Starting a business in Japan comes with challenges, especially for a foreigner. To begin with, you need to know the language. Additionally, Japan is known widely for its organized business culture. It is also known for having some very creative business ventures wherein business owners use technology to make their work easier and attract a lot of traffic because of its uniqueness.
If you are a foreigner, starting a business in Japan can be extremely difficult as the work culture here is quite different. Language fluency is essential, not just for setting up but even for conducting business. Secondly, the processes here are quite different from the entire business structure. The market in Japan is also unique and different, so conducting thorough research is extremely important. You must be sure that your business idea is suitable for the Japanese market.
However, there is an advantage that a foreigner may have in starting a business in Japan. You may have a different product or service which may not already be present or common in Japan. This becomes your differentiating factor. A foreigner’s upper hand due to this uniqueness is known as the Gaijin Factor.
To know how to start a business in Japan, the process can be broken down into five major steps. Each of these has its sub-steps, leading to successfully starting a business. Depending upon your citizenship status or immigration status, a few steps may be removed from this. The five major steps involved in starting a business in Japan are: making a business plan, obtaining a visa, setting up an office, hiring employees (including all employee-related matters), and finding a place of residence. The first four steps are followed by company registration, including tax registrations, and finally, starting operations.
Process of setting up a business in Japan
Setting up a business in Japan consists of five major steps. If you are a citizen here, you do not have to worry about the visa process and maybe not even about finding a place of residence if you already have one. However, all other steps are required. Here is how you can successfully start a business in Japan:
- Create a Business Plan: This begins with finding a marketable idea. Coming up with a business idea includes a lot of research as well. You would need to test whether your idea can be turned into a viable business or not. You will also need to know if you have competitors and whether or not you can still survive and thrive in the market. After researching all this, there needs to be in-depth research to develop a realistic development and growth plan. This includes a price point, what kind of profit margins you create, what amount of traffic or footfall your store can potentially attract, and what your expansion plans will be over the next few years.
- Resolving Visa Status: If you are wondering how to start a business in Japan as a foreigner, you need to start with obtaining the correct type of visa. To conduct business in Japan, foreigners require one of the three types of work visas that allow setting up a business. Individuals can obtain either a 4-month business manager visa, a start-up visa, or an investor visa. All three have different functions, so you need to research each before selecting one.
- Registering the Company: Registering the company is the next step to starting your business in Japan. To do so, you first need to decide on the company’s legal structure. There are three types of companies recognized in Japan: A Limited Liability Company (better known as Kabushiki Kaisha), A Partnership (Godo Kaisha), or a Sole Proprietorship (Kojin Jigyo). While the first two types are the most commonly recognized structures, the Kojin Jigyo is also quite often recommended for new and small businesses to see the company’s potential. Once this is decided, a crucial part of getting the Articles of Incorporation, these documents determine the managing style of the company. The Articles of Incorporation need to be Notarized. There is also the need to register your company trademark to have complete ownership of the business or the company name.
To register the company, business owners and investors also need to find office premises as the office address might be mentioned on the registration certificate. There is also a need to have a Japanese bank account. Those who do not have a Japanese bank account can also choose to partner with an individual who has one and is willing to use this account for the company’s capital deposits.
Upon completion of the registration process, the business owners would get a registration certificate, a company seal certificate, and a corporate number. All these things are vital to open a corporate bank account in Japan and for all official work like signing contracts.
- Setting up Office: To Set up the business, the business owners and investors must complete all the tax-related issues once the company is registered. This includes registering with the tax system. As soon as the company is incorporated, a document needs to be sent to the National Tax Agency. As there are various types of Taxations, businesses must ensure they are covered for all relevant types of taxes owed by them. This would include corporate taxes, income tax, international tax, withholding tax, etc.
- Finding Residence: Businesses owned by locals and foreigners staying in Japan need to establish a permanent residence. There may be time allowances to find appropriate residential accommodation during which individuals may stay in a hotel or find other arrangements. New businesses (not multinationals) need a permanent Japanese address to set up a business.
Hiring Employees in Japan
Hiring Employees in Japan is a challenge in itself. Given the Labor shortage in this country due to low birth rates, it is extremely challenging to find employees for a business. This is where an experienced HR partner like Zimyo comes to your rescue by handling all the intricacies involved with hiring employees in Japan. Employees are also prone to expecting a lot of job offers when they look for employment, so employers must ensure that they create an environment that is appealing to new workers. Job Security is one important thing that all employees look for.
Before hiring employees, all employers must ensure that they know the Labor Laws. One important thing to know is that businesses with over 10 employees need to establish a set of work rules to submit to their local Labor Standards Inspection Office.
- Trial Period/Probation Period: Probationary period lasts for about three months in Japan. However, the business structure in Japan is such that the employees are trained first. The probationary period becomes more like a formality, and rarely is any employee terminated by the end of the probationary term. This is because Japan has a “Long-term-employment” idea, wherein they train individuals keeping in mind the company’s long-term goals. This is also beneficial for the employers because there is a shortage of labor in Japan, so they can find it very difficult to find employees.
