Deciding on an office solution in Japan raises the following important considerations:
1. Legal Issues
a. Legal Registered Address for the Japan Entity
All Japan entities require a legal registered address. This address is significant for a number of reasons, including:
In the case of a Kabushiki Kaisha (“KK”), Godo Kaisha (“GK”), and Japan branches of foreign companies, the legally registered address will appear on the certificate of registered particulars (“tokibo tohon”).
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A Japan Representative Office / Liaison Office is not a registered entity so the address will not appear on an officially issued certificate. However, the address will often be registered with the Japanese authorities for social insurance and labor insurance purposes.
It is the address to which most important official correspondence will be sent.
All tax related documents are by default sent to the officially registered address. It may be possible to request that the Japan tax office change the correspondence address to the Japan entity’s tax advisor's address. It is strongly recommended that clients discuss this option with their Japan tax advisors.
Correspondence from other government agencies including the social insurance agency and the labor insurance office will also be sent to the registered legal address.
It is the default address to which correspondence related to the commencement of legal proceedings will be sent.
In the event that legal proceedings are commenced against the Japan entity, the court documents are sent by default to the legally registered address.
Changing the legally registered address of a Japan entity
It often surprises clients that changing the registered address is both costly (typically several thousand USD) and time consuming (a minimum of three weeks to complete the process). Meeting minutes need to be prepared by the client’s professional advisors. Documents then need to be filed with the Japanese legal affairs bureau.
In addition, a number of government agencies need to be advised once the change has been completed. These include the Japan Tax Office, Social Insurance Agency, and the Labor Insurance Agency.
Due to the cost and resources involved in changing the Japan entity’s legally registered address, it is recommended that great care be taken to identify a stable registered address.
b. Visa Application Issues
The substance of the Japan business is an important criteria used in assessing Japan work visa applications. The authorities typically require a functioning business office in Japan. In particular, a virtual office (see below) is generally not acceptable.
In addition to requiring a copy of the office rental agreement, the immigration authorities may ask for photos of the office interior.
If a regular office is not a feasible option, a serviced office or a shared service center is a suitable alternative.
c. Enrollment in Japanese Statutory Benefits Schemes
Japanese employees receive statutory benefits such as labor insurance consisting of workers' accident insurance and unemployment insurance. Proof of a functioning business office in Japan is typically needed to enroll the Japan entity in the labor insurance scheme. Our Guide to Japan Payroll provides additional information about statutory benefits.
2. Practical Issues
Practical issues also arise with respect to a Japan office solution. Typically, clients require a solution that fulfills the following four functions:
- Receiving mail.
- Receiving phone calls.
- A work space for employees.
- A venue to meet with clients.
There are four common solutions to the above requirements:
1. Lease a Regular Office
Once the Japan entity has been established, it usually possible to lease a regular office in Japan. Issues to be considered in leasing an office include the following:
For most companies, this is the single most significant issue. In addition to the monthly rent and general office running expenses, there are a number of deposits and deductions that need to be paid. These include:
Refundable security deposit
This is an amount held by the landlord as security against damage or unpaid rent. The amount can be substantial ranging from six months to twenty-four months of base rent depending on the building. Note that the deposit generally does not attract interest and, in many cases, deposits are not held in escrow, i.e., the deposit is simply mixed in with the landlords own funds.
This is a traditional nonrefundable “gift” to the landlord. It is typically the equivalent of one or two months base rent.
Moving out charge
Regardless of improvements the tenant makes to the premises, the tenant is generally required to bring the office back to white wall upon terminating the lease. Note that the lease may allow the landlord to choose the construction company for this work.
Lease renewal fee
Upon each renewal of the lease, the tenant is generally expected to pay one month of base rent as a renewal fee.
It may be difficult to find English speaking realtors / landlords
Note that a Japan Representative Office / Liaison office may have difficulty leasing a regular office due to the lack of a registered entity in Japan.
2. Serviced Offices
Serviced offices are an increasingly popular office solution for companies doing business in Japan.
Typically serviced offices allows the client to simply pay a monthly fee in exchange for all the office necessities (internet, furniture, phone answering, etc.)
The cost varies depending upon the building's location.
3. Virtual Offices
A virtual office is similar to a serviced office in that it provides the basic office functions, such as phone answering, voice mail, mail receiving / forwarding, etc. However, there is no physical office space associated with the virtual office.
For an additional fee, access to administrative staff and meeting rooms may be available.
Virtual offices are a solution that may work well if employees will be working from home or travelling . It allows a professional image to be projected while keeping costs relatively low and predictable.
However, a virtual office will generally not be sufficient for the purpose of work visa applications.
4. Some Combination of Regular Office, Serviced Office, and Virtual Office
It may also be possible to combine the above solutions. Under this approach, the required office functions are split in the most cost-effective and efficient manner. Examples of this approach include:
- A regular office in a reasonably priced location is used primarily as a work space by employees and for storage.
- A virtual office service is used for professional phone answering. This removes the need to hire a dedicated employee to answer the phone.
- The facilities of a serviced office (usually one associated with the virtual office) are used for important client meetings or for large meetings that cannot be accommodated by the company’s regular office.