Make a Business Plan
Creating a solid business development plan is the essential first step in establishing your
business in Japan. To support you in this process, we will introduce useful websites and organisations for your reference.
Additionally, we will share the key regulations governing the transfer of funds from your home country to Japan.
Write a Business Plan
To start your business in Japan, you should write a clear and solid business plan. The content, quality and feasibility of the business plan is important.
Here are some of the points to be included in the business plan:
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What is your motivation or reason to expand your product or service in Japan?
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What is your business vision?
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What about licenses and permits?
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Who will be the stakeholders in your business?
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Can you hire staff in Japan with the expertise you need? Or will you send them as expatriates from your home country? If so, what about their visas?
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How much do you need to establish a company and start its operations?
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What is the market size and number of customers for your products and services in Japan? Is there potential for growth?
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What is your business model? What is your strength and competitive advantage against other competitors?
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What are the business risks involved in your business?
Careful research in advance is always essential when you leave your home country to start a business in another country. However, conducting your own research thoroughly is even more critical in this case since Japan has a language, culture, and business environment that are vastly different from other markets.
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Introduction to Helpful Research Sites
When researching the business environment in Japan, Japan External Trade Organization(JETRO) website is an excellent starting point. JETRO, a government-affiliated organization promotes mutual trade and investment between Japan and the global community. It provides valuable information and resources to assist foreign companies looking to establish and expand their presence in Japan.
In addition to publicly available information, gaining insights from businesses already operating in Japan can be highly beneficial. Networking with established organizations can offer practical knowledge and experiences. For example, if you are an American company, the American Chamber of Commerce in Japan is an excellent platform for networking and gaining business insights. Moreover, Japan is home to 36 other foreign Chambers of Commerce, and these include the UK, Germany, and France. These chambers provide opportunities for networking, advocacy, and community support. The list of Foreign Chambers of Commerce can be found here.
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Determine the Right Location for your Business in Japan
Japan is comprised of 47 prefectures, each with unique regional characteristics. While the laws and taxes are nearly identical across all prefectures, many local governments offer specialized incentives and support programs to attract businesses to their regions. To make an informed decision, it is essential to research and identify the area that aligns best with your business goals.
Below examples of some useful regional websites:
Invest Tokyo - Tokyo Metropolitan Government
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Planning to Transfer Funds from Your Home Country to Invest in Subsidiaries in Japan
When planning to transfer funds from your home country to invest in your subsidiaries in Japan, careful consideration and strategic planning are essential. This process requires a solid understanding of Japan's tax treaties, the methods for transferring funds, and the associated tax implications.
Funding Methods for Subsidiaries in Japan
There are two primary ways to fund your Japanese subsidiary, each with its own tax considerations:
1. Equity Investment (Capital Contribution):
- This involves injecting capital into the subsidiary, increasing its paid-in capital.
- While this method is not taxable for the subsidiary, it may impact its classification as a small or large corporation for tax purposes, which can influence corporate tax rates and compliance obligations.
2. Debt Financing (Intercompany Loans):
- Loans provided by the parent company allow the subsidiary to make tax-deductible interest payments.
- However, interest payments may be subject to withholding tax in Japan. Additionally, excessive debt financing could trigger tax limitations under Japan's Thin Capitalization Rule and Earnings Stripping Rule:
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Thin Capitalization Rule (過少資本税制): Limits the deductibility of interest expenses if the subsidiary’s debt-to-equity ratio exceeds a specified threshold.
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Earnings Stripping Rule (所得控除制限税制): Restricts the deduction of interest paid to related parties when the ratio of net interest expense to adjusted taxable income exceeds 20%.
These measures are designed to prevent tax avoidance and ensure taxable income remains in Japan.
Each method carries unique tax implications, making it essential to align your funding strategy with both your business objectives and tax efficiency goals.
6STEPS
Here we explain each task divided into six steps
If you are considering expanding your business to Japan, please contact Quantum Accounting Inc. for a free consultation during the planning phase or general consultation (available in both English and Japanese). Quantum Accounting's professionals are experts in accounting, tax, legal, and labor issues. Our goal is to provide you with a one-stop professional firm for all the services you need to expand your business into Japan.
We are confident that we can help you. For further information, please contact from CONTACT US.