So, you finally took the big steps and proceeded with incorporating a company in Japan. But then, what’s next?
“Is there anything that I might miss out?”
“Where should I start from here?”
“Too much info here and there from different sources, where can I find a simple and easy one to understand?”
We are here, with simple and plain English, to guide you on what to do after incorporating a company (where you would likely have a company registry, issued by the Japan Legal Affairs Bureau stating the company’s basic details, as well as the Japan entity’s Article of Incorporation, on hand and readily available).
Submission of initial tax registration
Bank account opening
Accounting and financial compliances
Japan tax compliances
0. Entity establishment-Establishment entity such as company, partnership(GK), branch, rep office
1. Submission of initial tax registration- Filing initial tax registration to reap the benefits before it’s too late
2. Office address- Some might consider renting a physical office or changing the office address to a more permanent one
3. Bank account opening- Get ready to open a bank account in Japan
4. Accounting and financial compliances- Decide on how and who to handle the bookkeeping and payments
5. Personnel hiring- Decide on where to find the suitable candidate and their package, as well as other payroll-related matters
6. Japan tax compliances - Probably the last thing in mind that you would like to deal with, i.e. paying taxes here in Japan
In order to reap the benefits of some tax credits, tax deductions, extension in filing tax returns, etc., majority of companies in Japan filed initial tax registration, within 2 months after incorporation, to the tax authorities in Japan. Basically, the initial tax registration is a way of informing the national and local tax authorities the existence of this new company in Japan. We, at Sansei, can assist the management in submitting the initial tax registration before the due date.
During the incorporation process, the management may use a temporary address in Japan. Once the company has been fully incorporated, the management may consider looking for a physical address or a more permanent one for the company. We would be able to give recommendation to the management to address this concern.
Majority of MNCs would prefer to open a bank account with the branch of an international bank, due to the fact that such branch offers the web-banking platform in English. However, for the ease of banking transactions domestically, the management may consider opening a bank account with one of the local mega banks. We can assist the management in opening a local bank account if required.
Once the bank account is successfully opened, then the next question would be how to operate it. As the web-banking platform of the local banks in Japan is in Japanese language, it would be practically hard matter-of-fact for management, without Japanese language skills, to navigate the web-banking system, let alone to carry out banking transactions by themselves. It is understandable that the management may feel unease having a third party operating the bank account on its behalf. Rest assured, we have a track record to handle bank transactions for our clients.
For accounting, bookkeeping and financial matters, the management may either consider handling it in-house or outsourcing it. If these functions are done in-house, then it is presumed that the company has competent and knowledgeable staff who will overlook the whole functions. If these functions are to be outsourced to third party, professional firm like us would assist the management to record and to keep track of the company’s financial positions. We are using the standard software (commonly use in Japan for accounting / bookkeeping purpose) to prepare the needed financial statements, which would then forwarded to the management after the month-end close for review.
For management that has yet to decide on the suitable candidate, we can recommend some recruiting agencies for consideration. Once the management decided on the suitable candidate, then registration of the new hire is required to the social office, labour office and the tax offices. We can assist the management in filing the necessary registration to these offices.
Thereafter, the next question would be how the payroll will be handled. The management would need to decide the appropriate compensation package for the new hire. Compensation package for the new hire, either as an employee or as a registered director, would have a different implication to the company. We are pleased to provide the necessary advise where required.
Every month, we would assist the company to calculate the net pay, after deducting the necessary mandatory contributions and taxes from the gross pay. Then, the net pay, together with expense reimbursement if any, would be transferred to the employees / directors’ bank accounts and the pay slip, either in hardcopy or softcopy form, will be given to the employees / directors.
At year-end, the company is required to perform year-end tax adjustment for its applicable employees / directors. Simply speaking, the year-end tax adjustment would be the calculation of final tax payable for the applicable employees / directors. We can assist the management to perform the year-end tax adjustment as well as filing the necessary report on this.
Generally, there are 3 taxes in Japan that the management ought to be putting a head up on, namely corporate income tax, consumption tax and withholding income tax. As a professional firm, we offer services in supporting the management to prepare and file these tax returns to the tax authorities.
Corporate tax in Japan is charged based on profits, as well as on per capita basis. Having said, a dormant / inactive company in Japan would need to pay tax given the fact that such company has registered paid-in capital. Corporate tax payment is due 2 months after the year-end, and there is usually no negotiation to extend this corporate tax payment due date.
Consumption tax is charged on domestic transactions, so a company operating in Japan likely would be paying domestic expenses which include consumption tax, and charging consumption tax if it issues invoices in Japan. Although the company is charging / incurring consumption tax, the company may not be filing a consumption tax return if it is an exempt taxpayer for consumption tax filing purpose. We are pleased to provide the necessary advice on this topic upon understanding the company’s business operation in Japan, and how to comply with the consumption tax return filing requirement.
Withholding tax payment, which include the individual income tax withheld from employees’ salary, may be due on monthly basis or on semi-annual basis. We are pleased to assist the management in handling the payment where required.
In most of the time, after incorporating a company in Japan, sourcing for professional accounting firm would be the very next step. Most companies will ask around for recommendations before deciding on one. Once chosen, such professional accounting firm will work closely with the management and along the way, build a strong formidable working relationship. Many managements aware that, although possible, it is quite difficult to change the professional accounting firm mid-way due inefficiency as well as wasting of valuable time-cost. As such, choosing the right professional accounting firm at the beginning is crucial to ensure efficiency and minimal wastefulness in time and resources.
What to decide when choosing of a professional accounting firm? Some management might answer cost, some might answer trust, some might answer flexibility and so on.
As a professional accounting firm, the common answers we heard likely be:-
It is, by no doubt, that a professional firm should be staffed with competent staff to be able to carry out the services for the companies. Depending on the size of the companies, some companies may prefer to have a large team of competent staff member in the professional accounting firm to address various issues that may arise. Some might prefer to deal only with the sole tax accountant who handles all the work himself / herself. It is up to the decision of the management to choose whatever sees fit.
Among hundreds of professional accounting firms exist in Japan, it is not easy to determine whether a professional accounting firm has a long standing trust-worthy reputation. Hence, most companies usually ask around for recommendations, for the peace of mind, rather than searching randomly on internet.
Given that language barrier is another huge obstacle for MNCs in Japan, most management would prefer to contract with a professional accounting firm that they can communicate easily and fluently. Having someone knowledgeable and able to offer advice and response in a simple plain and understandable English sounds easy in English-speaking world but in Japan, it is hard to come by so most MNCs would put this into their priorities in choosing the right professional accounting firm to work with.
On the above, it would be good to know that we, at Sansei, has a vast portfolio of clients, working closely with major law firms in Japan, as well as accepting clients through words of recommendation. Not to mention that, English language is our main form of communication with our MNC clients.