For clients who wish to operate in Japan without a legal entity, JPS offers its core Japan Professional Employer Organization (PEO) solutions.

But JPS is also able to assist clients who wish to operate via a more traditional stand-alone Japan subsidiary.

The transition from a Japan PEO solution to a Japan legal entity will involve setting up one of the following structures:

Japan Subsidiary – Cost-Plus

Combines the best features of a fully owned Japan subsidiary and a PEO solution.

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Japan Subsidiary – Cost-Plus

A fully owned subsidiary with a simple tax / financial structure fully supported by JPS

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Japan Subsidiary – Buy-Sell

A fully owned Japan subsidiary making sales direct to Japanese customers..

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Traditional Japan Subsidiary

Establishing a fully owned subsidiary is the most traditional structuring option.

The client establishes a Japan subsidiary – either a Godo Kaisha (“GK”) or a Kabushiki Kaisha (“KK”). Shares in the new company are 100% owned by the foreign parent. Key set-up decision will include identifying directors, determining a legal registered address, and deciding initial paid in capital.

Financial / Tax Structure

Once a subsidiary is established, the next step will be to decide the financial / tax structure of the new Japan entity – typically this will be either a Buy-Sell structure or a Cost-Plus structure. The final decision will be driven mainly by the activities that the client needs to undertake (via the Japan subsidiary) in Japan.

Traditional Setup – Cost-plus Sales Model

Fully Owned Subsidiary Using a Cost-Plus Structure

Many fully owned Japan subsidiaries of foreign companies will operate under a Cost-Plus tax structure. This is illustrated below:

Description: A Service Agreement is put in place between the fully owned Japan subsidiary and the parent company. Pursuant to this agreement, the parent agrees to reimburse the Japan subsidiary for its expenses PLUS a mark-up – mark-ups of 6% or 7% are common.
Under this arrangement, sales are made by the foreign parent company direct to Japanese customers. The foreign parent pays all of the Japan subsidiary’s expenses plus the percentage mark-up.

Advantages: Cost-Plus is probably the simplest tax / financial structure for a legal entity in Japan. Sales are recognized outside Japan, usually in the foreign parent company.

Disadvantages: The activities that can be performed under a Cost-Plus arrangement are limited to sales support activities. Actual sales (defined broadly for Japanese corporate tax purposes) are not allowed. If the limited sales support activities are exceeded the foreign parent is exposed to permanent establishment (“PE”) tax risk.

Fully Owned Subsidiary Using a Buy-Sell Structure

A second option for the tax / finance structure of a fully owned Japan subsidiary is a Buy-Sell. This is illustrated below:

Description: 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.

Advantages: The entity can perform full sales activities.

Disadvantages: 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.

Regardless of whether a Cost-Plus or a Buy Sell tax / finance structure is utilized, setting up a fully owned Japan subsidiary means taking full responsibility for payroll, HR, accounting, tax, and other compliance issues.
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.

  • Payroll and HR support.

PEO Hybrid Structure

Where a Japanese legal entity is required it may still be possible to simplify the structure and reduce costs via combining the fully owned Japan subsidiary with a Japan PEO solution.

Under this arrangement, employees are hired under a PEO arrangement. At the same time, the client maintains a naked legal entity in Japan. The reasons for having this legal entity in place may include:

Japan PEO Hybrid Sales Structure
  • Japanese customers require that you have a legal entity in Japan.

  • Maintaining a legal entity in Japan can sometimes support a strong image for the foreign company.

How JPS can assist.

Japans ex-Big 4 professionals can support a PEO Hybrid structure via:

  • Provision of legal registered address and nominee directors (if required).

  • Incorporation of the entity.

  • Basic compliance to ensure that the Japan entity remains in good standing. This generally consists of limited corporate tax compliance and some annual accounting support.

  • Providing a PEO solution to support employees in Japan.

  • Initial consulting regarding selecting an appropriate entity.

  • Advice regarding foundation issues including shareholders and paid in capital.


JPS prides itself on being able to provide full business solutions to foreign clients operating in Japan.

JPS can offer its comprehensive Japan Business Support solutions either in conjunction with or separate to our Japan PEO Solutions.

JPS’s key business support services include:

Japan Corporate Tax Services

JPS offers comprehensive Japan corporate tax solutions to foreign companies operating in Japan.

Japan Accounting & Bookkeeping

JPS provides customized accounting & bookkeeping solutions for clients doing business in Japan.

Bank Account Management & Payments Services

JPS’s Bank Account Management & Expense Payment Service helps clients to manage cash and make expense payments.

Japan Payroll & HR Services

JPS offers full Payroll and HR solutions to clients in Japan. Our solutions are designed to meet the needs of both expat and locally hired employees.

Japan Work Visas

JPS recognizes that Japan work visas are a fundamental part of running an international business in Japan.

Japan Company Establishment

JPS is able to assist with all of the steps required to incorporate a company in Japan.

Japan Nominee Directors

All incorporated entities in Japan require at least one director. Upon request, JPS is able to provide a Japan Resident Nominee Director

Registered Address Services

Any Japan incorporated entity (i.e., Kabushiki Kaisha or Godo Kaisha), Japan branch of a foreign company.