Different Routes to Incorporation
Decision of Hiring Before Incorporation
Prior to incorporating your business, there are options to ensure that you are able to source local employees or contractors to assist incorporating in Japan. Having a local employee before incorporation, the company can engage local service providers for incorporating the Tokyo base. Otherwise, the company can choose to engage an incorporation package service provider, such as a global expansion service company.
If you have a prenty of time to incorporate and launch your business, engaging individual local service providers can save your costs. On the other hand, while their fees are generally higher, with engaging a global expansion service company you can enjoy smoother and quicker process, including bank account opening that is difficult for a newly established company in general.
It is often difficult to attract top tier Japanese talents when hiring without a local branch/subsidiary, because most of job seekers donāt get used to it. But regardless which route, we recommend to start hiring process as soon as possible because it takes time to find the right candidate.
Hire Through Headhunters
There are many English speaking headhunters in Tokyo, including global companies and local firms. The average hiring commission is 35% of the candidateās first yearās compensation (base + bonus). The engagement model can be contingency based or retainer based.
Typically, if hiring a bilingual business developer who has about 10 years experience in the FinTech industry, the annual total compensation (base + bonus) will be around JPY 20M. So the headhunter commission will be around JPY 7M (typically 35%). The hiring process may take 2 to 4 months depending on how busy the job market is.
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Please refer to Tokyo Job Market Reference for understanding the estimated compensation (base + bonus) range for each typical role. The actual annual employment costs should include not only base salary and bonus, but also social insurance & benefits, etc. statutory in Japan. Deel offers an employee cost calculator to help evaluate the total annual employment costs.
Temporary Employment Mthods Before Incorporation
The first employee (can be a contractor too) usually will be responsible for incorporating the Tokyo branch. The candidate can be temporarily employed indirectly through following channels.
Employer of Record Company
When an employee is hired through an employer of record company, the company outsources HR responsibilities, including payroll, and social insurance & benefit management, to the record company. The record company will handle these tasks and invoice the company's headquarters. The pros of this route include the ability to quickly scale up a team without directly handling HR and administrative tasks. However, there are cons to consider, such as the potentially hefty fees charged (i.e. USD 800 per person/month) by the employer of record company for each employee and the possibility that the record company's HR policies and benefits may not align with the expectations of the candidate.
Fees for this service vary, however rates can be found online or through contacting the firms. Papaya Global published their rates online.
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Self Employed Consultant
When temporarily hiring an employee as a self-employed consultant, the candidate is engaged as a consultant and invoices the company on a monthly basis. The pros of this route include not requiring incorporation and the company being relieved of HR responsibilities. However, there are cons to consider, such as the hired consultant not having insurance benefits from the company and potential challenges in attracting top talent due to the nature of the arrangement.
The company may need to support the candidate to become a self-employed consultant, by providing support from a tax accountant. A typical tax accountant can charge around JPY 300,000 annually for servicing an individual self-employed consultant.
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Once the company is incorporated, the first employees hired through temporary method should be converted to direct hire full-time employees.
Engaging Incorporation Service Provider and Considerations for Incorporation
Through utilizing any of the temporary employment methods above, you will be able to have an employee assisting you in working with Company Incorporation Service Providers who are also often either the tax accountants or specialized legal professionals. We also recommend the person in charge of incorporation to visit e Tokyo One-Stop Business Establishment Center, which helps to facilitate the prompt completion of various filing procedures required when starting a business. Otherwise, the company can choose to engage an incorporation package service provider, such as a global expansion service company.
Typically speaking, incorporate as a K.K. (Kabushiki Kaishya) with local individual service providersā help will cost around JPY 1M. And it will take about 2 months.
If using service from a global expansion company, it will cost around JPY 1.5M (excluding bank account opening).
Pre-Incorporation Notification to the Bank of Japan
FinTech companies that are incorporating G.K. (Godo Kaisha) or K.K (Kabushiki Kaisha) had better to seek for professional legal advice to check if they need pre-incorporation notification to the Bank of Japan, in accordance with Japan's Foreign Exchange and Foreign Trade Act (FEFTA).
Type of Company and Representative/Address
The type of company, such as a branch office, G.K. (Godo Kaisha), K.K. (Kabushiki Kaisha), representative, and the office address need to be decided for incorporation.
