Establishment of a Japanese Subsidiary by a Foreign Corporation

Certain considerations are unique to foreign corporations when a foreign corporation incorporates a subsidiary in Japan as a promoter.

This article assumes a joint stock company (Kabushiki Kaisha) should be established.

The Prior and subsequent reporting system under the Foreign Exchange and Foreign Trade Control Law

For reasons of national security, some foreign investors are required to notify the Bank of Japan, etc., in advance when acquiring shares in a Japanese company or establishing a company.

The industries subject to advance notification include

Arms

Aircraft

Aerospace

Cyber Security

Power Industry

Information and Communication Industry

Software manufacturing

If you invest in the above, the prior and subsequent reporting systems are applicable.

If the foreign investor is a non-resident or a foreign corporation, the reporting must be made by a resident agent. The examination takes two to four weeks, and incorporation registration can only be filed once approval is obtained.

Securing an account for payment of capital

Capital must be paid in when establishing a company, but there is a difference between a Kabushiki Kaisha and a Godo Kaisha. In the case of a Kabushiki Kaisha, payment of capital must be made through a bank account (Article 34 of the Companies Act), but in the case of a Godokaisha, a bank account is not necessarily required. 

In principle, the capital will be paid into the promoter’s personal bank account.

The following bank accounts are acceptable.

A domestic bank’s head office or branch in Japan

Japanese domestic branches of foreign banks

Overseas branches of domestic banks

If the promoter is a foreign corporation, it usually does not have a bank account in Japan, so the question arises as to how the bank account to which the capital is to be paid should be prepared.

If the promoter does not hold a bank account, the transfer should be made to the founding director’s account. If the founding director does not hold a bank account, a third-party bank account is acceptable.

Third-party, for example, a Japanese director or employee hired in Japan, or a tax accountant, judicial scrivener, lawyer, or other professionals who support the company’s incorporation practice might accept the payment of capital into their personal bank account.

You must secure such a third party to make the capital payment or make it difficult to establish the company.

Opening a corporate bank account

In recent years, in 2024, there has been a trend toward more and more caution in opening corporate bank accounts. Opening a corporate bank account for a newly established company with only foreign directors is tough. Therefore, a Japanese company formation consultant may be registered as a representative to open a bank account. However, in recent years, there have been cases where even “Internet banking” does not accept opening a bank account. The reason may be that there is something unnatural about the person’s background and the purpose of establishing the company.

It’s important to understand that the bank’s primary objective is to prevent money laundering and trading of accounts. As long as there are no suspicions of such activities, the bank will generally accept the opening of an account.

Having a clear and easily understandable business model, such as a restaurant business, can significantly increase the likelihood of opening a corporate bank account in Japan, even for a newly established company with only foreign directors.

Also, if the company has been doing business in Japan for a number of years and has a proven track record, the bank is likely to be willing to open an account.

Preparation of an affidavit

In Kabushiki Kaisha’s case, the Article of Incorporation must be certified. If a Japanese corporation is a promoter, it must submit the corporate registry and the certificate of seal impression of the company representative. If a foreign corporation is a promoter, it is required to prepare an affidavit instead of the corporate registry and certificate of seal impression.

In the affidavit, the matters listed in the corporate registry must be sworn to and authenticated by a notary public or other public office in the home country.

There is no published form for the contents of the affidavit. For details, check with the Japanese notary public office where the articles of incorporation are to be certified.

In principle, all promoters must participate in the certification of articles of incorporation. However, if only Japanese promoters participate, a letter of attorney from the other promoters must be submitted.

In the case of Godo Kaisha, the Articles of Incorporation do not need to be certified. Therefore, an Affidavit of Incorporation is not required.

Certificate of Signature

In the affidavit, a signature certificate of the representative of the foreign corporation who will be the promoter is required, and the signature must be authenticated in the home country.

The signature certificate is required for certifying the articles of incorporation and for registering the seal when applying for company registration.

Declaration of a substantial controlling person

A declaration regarding the substantial controlling person must be submitted when the articles of incorporation are certified. The Act on Prevention of Transfer of Criminal Proceeds requires this, and it is also required when a corporation opens a bank account.

What is a substantial controlling person?

(i) A natural person who holds more than 50% of the voting rights of the company to be incorporated or (ii) in the absence of such a person, a natural person who holds more than 25% of the company’s voting rights to be incorporated.

If none of the above (i) (ii) applies, a natural person who has a controlling influence over the company’s business activities to be incorporated through investment, financing, transactions, or other relationships.

A list of shareholders of the foreign corporation that will be the promoter and identification documents of the substantial controlling person are required. However, it is advisable to check with the notary public in advance.

Securing a corporate address

When applying for company registration, the corporate address must be stated in the application for registration. However, since the company has yet to exist, the company cannot rent an office. Therefore, the following methods are commonly used.

• A Japanese director or collaborator signs a contract under his/her own name and changes it to the company’s name after the company registration is completed.
• The foreign company that is a promoter contracts directly with a serviced office (Regus, Servcorp, Wework, virtual office, etc.) that allows contracts in English and changes the name to that of the Japanese subsidiary after the registration is completed.
• In the company registry application, fill in the Japanese director’s or collaborator’s home address. After the company registration is completed, rent the office in the name of the Japanese subsidiary.