How to Start a Business in Japan: A Guide for Foreign Businesses

The land of the rising sun is a highly developed, innovation-driven market that can be a major growth opportunity for global founders. If you are ready to start a business in Japan, you must understand the rules. This guide breaks down the steps to start a business as a foreigner in Japan, from choosing the right business structure to securing visas, and more. 

Key Highlights:

• Japan offers a stable, high-income market with strong consumer demand, making it one of Asia’s most attractive destinations.
• Foreign founders benefit from streamlined digital administrative systems, transparent regulations, and a rule-based business environment.
• Japan’s location provides strategic access to major Asia-Pacific economies, supported by extensive trade agreements.
• Government incentives, including tax breaks, subsidies, and special economic zones, encourage foreign investment.
• New nationwide Startup Visa pathways and high-value investor programs offer structured entry routes.

Why Foreign Entrepreneurs Choose Japan?

There are several exciting reasons for a business set up in Japan, such as:

• Economic Strengths & Market Opportunity: Japan is the fourth-largest economy in the world, offering foreign companies access to a rich, high-income consumer market.
• Ease of Doing Business & Investor Friendliness: Japan is streamlining administrative procedures via digitalization, reducing bureaucratic friction. 
• Trade & Strategic Advantages: Japan is strategically placed in East Asia, making it a gateway to other markets. It also has strong trade ties and investment agreements.
• Credibility & Government Ambition: The Japanese government is explicitly targeting ¥120 trillion (about $800+ billion) in Foreign Direct Investment (FDI) by 2030. 

Understanding Market Entry Strategy in Japan

Below are the key components to consider, especially when starting a company in Japan as a foreign entrepreneur:

1. Research the Market

Start by understanding sector trends, regulatory situations, and economic forecasts. Use trusted sources like: 

• Japan External Trade Organization (JETRO)
• Government publications
• Industry reports
• Trade associations 

For instance, foreign-entrant guides note that priority sectors in Japan currently include Digital Transformation (DX), Green Transformation (GX) technologies, semiconductors, and bio-pharma. 

2. Understand the Consumer Behavior 

Japanese customers often emphasize quality, trust, and attention to detail. There may also be strong brand loyalty to domestic companies.

You must:

• Map out competitors’ strengths, distribution channels, and price positioning.
• Use methods like mystery shopping or field visits, and study reports from the Ministry of Economy, Trade, and Industry (METI) to understand how incumbents operate.

Localization is also essential. Ensure:

• All business documents are in Japanese.
• Marketing materials, contracts, and user interfaces are localized, not just translated. 
• Marketing campaigns, product design, and customer service resonate with Japanese cultural norms 

3. Identify Sectors Open to Foreign Investment

Not all sectors are equally open for foreign investment. For example, under Japan’s Foreign Exchange and Foreign Trade Act (FEFTA), certain specifically designated critical sectors are subject to stricter screening. So, choose your sector cautiously.

Minimum Capital & Investment Options for Foreigners

The threshold for investing in a business in Japan has shifted dramatically. Foreign entrepreneurs now face a significantly higher bar for capital and other requirements under the revised Business Manager visa regime.

Business Manager Visa Capital Requirements

Japan significantly raised the minimum capital requirement for the Business Manager visa from ¥5 million to ¥30 million. In addition to this, visa applicants must also employ at least one full-time staff member based in Japan.

There are also experience or education requirements:

• Either hold a graduate or professional degree in management or a related field, or 
• Demonstrate at least three years of management or administrative experience

Larger-Scale / Certified Investment Businesses

For some specialized businesses, there are other minimum capital rules. For example, under Japan’s Financial Services Agency (FSA) rules for certain Qualified Investors businesses, a minimum of ¥10 million capital is required. 

For Multinational Enterprises (MNEs) establishing a certified business plan under Japan’s industrial policy, there may be much higher capital or investment thresholds. For instance, some plans require stated capital of at least ¥100 million, and additional investments of ¥300–500 million depending on the certification terms.

Choosing the Right Business Structure

When setting up a business in Japan, choosing the right legal structure is crucial. Below are the common business forms:

Legal, Residency & Immigration Requirements

Here are some legal, residency & immigration requirements:

Startup Visa (Designated Activities)

Japan rolled out a Startup Visa program, replacing older special-zone models. Under this visa, foreign entrepreneurs can obtain a Designated Activities status (6 months or 1 year) before switching to a Business Manager visa. 

Highly Skilled Professional (HSP) Visa — Business Management Track

The HSP (i)(c) visa is designed for Advanced Business Management Activities, which is ideal for entrepreneurs/managers running a business in Japan. You need to meet a minimum number of points. Points can also be boosted if you’re in certain sectors. For example, those in investment management or the advisory business can get bonus points. 

