Establishing a branch office in Japan can be more complicated than establishing a new stand-alone company. But there are some benefits for doing so. In some situations a branch office may be more tax efficient than a joint-stock company.
For example, you might want to use operating expenses in Japan to reduce your company’s taxable income in its’ home country. And, many Australians use branch offices in Japan as way receive tax benefits from their superannuation fund.
Required Documents for Establishing a Branch Office in Japan
1) Application form (登記申請書). The following below is the link to a template the ministry of justice provides.
Ministry of Justice Website
It appears that a lot of documents are required. However, a single affidavit (see item 2 below) can be used instead.
2) An affidavit(宣誓供述書) that states the following:
Registered company name in its home country and address,
Number of shares authorized to be issued and the number of shares already issued,
Name, address and birth date of the representative director(s),
Name, address and birth date of the representative manager in Japan.
Adopted method of public notice (you can choose from a newspaper or website. A newspaper is more recommendable because there are some requirements if you choose a website as a method of public notice),
3) Translation of document into Japanese.
4)This affidavit has to be notarized by a governmental body in its own country.
5) Seal certificate of the representative manager (the official seal of the branch has to be linked to the representative manager.
6) Registration form for the branch seal,
7) Letter of proxy, if you use a consultant for the registration.
1) Elect the representative manager of the branch,
2) Prepare an affidavit that states all the required information for its registration,
3) Buy a branch seal and prepare all the documents,
Even though you have established a branch of a company, it can act as though it was a separate entity and file a local tax return accordingly. You can adopt either a trader model or a liaison manager model. The trader model is where the branch acts as an independent entity buying and selling goods or services. It can end up making a loss.
The liaison office model is to provide services to help the head office sell their products. The branch must not have an authority to determine the price or other trade conditions to close a deal. If it does, it will be regarded to have its own right to buy and sell and therefore all the income from the transactions (even though it might belong to the head office) could be regarded to belong to the branch.
The branch should book virtual revenue only for the tax calculation because the head office and the branch are the same entity. You can not have an actual transaction between the same entity.
The amount of the virtual revenue is what the branch would be expected to make if it was an independent entity. The typical rate of its revenue is 105-107% of its actual cost of operation. You will always have a small profit and pay tax on it but you will also receive a refund of the consumption tax because the revenue is from overseas and the service was provided to someone overseas (export of services).
Foreign Tax Credit
Either way, when the branch pays corporate income tax on its profit in Japan, the tax will be deductible as foreign tax credit in its home country. It is logical because it is a part of the tax the same entity pays to the source country.