On March 16, 2015, Japan’s Ministry of Justice abolished the requirement that at least one representative of a Japanese company must be a resident in Japan. While no statute, including the Companies Act of Japan, imposed a residency requirement, the Ministry of Justice, the authority with which incorporation documentation is filed, would not accept any incorporation application if the applicant corporation did not have a representative in Japan, under the Ministry’s rules. This abolishment means that going forward a Japanese company no longer needs to have a representative individual who lives in Japan. It is generally understood that this change is a part of the “Abenomics” economic policy, named after Japanese Prime Minister Shinzo Abe, which has sought to stimulate investment in Japan by foreign nationals.
How to take advantage of the change
This change in the residency requirement accompanies a change in the Japanese visa requirements under the Immigration Control and Refugee Recognition Act of Japan. A four-month visa will be newly available under the “Business Manager” (keiei kanri) visa category, and an anticipated representative of a Japanese company can carry out incorporation procedures in Japan with the newly created visa. However, procedures for obtaining the four-month visa and the incorporation mechanics can be complicated and somewhat burdensome, especially when an applicant has no previous experience. It may be difficult for an applicant to complete the procedures within four months, unless the applicant has sufficient knowledge of the process. Therefore, using law firms in Japan and other established service providers, rather than carrying out all incorporation procedures without any professional support, still should be considered, regardless of the changes in the residency requirements and the visa rules.
Change does not apply to branch offices
Under Japanese law, there are three main options for corporation formation:
- Kabushiki Kaisha (KK), which is a joint stock company;
- Godo Kaisha (GK), which is similar to a U.S. LLC; and
- a registered branch office of an offshore company.
The rule change that took effect March 16, 2015, is applicable to KKs and GKs only. Therefore, if you wish to establish a branch office of a foreign company, the branch office is still required to have at least one representative who is a resident in Japan. However, there are some discussions that this inconsistency among KKs, GKs and branch offices does not have any specific rationale. These discussions could potentially result in abolishment of the residency requirement for registered branch offices, which would require an amendment to the Companies Act of Japan, although no specific timeline as to when such amendment will be introduced to the Diet has been reported.
No tax impact
The change does not involve a change in the tax imposed on representatives’ compensation paid by Japanese companies to non-resident representatives of the company. The way in which it will be addressed depends on individual tax treaties that Japan has executed with other countries; for example, under the Japan-U.S. tax treaty, officers’ compensation that Japanese companies grant to U.S. residents is subject to Japanese tax requirements.