This method of trading into Japan is a relatively low-risk approach to entering the market, enabling you to test the e-commerce environment before establishing a physical presence here. However, regardless of whether you have established a legal entity, as a foreign company intending to continuously carry out B2C transactions in Japan, you must declare any representatives on the ground.
There are a number of options available to foreign companies wishing to trade into Japan without setting up a distinct legal entity. Some of the most popular include the establishment of representative or branch offices, or the appointment of agents, distributors or franchisees. The most simple and common approach is establishing a branch office, and to do so it is necessary to register as a foreign company with the Legal Affairs Bureau. It is important to note that a branch office does not constitute a legal entity; your existing domestic entity will remain liable for all debts and credits generated by the activities of the Japanese branch. Regardless of the approach you take, trading from your existing domestic legal entity means you will continue to be bound by domestic laws, though you will still need to be aware of Japanese import restrictions and customs requirements – please see our logistics page for more information -and also consider the need to protect your intellectual property rights in Japan.
Japan has adopted a generally relaxed approach to foreign investment, and most sectors permit cross-border competition. However, a few industries, including agriculture and fisheries, are protected and thus restricted from foreign investment.
Should you choose to establish a legal entity in Japan, domestic legislation offers a number of different forms in which to choose from. These include sole proprietorships, partnerships and incorporated companies. There are, broadly speaking, two types of company; joint stock companies, Kabushiki Kaisha (KK) and limited liability companies, Godo Kaisha (GK). It is possible to set up a company within 2-4 weeks in this location without the need for a Japanese partner, though there must always be a representative director domiciled in Japan. Registration is undertaken by the Japanese Legal Affairs Bureau. The most popular corporate form is a KK, which offers credibility and good corporate reputation. It is important to notw, however, that GK’s are growing in popularity, offering more flexible governance and fewer costs and regulations. Once established as a legal entity, you will need to be familiar with and abide by all Japanese laws and taxes.
The method you choose to sell online into Japan will have implications on the regulations applicable to you, as well as whether or not it will be compulsory to establish a Japanese legal entity. Selling via your domestic, standalone website by localising key static pages will not require a Japanese entity, and nor will selling via those Japanese e-commerce portals who will accept foreign merchants. However, if you intend to establish your presence in Japan by setting up a new, local online store, establishing a legal entity in Japan will aid this process. It is also worth noting that selling through Amazon Japan, Rakuten or other online malls generally requires you to have a Japanese company, although there are ways around this through the use of a Japanese agent.
|Corporation Tax||25.5%||The corporate profits tax rate is 25.5% for all companies, however local income taxes are also levied. The resulting corporate income tax rate is effectively 37%.|
|Capital Gains Tax – For Companies||25.5%||Capital gains are subject to tax at the normal relevant corporation tax rate, and are also subject to local income taxes.|
|Withholding Tax – Dividends||20%||There is a 20% withholding tax on dividends paid.|
|Withholding Tax – Other interest||15-20%||Interest paid to residents is subject to 15% withholding tax and a 5% local tax. Interest paid to non-residents is subject to a 15% withholding tax only.|
|Value Added Tax||8%||Consumption tax (a form of Value Added Tax) is charged at 8% on a broad range of goods and services.|
|Social Tax on Employee’s Salaries||15.024% Employer||Social Contributions are charged at 15.024% on monthly standard remuneration and bonuses. There is an additional nursing contribution charged at 0.86% for employees who are over the age of 40.|
|Currency Exchange Control – Cash||1,000,000Yen (8,029USD)||Individuals are permitted to carry a maximum 1,000,000Yen (8,029USD) in cash into and out of Japan, without the need to declare they are doing so.|
|Currency Exchange Control – Bank Transfer||N/A||There are generally no restrictions of payments to foreign entities or individuals through normal banking channels.|
In Japan, the maintenance of and access to an individual’s personal information is regulated by the Act on Protection of Personal Information 2003. These provisions apply to any entity using personal information databases for business activities, and impose obligations surrounding the collection, storage, use and transfer of personal data. The provisions set out that a data subject must be notified of the collection of data, as well as to the purpose for the collection. Proper measures must be taken to prevent leakage, and internal regulations should be adopted to ensure confidentiality. Businesses must also respond to requests from data subjects concerning their retained personal data. Further guidance on how to comply is provided by the METI.
Japan’s Act on Specified Commercial Transactions (ACST) regulates the sending of unsolicited emails and text messages. The Act prohibits sellers from sending email advertisements to consumers without their prior consent. In addition, businesses must retain records of consumer consent for a period of three years and display clearly information on how to ‘opt-out’ of further correspondence. Regulations also exist to prevent product imitation and prohibit advertisements designed to mislead consumers as to the place of origin or quality of a product.
Japanese laws are generally considered to offer intellectual property rights (IPR) strong protection, and, importantly, treat the rights of both Japanese and foreign nationals equally. To protect your IPR you must register any trademarks with the Japan Patent Office. Japan operates a ‘first-to-file’ system, and so it is vital that you check whether the same and/or similar trademarks have been registered before importing your goods into Japan. Equally, you must check that you are not infringing the property rights of other parties as traders are prohibited from selling counterfeit or illegal parallel imports.
A key consideration to keep in mind when protecting your IPR in Japan relates to the sound of a given trademark, and it is recommended that you add Japanese kana (phonetic) characters showing how to pronounce your trademark to avoid very-similar phonetic interpretations being registered by another party. Japan is also a member of WTO and a signatory to the Madrid Protocol, the International Trademark System, offering a one-stop solution for registering your trademarks all in place, for one set of fees, protecting your mark in the territories of all its members across the world.
Over the years Japan has developed a robust framework for the protection of consumers through a number of key regulations. The ASCT provides consumers protection from high-pressure sales tactics or approaches likely to mislead customers as to the nature of their contractual obligations. By law, sellers must also post a list of their businesses’ details on their e-commerce sites. The Consumer Contract Act further provides that sellers must clearly set out the rights of consumers before entering a contract, and prohibits certain clauses including the limitation of a seller’s liability or large liquidated damages.
E-retailers into Japan should also be aware of the Japanese Consumer Affairs Agency (CAA), whose task it is to protect and enhance the rights of consumers. The CAA regulates labelling, ensuring transparency as to the make-up of products, and sellers must ensure they are compliant with these requirements. Further protection against defective products is also found in the Product Liability Act 1994.
It is important for your website to capture the right look and feel to attract Japanese consumers as they attribute great importance to the aesthetics of online shops.
Despite the advanced nature of bank cards and electronic payment systems in Japan, cash-on-delivery remains a popular payment method for goods purchased online.
The UK's logistics infrastructure is well developed and relatively straight-forward to negotiate.