Subsidiary, Branch, or Representative Office — What Each Can and Cannot Do When a Foreign Company Enters Japan

“We want to set up a base in Japan, but there are several forms — subsidiary, branch, representative office, and so on — and we don’t know which to choose in our case.” This is one of the questions we most often receive from executives and staff at overseas companies in the very early stages of entry. The three forms differ greatly — in what they can and cannot do, the scope of liability, tax, bank accounts, and even their compatibility with residence status (visas). And the choice of form is the “first fork in the road” of entry: the decision here affects everything that follows — registration, visas, accounts, and tax. In this article, an immigration lawyer specializing in international work organizes the three forms side by side and explains them in plain terms, so you can identify “which direction fits our case.”

The Choice of Form Is the “First Fork in the Road” of Entry

The procedures for entering Japan divide broadly into 5 areas: ① choosing the form, ② company formation, ③ licenses and permits, ④ residence status (visa), and ⑤ tax and labor (→ for details, please see the following article: ＞ the “Big Picture of Entry” article). At the very front of these is choosing the form. Why first? Because the form you choose here sets the premise for every subsequent area.

For example, “whether you can generate sales in Japan” is determined by the form, and “whether you can open a bank account in the company’s name” is likewise governed by it. How easily your representative or employees can obtain the residence status to work in Japan is also closely tied to the form. In other words, choosing the form is not merely an entry-level procedure but a fork that shapes the blueprint of the entire entry. That is precisely why you need to choose with a correct understanding of what each of the three forms can and cannot do.

The Bottom Line First — A Quick Comparison Chart of the 3 Forms

Before getting into the details, let’s grasp the whole picture on a single sheet. The following table lines up the three forms along the main axes of comparison. The details of each item are explained in turn in the sections that follow.

※ KK = stock company, GK = limited liability company. Specific decisions on taxation and residence status are the domains of a tax accountant and an immigration lawyer, respectively. The table above is a general organization and differs depending on individual circumstances.

Representative Office — “What It Can Do” and “What It Cannot Do”

A representative office is, in principle, exempt from registration and is the easiest base to set up among the three forms. It is positioned as a base for preparatory and auxiliary activities — such as market research, information gathering, liaison with the head office, and advertising — as a stage before full-scale entry.

The key point is that it cannot conduct business activities (sales, concluding contracts, or generating revenue). It is, after all, a base for “preparation,” and conducting transactions themselves here is not contemplated. In addition, a bank account in the company’s name generally cannot be opened, so in practice it is usually run with an account in the representative’s personal name. If you think “we can start the business from here” with the same sense as a representative office in your home country, things will not go as expected.

As for the residence status of the representative, options such as the Intra-company Transferee may sometimes be candidates, but this is an area where judgments easily diverge depending on the office’s substance and the nature of its activities. This article avoids definitive statements and goes no further than to say that “an individual assessment is needed.” A concrete outlook can be sorted out in a free consultation (→ link to free consultation).

Branch — What “the Same Legal Personality as the Parent Company” Means

A branch is a business office that a foreign company establishes in Japan. Unlike a representative office, it can conduct business activities in Japan. However, the feature you most need to understand lies elsewhere.

It is that a branch has the same legal personality as the parent company (the foreign company). Rather than creating “a separate company” like a Japanese subsidiary, the foreign company itself also operates in Japan. As a result, the branch’s debts and liabilities extend directly to the parent company. There is none of the “liability shield” that a subsidiary, discussed below, provides. This is the biggest difference from a subsidiary and the single most important point when considering a branch.

To trade continuously in Japan, registration of the foreign company is required. Under the Companies Act, you must appoint a “representative in Japan,” at least one of whom must have an address in Japan. Registration requires preparing and translating documents that prove the parent company’s existence (such as a sworn affidavit), which also places a corresponding workload on the overseas head office.

As for taxation, in principle income arising from business within Japan becomes taxable in Japan (the details are a tax accountant’s domain. → the “Tax” article). Also, residence status for a branch tends to be complex in structure and requires individual review (→ the “Business Manager Visa” article).

