In an effort to boost foreign investments in Japan, the Cabinet Office recently resolved to eliminate the residency requirements for representatives of Japanese subsidiaries of foreign companies. The change took effect on Monday, 16 March 2015.

Prior to 16 March 2015, foreign companies establishing a presence in Japan were required to have at least one representative residing in Japan (it was not required that the representative be a Japanese national, only that he or she resided in Japan). This requirement meant that joint stock companies (kabushiki kaisha or KKs) were required to appoint at least one resident of Japan as a representative director, a position that is empowered to represent and bind the company in transactions. Limited liability companies (gōdō gaisha or GKs), were required to appoint at least one resident in Japan as the representative of the managing member who would have the legal authority to bind the company. The resident representative requirement has also been abolished for other entities such as general incorporated associations (ippan shadan hōjin) and special purpose companies (known as TMKs; tokutei mokutei kaisha) but it has not been abolished for branch offices of foreign entities.

The resident representative requirement has been, at times, a hurdle for foreign companies that did not yet have a trusted candidate in Japan to run the subsidiary with authority to legally bind the subsidiary. As a result, an industry of nominee service providers (usually small and medium-sized accounting firms) became established in Japan. Nominee service providers would make available one of their staff to serve as the resident representative for a service fee. These nominee service providers will not welcome the recent change.

Going forward, foreign companies can be established without appointing a resident representative. There are, however, practical issues that may require the use of nominees, at least during the establishment phase of the Japan entity. For example, when registering a KK, it is typical to submit to the Legal Affairs Bureau a copy of a bank statement showing that the capital amount set out in the incorporation documents has been deposited into a bank account in Japan. The capital is usually wired to the bank account of the person who will serve as the initial representative director and who acts as the promoter. Since non-resident bank accounts are rather difficult to open, it will likely be a bank account of a resident promoter that will be used. There is no such requirement when establishing a GK in Japan. Thus, at least for a KK, it may still be necessary to utilize a nominee in Japan during the incorporation phase of establishing an entity. In addition, entities in Japan will still need to have an address in Japan when they register at the Legal Affairs Bureau. Therefore, some foreign start-ups may continue to have needs of service providers for their initial address and for practical reasons associated with their business.