international employment law firm alliance L&E Global

Starting a business in Japan

1. Introduction

For those companies entering the Japanese market from abroad, it is essential to find a team providing one-stop support for everything, not only for setting up a company and visa-related consultation, but for compliance with the relevant regulations including labour and employment laws and other day-to-day support.

Japanese labour and employment law are known to be employee friendly, especially for termination and working hours, which means careful but practical consideration is needed when opening up in Japan. Further, board members are, in principle, not categorised as employees, and therefore need to be handled differently.

Atsumi & Sakai is a multi-award-winning, independent Tokyo law firm, and one of the ten largest full-service firms in Japan, offering a highly experienced inward investment team (the JMES team). The team acts as a one-stop-shop for foreign individuals seeking to set up a business in Japan, and foreign companies of all sizes, across all business areas, looking to enter the Japanese market.

Our labour and employment practice group offer practical advice to clients on all matters regarding HR and labour relations that both Japanese and international companies face, including the resolution of labour disputes and litigation before labour courts and tribunals. We have been recognised as a leading firm for labour and employment law by various legal directories, including Chambers, The Legal 500, Best Lawyers and Asialaw Profiles.

2. Labour and Employment Law Requirements

a) Employer Policy Requirements

Work Rules

An employer who regularly employs 10 or more employees per workplace is required to prepare work rules. The employer’s work rules are to be submitted to the competent Labour Standards Inspection Office. The work rules must contain pertinent details relating directly and significantly to the working conditions applied to all the employees at the workplace, including, but not limited to, the following:

  • working hours;
  • payment of salary;
  • termination;
  • retirement allowances and other allowances;
  • safety and health;
  • vocational training;
  • compensation for injury or illness; and
  • commendations, sanctions and disciplinary action.

An employment contract stipulating any working conditions that fail to meet the standards established by the work rules will be deemed invalid, and the standard directives will supplant the nullified elements of the agreement. An employer may not change the work rules in any way that would disadvantage its employees, without obtaining the employees’ prior consent, unless such modifications to the work rules is considered reasonable.

Article 36 Agreement

The statutory working hours are generally 8 hours per day and 40 hours per week. Statutory holidays must be granted once every week or four times every four weeks. For the purpose of asking an employee to work overtime, an “Article 36 Agreement” shall be executed with the majority union or the employee representative and submitted to the competent Labour Standards Inspection Office in advance.

Working hours arrangements

Working hours arrangements such as those for flexible working hours and/or variable working hours is possible by providing for them in the work rules and/or executing labour-management agreements.

b) Employee Training Requirements

Employers are required to implement certain statutorily mandated training on health and safety to their employees. Employers are also obliged to appoint the health promoter when having 10 to 49 employees, and health administrator and occupational health physician with an organised the health committee when having 50 employees or more.

Employers have a statutory duty to give appropriate consideration to ensure that their employees are physically safe at their place of work, which should include implementation of training for harassment prevention.

c) Employment Agreements

While an employment contract may be in written or verbal form, when concluding an employment contract, as a minimum the following conditions must be clearly provided in written form:

  • term of employment;
  • place of employment and job description;
  • start and finish time, overtime work, rest period, days off, leave and change in shifts;
  • determination, calculation and payment of wages (except retirement allowances and special wages); and
  • resignation and exit policies and procedures (including grounds for dismissal).

The maximum duration of a fixed-term employment contract is generally three years. If a fixed-term employment contract with the same employer has been repeatedly renewed and its total contract term exceeds five years, the employment will be converted into indefinite employment.

3. Corporate Law Requirements

a) Compliance for Incorporation

Type of Entities

There are several types of entities that are available to a foreign company wishing to establish a presence in Japan, including a (i) representative office, (ii) branch office, (iii) joint-stock corporation (kabushiki kaisha) or (iv) limited liability company (godo kaisha).  The kabushiki kaisha is the most popular entity in Japan, as such we will go into more detail about kabushiki kaisha below.

Requirement for kabushiki kaisha

To establish the kabushiki kaisha, at least one shareholder and one director is necessary.  If the company would like to establish a board of directors, at least three directors and one statutory auditor are required. It is legally possible for none of the directors to be resident in Japan, however in practice, at least one Japan resident representative director is required to open the bank account of the new entity.  The minimum capital amount is JPY1 under the law, although in practice, over JPY500,000 would be preferable.  If the new company is to bring persons from overseas to Japan, at least JPY5,000,000 capital amount is required to be a sponsor.  An office which would be registered as a head office is also required.

Procedures for incorporation of the Kabushiki Kaisha

The regular procedure for incorporation of the Kabushiki Kaisha is as follows:

  • Name search of Legal Affairs Bureau for similar corporate names;
  • Preparation of articles of incorporation and other organisational documents;
  • Notarisation of the articles of incorporation at the notary office in Japan;
  • Transfer the capital amount to promotor’s bank account;
  • Examination by directors and statutory auditors of legality of establishment procedures;
  • Ordering the company seal;
  • Application to Legal Affairs Bureau for registration of corporation/company and registration of seal.

b) Post Incorporation Registrations

Tax Notification

After incorporating the company, several notifications should be filed with the national tax authorities and prefectural and municipal tax authorities.

BOJ notice

A foreign company shall submit a prior notification or post facto notification to the Bank of Japan (hereinafter, “BOJ”) when it makes a “direct investment” in Japan under the Foreign Exchange and Foreign Trade Act of Japan.

Change of Registry

The company shall register any change to the details recorded in the commercial registry.  The change of registry shall be done within two weeks after such change.  It is necessary to register the appointment (including re-appointment) and resignation of officers in the commercial registry.  Generally, a director’s term of office is two years, appointment of Directors shall be registered every two years.

Publication in the Official Gazette

The company must publish its balance sheet annually in the Kanpo (“Official Gazette”) without delay after the conclusion of an annual shareholders meeting.

4. Payroll and Benefits Providers

The vast majority of smaller employers entering Japan from abroad outsource payroll and benefit responsibilities to third party companies. We would be happy to recommend payroll providers to fit your business’s requirements.

Any questions

Ask our member firm Atsumi & Sakai in Japan