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Things to Consider When Entering the Japanese Market
Trending News Aug 2022

Things to Consider When Entering the Japanese Market

Aug 2022

Among law firms in Japan, Anderson Mōri & Tomotsune ("AMT") has one of the longest and most distinguished records of assisting companies to enter the Japanese market. For years, we have successfully helped our clients smoothly navigate the Japanese legal regime by offering a practical, results-focused approach. Our comprehensive services aid clients in establishing and maintaining their Japanese presence in a locally compliant and culturally consistent way.

1. What Type of Business Presence Should We Establish?

An overseas company entering the Japanese market has several alternatives with respect to the choice of business entity, including:

  • a Japanese branch office;
  • a wholly-owned Japanese subsidiary in the form of a limited liability stock corporation (Kabushiki Kaisha or "KK"); and
  • a wholly-owned limited liability membership company (Godo Kaisha or "GK").

The following chart compares and contrasts some characteristics of these types of business entities in Japan.

What Type of Business Presence Should We Establish

2. What Is the Business Tax Regime in Japan?

In general, Japan is a comparatively high tax jurisdiction. The primary tax burden is the corporate income tax. Currently, the overall effective tax rate (national and local) on a corporation's income is approximately 30%. An overseas company that establishes a branch office in Japan will be subject to corporate tax only on its Japan sourced income.

A KK or GK will be subject to corporate tax on its worldwide income.

  1. Primary Taxes
    • Corporate income tax
    • Consumption tax (VAT-type tax)
    • Withholding tax
  2. Other Taxes
    • Customs taxes
    • Real estate acquisition tax
    • Fixed asset taxes

3. Is Japan an “Employer Friendly” or “Employee Friendly” Jurisdiction?

Regardless of whether an employer is Japanese or a foreign national, as long as the business is operated in Japan, labor and employment related laws, such as the Labor Standards Act, will apply. Therefore, if a foreign company establishes a subsidiary or branch in order to conduct business in Japan, Japanese labor and employment related laws will apply to this subsidiary or branch, as well as to the employees.

Japan is still generally considered employee friendly and retains some uncharacteristic employment practices. For example, the unilateral dismissal due to redundancy is very difficult in Japan, and the termination of indefinite term employees can be particularly complex and difficult.

It is therefore essential to plan your Japan employment strategy carefully. We have extensive experience providing advice about the employment options for your Japan staff and the legal distinction between employees and directors of Japan subsidiaries.

Further, if you plan to dispatch a non-Japanese national to work in Japan, it will generally be necessary to apply for and obtain a work visa. That process can take several months. AMT has bilingual immigration specialists on staff who can efficiently and effectively execute these procedures.

4. Protecting Your Valuable Intellectual Property in Japan

Some intellectual properties such as patent rights, design rights and trademark rights are protected by filing an application with the Japan Patent Office (the “JPO”) and being registered after examination. In principle, the patent right is protected for maximum 20 years, design right for 25 years, and the trademark right for a maximum 10 years (The trademark rights can be renewed upon applications and payment of renewal fees). These rights are governed by the first-to-file principle, which is the rule that the person who applied first for a patent, design or a trademark are protected, rather than the person who first to invent, create or use it. Therefore, it is essential to file an application promptly. To assist you in this endeavor, we have a team of bilingual Japanese patent, design and trademark lawyers (benrishi) who can handle your patent, design or trademark filings with the JPO.

An employer may, as an applicant, file a patent for an invention created by an employee, provided, however, that the employer reasonably compensates its employee. The process for determining “reasonable benefit” may often be articulated in an agreement or employment regulation, which are often checked in due diligence for M&A and other deals. Our skilled IP lawyers have a plenty of experience on this field and can support businesses to have an appropriate agreement or employment regulation so that the employer proceed with the determination of “reasonable benefit” in a smooth manner.

With regards to a trademark, brand owners in Japan occasionally face competition from products imported through parallel import channels, including internet platforms. These products can be both genuine and non-genuine. Our skilled IP lawyers also have a history of success with assisting overseas clients to protect their brands in Japan.

5. Data Privacy

The Personal Information Protection Act (the “PIPA”) is the basic legislation governing data privacy in Japan. The Personal Information Protection Commission (the “PPC”), which is the independent data protection authority regulating data protection matters, has issued detailed guidelines (the “PPC Guidelines”) on the interpretation and enforcement of the PIPA. The PIPA and the PPC Guidelines outline the rights of data subjects and the various obligations which businesses need to comply in order to lawfully handle personal information.

The PIPA is to be reviewed every three years by the Japanese government to reflect the social situations surrounding personal information, such as international trends in personal information protection, the advancement of information and communications technologies, and the creation and advancement of new industries using personal information. Based on the result of the review, necessary amendments of the PIPA are to be taken. Therefore, it is essential from a business perspective to pay close attention to the latest trends related to protection of personal information both within Japan and outside Japan. Most recently, the amendments to the PIPA took effect on April 1st 2022, which includes mandatory reporting of data breach to the PPC, expansion rights of data subjects, and disclosure requirements for outbound data transfer.

6. Other Issues to Consider

Depending on the type of business and your strategy, you might need to address other issues, including those raised by matters relating to:

  • Supplier-Distributorship Arrangements;
  • Regulatory Compliance;
  • Competition;
  • Consumer Protection (B2C);
  • Stock Option Plans; and
  • Office Leasing.

7. Reference Sources

  • The Japan External Trade Organization (JETRO), a Japanese governmental organization, has a helpful website in English to assist those seeking to establish a business in Japan.
    Because we enjoy a good relationship with JETRO, we can assist our clients by making introductions.
  • Introduction to Japanese Business Law & Practice (5th Edition) (in English)

For an in-depth discussion of a wide spectrum of legal issues faced by overseas companies doing business in Japan, please see our publication, “Introduction to Japanese Business Law & Practice” (November 2021). Authored by specialists of our firm, AMT's publication addresses topics such as:

  • The Companies Act;
  • M&A;
  • Listing and Public Offerings;
  • Intellectual Property Rights;
  • Antimonopoly Act;
  • Taxation;
  • Labor and Employment Law;
  • Arbitration and Other Alternative Dispute Resolution; and
  • Insolvency and Restructuring.

Further details of this AMT publication can be found here.