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Branch vs Incorporation

2016.11.27   COMPANY STRUCTURE
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Branch vs Incorporation

You may have choice to do business in Japan by way of branch or incorporation.
However you need to be careful in case of branch on followings:

a) Small corporation has some tax concessions in income tax area.
And definition of small corporation is made by amount of paid in capital.
Therefore even though operation in Japan is small if paid in capital is large the company is not able to enjoy tax concessions allowed for small corporations.
An example of such tax concessions is lower income tax rate up to JPY8m taxable income.

b) Taxation on per capita basis is determined by amount of capital and number of people working in the district in Japan.
Therefore even though operation in Japan is small if capital of the company is large the amount of the tax is large..
Table of the tax follows for your reference for Tokyo metropolitan city for the company with 50 or less number of people working in the city:

Amount of capital is equal to or more than JPY10m Amount of the tax is JPY70k per annum

More than JPY10m but less than JPY100m Amount of the tax is JPY140k per annum
More than JPY100m but less than JPY1,000m Amount of the tax is JPY290k per annum
More than JPY1,000 but less than JPY5,000m Amount of the tax is JPY950k per annum
More than JPY5,000m Amount of the tax is JPY1,210k per annum

The tax is levied regardless taxable income.

c) Branch is treated as foreign corporation for income tax purposes and payment of Japanese source income to foreign corporation is subject to Japanese withholding tax.
Therefore you need to be careful on receipt of Japanese source income.
An example is office rent received by branch.
An branch has office premises by rent and the branch sub-lease the office space to some other company rent payment to the branch is subject to Japanese withholding tax.

On the other hand in case of withdrawal of business from Japan the procedures are much easier than corporation.

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