Traditional Subsidiary Using a Buy-Sell Structure
A second option for the tax / finance structure of a fully owned Japan subsidiary is a Buy-Sell..
Establishing a fully owned subsidiary is the most traditional structuring option. Unlike a Japan PEO solution, all functions (tax, accounting, payroll, HR, etc.) are the responsibility of the subsidiary. JPS can assist by incorporating the new Japan entity and then providing outsourcing services to ensure the new subsidiary’s compliance with its tax, accounting, payroll, HR, obligations.
What is a Buy-Sell?
The Japan subsidiary makes sales direct to customers in Japan. The Japan subsidiary’s profit is the difference between the price that goods / services are sold to the Japan subsidiary by the foreign parent and the price the Japan subsidiary sells to the customer in Japan. Profit generated in Japan may be remitted to the foreign parent as a dividend.
How it Works
JPS’s professionals will assist you to establish a fully owned Japan subsidiary. Most clients will choose either a Godo Kaisha (“GK”) or a Kabushiki Kaisha (“KK”). Visit our FAQ to learn more about choosing a Japan entity that will suit your needs.
An Outsourcing Support Agreement is put in place between the new Japan subsidiary and JPS. Following the incorporation of the new subsidiary, JPS will handle initial corporate tax filings and establish a corporate bank account. JPS will then provide ongoing accounting, tax, payroll, and HR support directly to your Japan subsidiary.
Employees (both foreign expats and locally hired employees) will be directly hired by your Japan subsidiary. JPS professionals will then assist with obtaining Japan work visas (if required) and setting up a Japan payroll. Japanese nationals and foreigners with existing Japan work visas can be immediately brought on board by your Japan subsidiary. Particular attention needs to be paid to Japanese social security (especially statutory health insurance) since uninterrupted coverage is the number one concern of Japanese employees.
Sales to Japanese customers are made directly between your company outside Japan and the Japanese customer.
Advantages of a Buy-Sell Subsidiary
The entity can perform full sales activities.
Disadvantages of a Buy-Sell Subsidiary
This is the most complex structure from a financial / tax viewpoint. Transfer pricing between the Japan subsidiary and foreign parent needs to be carefully considered. Many foreign companies do not want to recognize profit in Japan, especially if there are foreign NOLs that need to be utilized.
How JPS can assist
JPS’s ex-Big 4 professionals can assist you via:
Initial consulting regarding selecting an appropriate entity.
Advice regarding foundation issues including shareholders and paid in capital.
Provision of a legal registered address and nominee directors (if required).
Incorporation of a new Japan entity.
Corporate tax compliance.
VAT tax compliance.
Accounting.
Bank account management / expense payment.