Business Setup in Japan: Addressing Your Key Concerns

Business Setup in Japan: Addressing Your Key Concerns

Starting a business in Japan is full of opportunities, thanks to its robust economy, technological advancements, and rich culture. However, navigating the process of setting up a company in Japan and dealing with payroll & employment law compliance is tricky. Most official information is only available in Japanese so understanding the local language and culture is paramount when you want to expand your business there. Below we have answered some common and important questions regarding setting up a business in Japan.

What are the main business structures available when setting up a company in Japan?

Understanding the legal requirements and choosing the right business structure is fundamental. Japan offers various options:

  • Sole Proprietorship: Offers uncomplicated setup but limited liability protection.
  • Limited Liability Company (LLC): Favoured by small businesses, providing some liability shield.
  • Corporation: Suitable for larger ventures, with a more complex structure and stricter regulations.
  • Branch Office: For existing foreign companies, establishing a local branch is an option.

What are the benefits of setting up a business in Japan?

Japan's dynamic market offers a compelling array of advantages to businesses across the world. Here are some of the advantages of establishing a company in Japan:

  • Thriving Consumer Base: A vast and youthful population with significant disposable income creates a robust market for your products or services.
  • Strategic Gateway: Japan's well-developed infrastructure and logistics network position it as a prime entry point to the wider Asian market.
  • Innovation Ecosystem: Access cutting-edge technology and collaborate with a highly skilled workforce renowned for efficiency and precision.
  • Supportive Environment: A stable and transparent legal system coupled with government incentives foster conducive conditions for business growth.
  • Unparalleled Reputation: Building a brand in Japan associates your venture with superior quality and craftsmanship, enhancing your prestige globally.
  • Sustainable Growth: Tap into a dynamic economy and leverage Japan's strong international trade partnerships for global expansion.
  • Dedicated Workforce: Foster a culture of dedication and respect within your team, benefiting from the renowned Japanese work ethic.
  • Competitive Advantage: Gain exclusive access to cutting-edge technology and skilled talent, solidifying your position as a market leader.

Why should I outsource payroll in Japan?

Imagine this: while you craft your business strategy and conquer new markets, a team of payroll ninjas meticulously calculates salaries, navigates intricate tax regulations, and ensures timely payments for your employees. Outsourcing payroll frees you from the administrative burden, allowing you to focus on what you do best – building your Japanese empire.

What are the essential employment laws I should be aware of?

Japanese labour laws prioritise employee welfare, dictating everything from minimum wage and working hours to equal opportunity and non-discrimination practices. Familiarity with the Labor Standards Act and Equal Employment Opportunity Law is your legal compass, ensuring a fair and ethical work environment for all.

Types of Labour Contracts:

  1. Fixed term Employment:

Employees can be hired with a fixed term labour contract. Under such hiring, an Employer cannot dismiss a Worker until the expiration of the term of such labour contract, unless there are unavoidable circumstances. In a fixed-term labour contract, an Employer must give consideration to not renewing such a labour contract repeatedly as a result of prescribing a term that is shorter than necessary in light of the purpose of employing the Worker based on such a labour contract. If a worker whose total contract term of two or more fixed-term labour contracts concluded with the same Employer exceeding five years, this could be interpreted as an indefinite contract.

  1. Haken Employment

Some companies may outsource employees to those businesses that have acquired a Japanese Haken licence. However, there are strict requirements for dispatch in Japan and the real employer must also comply with the terms of contract with the employee under dispatch.

  1. Permanent Employment

For employees hired on a permanent basis, the restrictions are even stricter, and in principle, it is assumed that the employee will be employed indefinitely unless the employee resigns or the employer meets the approved grounds for dismissal under labour laws with work rules stated clearly on contract.

What is Japan’s social security system like?

Japan's social security system operates on a shared responsibility model, with both employers and employees contributing a portion of their monthly wages towards various programs. Employers are responsible for deducting the employee's share from their salary and making combined contributions to the relevant government agencies. Understanding the specific contribution rates for different categories of employees, such as regular workers, part-time workers, and foreign employees, is vital for ensuring accurate deductions and remittances.

Japan’s Social Insurances encompasses:-

  • Health and Nursing Care Insurance 健康保険: Employer and employee each contributes 5 - 5.91% respectively depending on employee’s age group with income ceiling
  • Pension Insurance 厚生年金: Employer and employee contributes 9.15% respectively with income ceiling
  • Employment Insurance 失業保険: Employer contributes 0.95% and Employee contributes 0.6%
  • Workers' Accident Compensation Insurance 労災保険: Employer contributes 0.3%
  • Child Defined contribution 子供・子育て拠出金: Employer contributes 0.36%
  • Asbestos Fund アスベスト拠出金: Employer contributes 0.002%

The total social insurance cost for employers is around 15.44% and 16.32% of gross monthly salary respectively for employees below 40 years old and employees over 40, with specific income ceilings.

How do I get a Business Manager Visa in Japan?

To secure a Business Manager Visa in Japan, you need:

  • Foreign company rep & Japanese biz invite: Show you're representing a registered foreign company with a confirmed invitation from a reputable Japanese business for specific purposes.
  • Choose your visa type: B211A for short stints (60 days max) or B211B for frequent visits within a year.
  • Apply at your local Japanese embassy/consulate: Prepare passport, company docs, invitation letter, and financial proof.

How to get a work permit in Japan?

In order to work in Japan, one must secure a Certificate of Eligibility (COE) and apply for an Engineer visa to the Japanese embassy/consulate in the applicant's home country respectively. Engineers must have a bachelor’s degree or 10 years of work related experience. Applicants may be granted a 1 year visa up to a maximum of 5 years depending on the evaluation of immigration bureau. 

Expats with outstanding abilities and credentials may apply for a Highly Skilled Professional (HSP) Visa if he is able to attain 70 points and above on the self-scoring sheet for HSP application issued by Japan Immigration Bureau.


The Japan Immigration Bureau processes COE for both Engineer Visa and HSP within 3 months, though HSP may be slightly longer due to more examination items.  Sometimes, a longer review period may be required for some individual cases.  

Once COE is approved, a copy of the COE will be sent to the expat for applying for a visa at the consulate in his home country. where processing time may take about a week 

Thereafter, an expat can travel to Japan where he will be issued a Resident card which he needs to register his residence address.

How much does it cost to set up a business in Japan?

Estimating the setup cost for your Japanese business depends on several factors, including chosen structure, location, and operational needs. However, expect upfront costs to range from ¥60,000 for a basic LLC to ¥1,000,000 for a corporation, including notarization, registration fees, and initial capital requirements. Add potential expenses for office space, legal and accounting fees, permits, and licences. Remember, ongoing costs like taxes and employee salaries must also be factored in for a complete picture. To get a more accurate estimate, consider consulting a local accountant or financial advisor who can tailor the costs to your specific business plan.

Innovare: Your Partner in Japan's Business Landscape

At Innovare, we understand the complexities of operating in Japan. We are your trusted ally for all things payroll compliance & EOR solutions. Our team of experts can help you:

  • Simplify payroll with accurate and efficient processing.
  • Stay compliant with evolving regulations and legal requirements.
  • Navigate social security contributions to ensure proper administration and much more
  • Manage the complex personal income tax and resident tax for employees.
  • Overcome the language and culture barrier with our experts based in Japan.
  • With advice from Haken experts guide you through the appropriate hiring models to suit your business needs

Contact Innovare today for a consultation and let us empower your success in Japan's dynamic business environment.