• Permanent Residency (PR):
  • If you score ≥ 70 points, you can apply for PR after 3 years.
  • If you score ≥ 80 points, the required stay drops to 1 year.

Foreign Investment Restrictions & Business Incentives

Japan is simultaneously rolling out a rich suite of incentives to attract long-term, value-adding capital.

Foreign Investment Restrictions & Regulatory Risks

• Stricter FDI Screening:
  • Type-A investors (those with obligations to cooperate with foreign governments, etc.) are now always required to notify before investing in designated business sectors. 
  • Type-B investors (controlled by Type-A or by foreign governments) face tighter notification rules when investing in Designated Core Business Entities.
• Sectoral Sensitivity: Japan has designated multiple core business sectors under FDI screening that are considered critical from a security perspective. These include semiconductor manufacturing, industrial robots, energy infrastructure, and other technology-intensive industries.

Business Incentives for Foreign Investors

Despite these restrictions, Japan provides a number of attractive incentives:

• Incentive Programs via JETRO: JETRO runs many incentive programs for foreign-affiliated companies. These include:
  • Tax Incentives for Local Headquarters / Facilities:
    • If a foreign company opens or expands a headquarters function (office, research lab, or training center) in regional Japan (outside central Tokyo), it may qualify for tax benefits. 
    • Eligible incentives include special depreciation (e.g., 15–25% for certain assets) or corporate income tax deductions. 
  • Special / Strategic Economic Zones (Tokku):
    • National Strategic Special Zones (tokku) offer deregulation, streamlined administrative procedures, and tax benefits.
    • In some zones, companies can benefit from corporate income tax credits and other tailored support.
• Regional Future Investment Promotion: Projects that stimulate regional economies and create high-value business facilities can be certified for generous tax treatment.
  • For example, capital investment in qualified projects may allow special depreciation (40%) or tax deductions (~4–5%) on machinery, as well as benefits for buildings. 
  • Local taxes (property or acquisition) may also be reduced for confirmed projects.
• Subsidies & Feasibility Support: Some prefectures provide subsidies up to ¥20 million per project for foreign‐affiliated companies doing feasibility studies, setting up, or expanding in priority sectors. 

Opening a Bank Account & Managing Cross-Border Payments

Establishing a reliable banking foundation in Japan, both locally and internationally, is critical for foreign founders.

Opening a Bank Account in Japan

You’ll typically need:

• A personal account (for the representative director).
• A corporate account to handle business income, expenses, and capital.

Eligibility & Residency Requirements

Here are some requirements to follow:

• Many Japanese banks require that you have a residence card to open a personal or business account.
• Generally, you need to stay in Japan for 6 months or more to open a standard bank account. 
• For very short stays (< 6 months), you might only be eligible for a non-resident yen account, which has significant limitations. 

Required Documents

To open an account, you will typically need:

• Your Residence Card and passport.
• Proof of your local address, like a jūminhyō (resident registry) or a utility bill.
• A personal seal (hanko) or a signature (depending on the bank).
• A Japanese phone number, which most banks ask for.

Taxation & Compliance for Foreign-Owned Businesses

Understanding how changes affect foreign-owned businesses is now more critical than ever.

• Corporate Income Tax: Japan’s national corporate tax rate is 23.2%. 
  • There’s also a local corporate tax (national local corporate tax) set at 10.3% of the national corporate tax liability. 
  • For SMEs with paid-in capital ≤ ¥100 million, the first ¥8 million of taxable income is taxed at 15%, rising to 17% in certain cases per the 2025 tax reform. 
  • On top of national and local corporate taxes, companies also pay enterprise tax and inhabitants’ tax (local taxes based on income and capital). 
• New Defense Special Corporate Tax: From FY starting 1 April 2026, a special tax to support defense will apply, calculated as 4% × (base corporate tax – ¥5 million) for each company. 
• Taxation of Foreign Corporations / Permanent Establishments (PE): A foreign corporation is only taxed on Japan-source income, unless it has a PE in Japan. If there is a PE, only the income attributable to the PE is subject to Japanese corporate tax.

Hiring Employees & Payroll Compliance

Before scaling your team, it’s crucial for foreign-owned businesses to understand Japan’s rigorous labor and payroll compliance requirements.

Employment Contracts & Labor Law

Non-Japanese employees are protected under the Labor Standards Act (LSA) for minimum conditions, overtime pay, etc. Japanese law prohibits nationality-based discrimination in hiring and treatment, and for foreign employees, the terms of employment (such as work conditions) must comply with their residence status.

Minimum Wage & Equal Pay

Employers must pay at least the regional minimum wage, which varies by prefecture. The “Equal Pay for Equal Work” principle applies/ Part-time or non-regular workers (regardless of nationality) should not face unreasonable pay or benefit gaps for similar work compared to full-time staff.