While a branch office registration requirements look lighter than G.K./K.K., (minimum one, if there are more than one) representative of a branch office needs to be Japanese resident. Registration of G.K./K.K. doesnāt require Japanese resident representative, but itās usually harder to open bank account with non-Japanese resitent representative. More information for the types of company and incorporation process are found here.
The office address can be anywhere in Japan to register, while the registered office address may also matter if a company plans to ask an incorporation service provider to assist bank account opening.
Some of the incorporation service providers can register the company by using their own office location and assigning one person as the representative director in order to complete the incorporation process early. Global expansion service companies generally offer these services, and some of them may offer serviced office, too.
Initial Capital
For G.K. and K.K., initial capital amount needs to be considered. The capital amount matters for various critical aspects such as licensing, consumption tax treatment, visa application, etc. The minimum capital to support visa application is generally JPY 5,000,000, and in case of a branch office, its headquarter is required to have such amount.
TMG Subsidy Program
The Tokyo Metropolitan Government (TMG) offers subsidy program (the Overseas Financial Corporation Business Establishment Subsidy Program) to aid in your initial business setup. If you would like to be eligible for this subsidy, you must apply for the program before company registration. General process of subsidy program is found here.
Find Office Space
To find an office, you can choose from a variety of office spaces, including co-working spaces, services offices and office rentals. To start with small number of employees, using a co-working spcase or a serviced office is getting popular to save initial setup/deposit costs as well as on-going maintenance costs.
In order to ensure a smooth office space search, especially when you like office rental, it may be helpful to enlist the help of a tenant representative service provider. These providers have expertise in office space search, support contracting, office furniture, setup, and more. The service for office space search and support contracting typically costs 1 month of rent.
Co-Working Space
Tokyo offers co-working spaces that vary from relaxed lounge atmosphere to conventional office spaces. Generally speaking, the daily rate of most co-working spaces is around JPY 1,200ā2,000. Rental deposit is generally equal to up to 1 month, if any at all. Utilities are typically included in the rent for ācore timesā however, meeting room fees are often not included if the room is not in a private space. Japan Dev provides a guide to various co-working spaces with prices included (Japan Dev).
For example, from a co-working space provider, renting a small office with 5 seats in the central Tokyo area, such as Shibuya, it will cost around JPY 500,000/month.
Serviced Office
A serviced office is an office building that provides fully-furnished workspaces, building management services and additional facilities, such as printers, communal break rooms, meeting room and internet connection.
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A serviced office that supports a team of 5 typically rents for around JPY 1 M/month. Additionally, a rental deposit of that is equal to 1-3 months of rent is due at signing. Utilities are typically included in the rent for ācore timesā however, meeting room fees are often not included if the room is not in a private space. Serviced offices provide luxury workspaces with high-end amenities that leading asset management companies may like.
Office Rental
Tokyo offers an abundance of office space. The average monthly office rent per square foot in Tokyo's central business districts amounted to approximately JPY 570 as of February 2023. Real Estate Japan and Officee provide office rental listings.
For example, renting a small office with 5 or 6 seats in the central Tokyo area, such as Shibuya, it will cost around JPY 500,000/month. Additionally, a rental deposit of that is equal to 10 months of rent is due at signing. You also need to be mindful of on-going maintenance costs.
TMG Subsidy Program for Office Costs in the First Three Months
Besides the subsidy program described in the previous section for incorporation, the Tokyo Metropolitan Government (TMG) offers subsidy program (the Project for Temporary Office Allocation for Foreign Financial Companies and Human Resources) to aid in your office costs in the first three months. If you would like to be eligible for this subsidy, just like the other program, you must apply for the program before company registration. To apply for this program, first you need to decide on the office space. Then, you will submit the application form via the office provider when you contract.
Post Incorporation Activities
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Disclaimer: All of the contents of this webpage are copyrighted by Visual Alpha Co., Ltd. (āVisual Alphaā) and may not be reprinted, duplicated, etc., without the prior written permission of Visual Alpha under relevant copyright laws. This webpage describes only our general and current observations, and Visual Alpha is not rendering professional advice or services by this webpage. No warranties of any kind are given with respect to the information disclosed herein, or with any use thereof. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.
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