid leave entitlements are mandatory and increase with tenure.
    
• Social insurance registration: All employees must be enrolled in Japan’s four main social insurance programs:
  
  • Health insurance
    
  • Pension (Employee’s Pension Insurance)
    
  • Employment insurance
    
  • Workers’ compensation insurance
    
• Onboarding procedures: Employers must notify relevant government offices and keep internal HR records up to date.
  

Hiring talent in Japan can be a competitive advantage—but only if your HR setup is legally sound and culturally aligned.

Using a Service Provider: Do You Need Local Help?

Japan’s setup and compliance process is detail-heavy and often unfamiliar to foreign businesses. While it’s possible to go it alone, most companies choose to work with a local service provider to avoid costly missteps.

A trusted partner can help with:

• Drafting and notarizing Articles of Incorporation
  
• Handling document translation and legal formatting
  
• Capital deposit coordination and bank introductions
  
• Tax and social insurance registrations
  
• Ongoing accounting, payroll, and HR compliance
  

Partnering with experts helps reduce delays, ensure full compliance, and free up your internal resources to focus on growth.

Need help establishing your subsidiary? We’re here.