[ESTABLISHING A BUSINESS ENTITY IN JAPAN]
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who themselves execute the business of the company (see also Section 4.1.2 below).
to Japanese taxation regardless of where it was generated. Currently, for taxation purposes, branches are deemed to be an independent business entity and the taxation for a Japanese branch is calculated on the assumption that the branch is an organization independent from the foreign company. As a result, a company (a KK and a GK) and a branch are subject to essentially similar income taxes. Please note that while a GK has some similarity to a partnership, in Japan, pass-through taxation does not apply to a GK. On the other hand, it is said that in some foreign jurisdictions, a Japanese GK is treated as an entity to which pass- through taxation is applicable, and foreign companies in such jurisdictions tend to determine that a GK is a more preferable format as a subsidiary in Japan (in light of the relative tax impact in the home country). For more detailed or specific tax information, it is advisable to consult with an international tax specialist. 2.4 Summary Among the business formats available in Japan, a KK has been most frequently chosen by investors. One of the reasons is said to be that a KK is the most conventional business format in Japan. As a KK is suitable for a company that has numerous shareholders (the corporate governance systems for a KK are more stringent in order to protect the interests of these shareholders, see Section 4.1.1 below), founding investors who would like to raise funds from many additional investors tend to choose a KK. Also, as a GK may not become a listed company, investors
1.1.3 Branch A branch is a business format that can be established relatively simply. A branch does not have its own legal personality and is deemed to be encompassed within the legal personality of the foreign company. As such, the foreign company is ultimately responsible for all debts and credits generated by the branch. 2. Matters to be considered when choosing a particular business entity type 2.1 Liabilities Both a KK and a GK are separate legal entities from their parent companies, and the parent companies do not directly bear the liabilities of their subsidiaries in Japan. On the other hand, branches are not separate legal entities from their foreign companies, and as such the foreign company is directly responsible for the liabilities of its branch. 2.2 Residency requirement Since 2015, neither a representative director of a KK nor a representative member of a GK are required to be a resident of Japan. In contrast, in the case of a branch, at least one of the representatives in Japan is still required to be a resident of Japan. 2.3 Taxes It is generally considered that there is no significant difference regarding taxation applicable to a company and a branch. The income of companies established in Japan is, as a rule, subject
ILN Corporate Group – Establishing a Business Entity Series
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