In line with Prime Minister Abe’s effort to unleash the “third arrow” of Abenomics (the growth strategy through structural reform), Japan’s Ministry of Justice has recently abolished the resident director requirement.
The abolishment will help to eliminate the barrier of entry for foreign companies, create a business friendly environment and increase foreign direct investment. From 16th March 2015 onwards, it is no longer compulsory for new or existing Japanese companies to have at least one Japanese resident as its director. The measure involves the following business incorporation categories:
- Conventional corporation (Kabushiki kaisha, the most represented status among foreign subsidiaries)
- Limited liability company (Godo kaisha, second most common status)
However, the announcement is a streamlining of business registration process by the Legal Affairs Bureaus (the “LAB”) instead of a law amendment. The Companies Act of Japan still requires foreign companies with a branch office in the country to appoint at least one representative with domestic residency. In addition, the requirement for limited liability partnership to have at least one resident partner (Yugen jigyou sekinin kumiai) remains.
Now, let’s take a closer look at what this regulatory change means for businesses that wish to expand into Japan. While a non-resident director can be appointed now, companies have to consider thoroughly its impact on the operational side of business. For example, the initial incorporation process still requires a local representative to register for the company’s seal, renting offices, opening corporate bank accounts and acquiring certain business licenses. Furthermore, all Japanese entities are still required to be registered with a domestic address.
Also, both the resident and non-resident directors are subjected to the same filling obligations and responsibilities. That means if the non-resident director holds a tax payer status in a foreign country, he or she is subjected to the tax filling there. In the unlikely event of the company facing a law suit, it is compulsory for the non-resident director to attend the trial, no matter where he or she is stationed. Therefore, most of our clients have decided to continue using our representative services for practical reasons. It helps them reduce risk, control costs and simplify operations.
In response to the latest regulatory update, we have introduced two flexible new services (Initial Promoter and Company Seal Custodian) to adapt to our clients' evolving needs.
This service helps clients to set up their Japanese subsidiary in a fast, safe and efficient manner through our Representative and Corporate Secretarial services during the initial period. After several months (usually three to six months), the management responsibilities will be transferred back to the client. It is ideal for foreign companies who wish to kick start their operation in Japan as soon as possible without being distracted from their key focus: managing and growing their businesses.
Company Seal Custodian:
In Japan and some other Asian countries, a company seal is utterly necessary as it is a representation of the company. Most of the time, it is a compulsory item for government and official documentations. As a result, anyone who holds the company seal has great individual control over the entity. By having TMF as its custodian, the client can rest assured that the usage of the seal is monitored and safeguarded. This service used to be part of our Representative Service but it is now available on its own.
There might be more liberalisation measures coming from the Japanese government to enhance the ease of doing business in the future. We welcome any reformations by the government that would help increase the flexibility and convenience for foreign investors to come to Japan. As the global expert that understands local needs, we will always adapt and re-configure our services to help our clients to expand and invest seamlessly into Japan.
Read more about doing business in Japan