Companies considering expanding into Japan are likely evaluating which business structure is best suited for their entry. Generally, there are three primary ways to establish a presence in Japan: a subsidiary (Japanese corporation), a branch office, or a representative office.

This article introduces the "Representative Office," which, despite having certain restrictions, is the simplest way to establish an initial foothold in the Japanese market.

1. What is a Representative Office?

When a foreign company conducts activities in Japan, it must establish a physical base of operations. The three types of bases are a subsidiary, a branch office, and a representative office.
A representative office is established as a preparatory entity for a foreign corporation to engage in non-transactional activities in Japan. Consequently, it is permitted to conduct market research, information gathering, procurement of goods, advertising/PR activities, and providing information to the home office. However, direct sales or profit-generating business activities are strictly prohibited.

If your company needs to engage in direct commercial transactions in Japan, you must instead establish a branch office or incorporate a subsidiary (Japanese legal entity).

2. Differences Between a Representative Office, a Subsidiary, and a Branch

There are three major differences between a representative office and a subsidiary or branch office.

First is registration. While subsidiaries and branch offices are legally required to register their establishment with the Legal Affairs Bureau, representative offices are not. Essentially, setting one up only requires appointing a representative and securing an office location.

Second is business activities. As mentioned, representative offices cannot engage in sales, whereas subsidiaries and branches can. Since "business activities" in this context refers to direct, taxable commercial operations, representative offices generally do not need to file notifications with the tax office.

Note: However, tax procedures related to payroll and insurance for hired employees must still be handled. Additionally, depending on the industry of the foreign parent company, certain notifications may be required. For example, under the Banking Act, a foreign bank intending to establish a representative office in Japan must notify the Prime Minister in advance.

Third is the name on bank accounts and lease agreements. A representative office is treated as an extension of the foreign parent company. Therefore, office expenses are included in the parent company's accounting. Because a representative office is not considered an independent legal entity, bank accounts and office leases must typically be signed in the individual name of the office representative.

In contrast, subsidiaries and branches are recognized as independent legal entities (or registered branches of one), allowing them to open bank accounts and enter into contracts under the company name.

3. Procedures for Setting Up a Representative Office

The general workflow for establishing a representative office in Japan is as follows:

(1) Appoint a representative for the office.

(2) Determine the physical location of the office.

(3) Apply for the necessary Certificates of Eligibility (visas) for foreign nationals working at the office.

When a foreign company sets up a representative office, it must first appoint a representative. If a foreign national is appointed, they must hold a status of residence (visa) such as "Intra-company Transferee" or "Engineer/Specialist in Humanities/International Services."

To obtain the "Intra-company Transferee" status, the individual must have been employed at the head office or another overseas branch for at least one year immediately prior to the transfer. To obtain the "Engineer/Specialist in Humanities/International Services" status, a university degree is generally required. However, depending on the nature of the work, 10 years (or 3 years for certain roles) of professional experience may be substituted for a degree.

Once the representative is chosen, you must find a property and sign a lease. As noted earlier, because the office is not a legal entity, the contract must be in the representative’s personal name. Furthermore, since the office lacks corporate status, no registration application to the Legal Affairs Bureau is required.

Finally, if you are bringing personnel from overseas to stay in Japan full-time, they must obtain the appropriate status of residence. For example, an employee sent from the home office who has worked there for over a year would require an "Intra-company Transferee" visa. If you hire a foreign national already in Japan to work at the office, they would typically need the "Engineer/Specialist in Humanities/International Services" visa.

If the foreign employee already holds a status of residence with no work restrictions—such as "Permanent Resident," "Long-Term Resident," or "Spouse or Child of Japanese National"—no new visa application is necessary.

4. Conclusion

This article explained the establishment of a representative office as one method for foreign companies to enter the Japanese market. While it comes with several restrictions, it is the easiest form of entry to execute, making it a valuable option to understand.

Our firm provides comprehensive support for companies considering expansion into Japan. If you are planning your Japan market entry, please feel free to contact us for a consultation.
 

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