Subsidiary — Why Many Foreign Companies Choose This

A subsidiary is a Japanese company (a stock company or a limited liability company) newly established in Japan. Many foreign companies choose this form for full-scale entry. The reason is that it offers the following advantages that a branch and a representative office do not.

• Liability shield — It is a legal entity separate from the parent company, and the parent’s liability is, in principle, limited to the amount invested. It is a structure in which business risk on the Japanese side is less likely to extend directly to the head office.
• Credibility — In dealings with business partners, banks, leasing, and hiring, being “a company registered in Japan” tends to work in your favor in terms of credibility.
• Bank account — Opening a corporate account tends to presuppose being a subsidiary (a Japanese company) (note, however, that screening is strict. → the “Bank Account” article).
• Compatibility with residence status — It is most compatible with the Business Manager visa (owner-management) and the Intra-company Transferee (sending employees), making it easier to design coming to Japan to manage and work (→ the “Business Manager Visa” article).

Taxation is income taxation as a Japanese company (→ the “Tax” article). Note that whether to choose a stock company (KK) or a limited liability company (GK) is a separate issue, decided by comparing cost, social credibility, management flexibility, and the like (→ the “Stock Company vs. Limited Liability Company” article). This article does not go deep into the actual amounts of formation costs (under our firm’s plan, a stock company is 515,000 yen and a limited liability company is 463,000 yen, tax included. → consistent with the “Cost of Entry” article).

Diagnosis — Which Form Suits Your Company

So which form suits your company? There are simply two axes for the decision: ① whether you will generate sales (do business) in Japan, and ② who will come to Japan (will you send employees / will the executive come in person / or will no one come yet). Organized along these two axes, this corresponds to the three patterns shown in the “Big Picture of Entry” article (A: sending employees / B: owner-management / C: market research).

※ These are only directional guides. The optimal form changes depending on whether residence-status requirements are met and on the substance of the business. Whether it fits your case requires an individual assessment.

What matters here is not to make individual pronouncements like “your company should use a branch.” Choosing the form should be decided by weighing multiple factors — whether you can do business, liability, tax, accounts, and visas — against your company’s purpose for entering. This article presents the axes for the decision; for the final choice, we recommend organizing it with a professional in light of your entry purpose and business plan.

Incidentally, there are also ways to start without placing a base in Japan (such as selling through a local agent, or handling matters by export only). Although this is not the theme of this article, it is good to keep in a corner of your mind, as an option, that “a base is not necessarily required.”

“Changing It Later” Comes at a High Price

“Let’s just start with a representative office and switch to a subsidiary once things are on track” — at first glance this seems reasonable, but changing the form midway comes at a corresponding cost. Switching from a representative office to a subsidiary is itself possible, but doing so requires reopening a corporate account, re-signing various contracts, and re-arranging residence status. It takes both time and money, and the pace of the business slows.

In particular, if you had already stepped into doing business at the representative-office stage, after-the-fact handling may become necessary, including the tax side (whether it has been treated as a permanent establishment, i.e. a PE). That is precisely why the initial assessment matters. Choosing the form with the future in view from the start, and designing formation, licensing, visas, and accounts “in parallel” rather than “in sequence,” turns out to be the shortest route (→ the “Parallel Processing and Sequencing” article).

Sorting Out the Choice of Form Starts with a Free Consultation

Choosing the form is a central theme of PHASE 1 of entry support (Initial Consulting / from 330,000 yen, tax included). However, the entrance to it is, after all, free. At Touch Immigration Lawfirm, we offer a free initial consultation (STEP 0: Free Consultation).

In the free consultation, we will listen to your current situation and the purpose of your entry, and explain which direction — subsidiary, branch, or representative office — is likely to fit, together with the broader picture ahead. If the consultation shows that concrete support is needed, we will then propose a paid support plan suited to your needs and carefully explain the cost outlook. Please feel free to get in touch first.