Payroll & Salary Payments

Employers are required to withhold national income tax from each salary payment. The rates are progressive, ranging roughly from 5% to 45%. In addition to the national tax, the local “inhabitant” (resident) tax must be withheld. 

Setting Up Operations & Staying Compliant

Once your business is legally established, staying on the right side of Japanese compliance, in tax, legal, and corporate governance matters, is essential to avoid penalties and build long-term stability.

• Choosing Your Legal Structure: You can operate in Japan either by creating a subsidiary company or by establishing a branch office of a foreign company.
  • Branch offices don’t have independent legal status. The parent company is ultimately responsible for branch liabilities.
  • There’s no requirement for Japanese nationals to serve as directors. Foreigners can be 100% owners and directors.
• Company Registration Process: Register a physical office address. Draft and notarize Articles of Incorporation (for K.K.) or prepare equivalent founding documents (for G.K.). Create a company seal and register it with the Legal Affairs Bureau. Submit the incorporation application, bank proof of capital deposit, representative director information, seal registration, etc., to the Legal Affairs Bureau.
• Regulatory Filings & Notifications: After formation, you must notify the tax office, municipal offices, and the social insurance office about business commencement. 
• Ongoing Compliance & Reporting:
  • File annual financial statements, including balance sheets and income statements, with the relevant tax authorities.
  • Register for consumption tax (JCT) if your taxable sales exceed the threshold.

Maintaining Your Business in Good Standing

Ensuring your company remains compliant with Japan’s corporate governance, reporting, and statutory record obligations is vital for long-term legitimacy and stability.

• Statutory Records & Company Registers: Maintain statutory registers, including shareholders’ register, directors’ register, corporate register, and minute books, at your registered office. 
• Financial Reporting & Audit: Prepare and file annual financial statements and business reports in accordance with Japanese accounting standards. 
• Tax & Local Filings: Submit annual corporate tax, local enterprise tax, and (if applicable) consumption tax returns. 
• Social & Labor Insurance Compliance: Regularly maintain registrations for social insurance (health, pension) and labor insurance (employment, accident), and submit employee-related reports. 

Finding Local Partners, Accelerators & Support Networks

To build momentum in Japan, founders should tap into the country’s rich ecosystem of local partners, accelerators, and public-private networks that bridge global innovation with regional opportunity.

• Invest Japan Business Support Centers (IBSCs): JETRO runs IBSCs in key cities to help foreign-affiliated companies set up operations, providing consultation, temporary office space, and networking.
• Techstars Tokyo: In partnership with JETRO and Mitsui Fudosan, Techstars runs a 13-week accelerator in Tokyo targeting early-stage startups. 
• ICT Startup League: This is a network of public organizations, VCs, incubators, and local governments that provide mentoring, funding, facilities, and commercialization channels for tech startups across Japan. 
• American Chamber of Commerce in Japan (ACCJ): With chapters in Tokyo, Kansai, and Chubu, the ACCJ is a major foreign business network in Japan, great for building corporate connections, getting policy insight, and meeting other international business leaders.

How to Close or Sell Your Business in Japan?

Whether you’re winding down operations or planning an exit, understanding Japan’s formal dissolution and M&A procedures is critical to closing out properly and maximizing value.

Shutting Down / Liquidating

• Decide the Method of Closure
  • Dissolution: First, the company needs to be formally dissolved. This typically requires a special resolution at a shareholders’ meeting. 
  • Liquidation: After dissolution, a liquidator (often a director or external person) is appointed to wind up the company’s affairs, collecting receivables, selling assets, paying off liabilities, and distributing any surplus to shareholders.
  • Two liquidation routes:
    • Normal liquidation: If the company can pay off all its debts. 
    • Special liquidation: When the company is insolvent or overleveraged, done under court supervision.

Key Steps in the Liquidation Process

• Appoint a liquidator
• Create financial reports
• Publish a public notice of dissolution in the Official Gazette, giving creditors at least two months to make claims.
• Settle liabilities
• Distribute remaining assets
• Hold a shareholders’ meeting to approve the liquidation report / financial statements
• File liquidation-completion registration with the Legal Affairs Bureau within 2 weeks of shareholders’ approval
• Submit a final corporate tax return within one month of finalizing remaining assets.

Selling Your Business

If you want to sell your business (rather than simply close it), here are common routes and steps:

• Choose a Selling/Exit Strategy:

• • Selling shares allows the buyer to acquire ownership (including liabilities).
  • Sell parts or all of the business. i.e., specific assets, contracts, divisions.

Sale Process (for M&A)

• Most sellers work with M&A advisory firms to find buyers and manage deal flow.
• Execute an NDA with potential buyers; conduct management meetings to align on terms.
• Buyers will assess financials, legal contracts, liabilities, and operations, so you need to prepare detailed documentation. 
• Draft a purchase agreement (share or asset purchase), negotiate price, payment terms, and any earn-out or post-sale obligations.
• Transfer ownership, settle taxes, and fulfill any post-closing conditions (e.g., retention of key staff).