- Leave and Holidays: An employee is entitled to
10 days of paid annual leave in Japan once worked with a company for 6 months. The number of days increases by 1 every year after that. This caps at an annual minimum of 20 paid vacation days, which an employee can get after working with a firm for 6.5 years. However, this is the minimum statutory requirement, and employers can choose to allow more vacation time. Japan also has 16 national holidays. However, there is no paid sick leave requirement.
- Maternity Leave: As per the statutory requirements, employers must provide at least 14 weeks of maternity leave to expecting employees. These 14 weeks should start 6 weeks before childbirth and extend to at least 8 weeks after childbirth. However, if the employee wants to return after 6 weeks of childbirth, they need to provide supporting health documents stating that they are recovered to return to work.
- Termination of Services: If an employer wants to terminate an employee, he must provide a 30 days notice to the employee. If he wishes to terminate the employment earlier, he must provide the employee with 30 days’ wages. Employers cannot randomly terminate employees. They need a reason to do so, and the burden of proof is upon the employer. Employees, on the other hand, need to only provide two weeks’ notice if they want to resign from employment.
- Pension: Employers are needed to register with Japan’s Pension Service before they can hire employees. Pension is a part of the Social Security or Shakai Hoken in Japan. The employer is required to withhold the employee’s portion that goes into the Shakai Hoken and add his contribution to it. The Shakai Hoken includes Pension, Health Insurance, Worker’s compensation, and unemployment insurance.
- Work Hour Norms: The standard number of working hours in Japan is 40 hours per week. However, depending upon the nature of the work, some professions can extend this limit to 44 hours. If employers need the employees to work extra hours, they need to submit a labor-management agreement with the Labor Standards Inspection Office. Employees working overtime, night shifts, or on statutory holidays are also entitled to get a 25%-50% premium on their regular wages.
How easy is it to conduct business in Japan?
Starting a business in Japan is a little more challenging than in other countries, which are top choices for entrepreneurs. It stands at an overall rank of 29 in Ease of Doing Business. This is a global index created by the World Bank. Several countries are judged on several essential business-related parameters to understand how easy or difficult it is to set up and conduct business in these countries.
- Starting a Business: In terms of starting a business, Japan ranks at 106. This comes as no surprise considering this country’s challenges in starting a new business. There are a lot of strict rules that entrepreneurs must follow to successfully establish a business. However, despite having so many rules, many agencies can help make the process a little easier. The cost of starting a new business can be high in Japan, which adds to the lower rank.
- Managing Permits: There are quite a several security checks, background checks, and permits that need to be obtained by every upcoming business to successfully start a new venture. While the systems are quick at processing these permits, the business owner must acquire and manage all the additional documents required to attain the permits.
- Getting Electricity: Getting electricity for your new venture in Japan is quite simple. This is reflected in Japan’s ranking at the 14th position for the ease of getting electricity parameters. It can take about 81 days; however, there are just two quick procedures required to get a sufficient amount of electricity load granted for the business. This is extremely helpful as electricity is a basic necessity in running a business, and different types of businesses may require different loads of electricity to function smoothly.
- Getting Credit: Getting credit can be difficult in Japan. Japan ranked at number 94 and scored a mere 55 out of 100 in getting credit. This is a challenge for foreigners who do not have a bank account yet. Establishing a business would need a local bank account before there can be a corporate one created. Even still, getting credit requires a lot of documentation and takes up some time, making it a rather difficult task.
- Managing Payroll: Managing payroll is extremely important. It can become difficult as the company grows as keeping accurate records of all employees is important. With the help of experienced HR experts at Zimyo, you can efficiently manage all payroll-related requirements of your employees while complying with the laws of the land.
- Paying Taxes: Japan ranks at 51 in terms of paying taxes. Employers are liable to deduct taxes from their employees’ salaries before crediting them. The rate of income tax varies depending upon individual salaries. There are other taxes like corporate tax, which must be paid as well.
- Enforcing Contracts: Japan ranked at number 50 and scored 65.3 out of 100 in enforcing contracts. It can take up to 360 days on average to complete all procedures. The quality of judicial proceedings sits at 7.5 on a 0-18 scale.
- Resolving Insolvency: It is extremely easy to resolve insolvency in Japan, and as such, Japan ranks number 3 on this parameter. The recovery rate sits at a comfortable 92.1 and can take 0.6 years to complete resolving insolvency disputes in Japan.
While establishing a business in Japan can be extremely challenging, there are various advantages of starting a business in Japan. It is the world’s third-largest economy, known for revolutionary operations, inventions, and ideas and strategically developed infrastructure. With the abundance of opportunities, it is not impossible to start a new business in Japan; however, competition is tough here, and to succeed, every business owner and investor must be very proactive. To thrive in a tough market like Japan, you need a differentiating factor. By understanding the nuances of the systems and cracking the code to attract traffic, every business can succeed here.
While you focus on the growth and expansion of your business, Zimyo will take care of all your HR requirements. Whether payroll management or advance against salary, all tasks are handled efficiently by expert consultants with multiple years of experience.