Challenges Foreigners Commonly Face

Even with Japan’s strong economy and investor-friendly climate, foreign entrepreneurs often encounter practical challenges when understanding how to start a business in Japan, such as:

• Complex Regulatory & Administrative Procedures: Japan is highly process-driven. Incorporation forms, permitting, and tax-related filings follow strict formats and often require Japanese-language documents.
• Banking Delays for Foreign-Owned Companies: Opening a corporate bank account is historically one of the most difficult steps, especially for non-resident founders. There is a strict Anti–Money Laundering (AML) screening.
• Tax Registration & Multi-Layered Compliance: Japan’s tax system is rules-heavy and highly structured. Foreigners often struggle with timelines, rates, and multi-jurisdiction compliance.
• VAT (Consumption Tax) Complexity: Foreign entrepreneurs frequently underestimate Japan’s consumption tax system, especially the exemption rules and invoice requirements.

Why Choose a Cross-Border Platform Instead of Local Agents?

While professionals can assist with individual tasks, managing multiple disconnected advisors often leads to fragmented processes, slower timelines, and inconsistent regulatory guidance. 

A cross-border platform eliminates these inefficiencies through:

• Unified Management Across Jurisdictions: Provides incorporation and compliance coverage worldwide, giving you a single operational structure as you expand into other markets in Asia or beyond.
• Standardized Workflows, Even in a High-Compliance Market: Applies global compliance standards. ensuring accuracy, timely filings, and audit-ready documentation.
• Faster Setup in a Documentation-Heavy Environment: Streamlines onboarding with digital document collection, workflow automation, and centralized tracking, reducing delays common with traditional Japanese agents.

How Commenda Helps You Start and Scale Globally

Managing incorporation, taxation, banking, payroll, and compliance across multiple countries can quickly become overwhelming when handled through scattered local agents. Commenda simplifies the entire global expansion journey with a centralized platform designed specifically for cross-border founders.

• One-Click Incorporation in Multiple Jurisdictions: Launch your company in Japan and seamlessly expand into 30+ other countries without managing separate agents, lawyers, or accountants. 
• Global VAT and Sales Tax management: Handle Japan Consumption Tax, EU VAT, U.S. Sales Tax, and other international tax registrations from a single dashboard. 
• Automated Compliance Tracking: Commenda tracks every deadline across all jurisdictions, automates alerts, and keeps your entity in good standing at all times.
• Dedicated Support for Cross-Border Entities: Get expert help from advisors who understand Japan’s regulations as well as international expansion standards. 

Book a demo today to start your business in Japan and scale globally with Commenda.

FAQs

1. Can foreigners own 100% of a company in Japan?

Yes, there is no general restriction on foreign ownership in Japan, and foreigners can own 100% of a Japanese company. 

2. What are the visa or residency requirements to start a business in Japan?

The most common visa for foreign entrepreneurs is the Business Manager Visa. New rules require at least ¥30 million in paid-in capital, and at least one full-time Japanese or permanent resident employee. Alternatively, some municipalities offer a Startup Visa (“Designated Activities”) that allows foreign entrepreneurs to prepare their business plan over 6-12 months. 

3. What’s the minimum capital needed to start a business in Japan?

For realistic banking and visa purposes:

• For Business Manager Visa applicants, ¥30 million is required.
• For other incorporations, many recommend around ¥1,000,000 to satisfy local banking expectations. 

4. How are foreign-owned companies taxed in Japan?

A foreign (non-resident) company is taxed only on its Japan-source income. If it has a Permanent Establishment (PE) in Japan, tax is applied only on income attributable to that PE. 

5. What incentives are available for foreign investors?

Japan offers various investment incentives, particularly for innovation, R&D, and regional development, often via JETRO programs. Additionally, certain municipalities or special zones may provide preferential tax treatment, subsidies, or regulatory relief.

6. How can I open a bank account as a non-resident?

Non-resident founders will need strong KYC documentation, such as: 

• Company registration certificate
• Articles of incorporation
• Proof of address
• Identity documents
• Potentially a physical Japanese business address

7. What are the ongoing compliance obligations for foreign businesses in Japan?

• Annual shareholder meetings and keeping minutes.
• Maintaining proper accounting books under Japanese standards and preparing annual financial statements.
• Filing corporate tax returns and paying provisional taxes.
• Registering and contributing to social insurance and labor insurance for employees.
• Reporting statutory changes to the Legal Affairs Bureau.

8. How does Commenda simplify cross-border incorporation and global tax compliance?

Commenda enables business formation in Japan and 30+ other jurisdictions from a single platform. It handles Japan consumption tax registration, EU VAT, U.S. Sales Tax, and more, all via a unified dashboard.