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JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
JMG	
  CONSULTING	
  UK	
  LTD|	
  Getting	
  started:	
  A	
  guide	
  to	
  doing	
  business	
  in	
  Japan	
  	
  	
  ...
There	
  are	
  no	
  legal	
  registration	
  requirements	
  for	
  a	
  representative	
  office	
  and	
  there	
  is	...
A Definitive Guide to Doing Business in Japan - Preview
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A Definitive Guide to Doing Business in Japan - Preview

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This in-depth report details the steps to take in order to take your business to the next level and successfully establish your company in Japan.

Take a look at our free report preview then head over to Export to Japan and sign-up to receive the full report here - http://www.exporttojapan.co.uk/reports/definitive-guide-doing-business-japan

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A Definitive Guide to Doing Business in Japan - Preview

  1. 1. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         1   Getting  started:   A  guide  to  doing   business  in  Japan   April,  2014
  2. 2. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         2   Table  of  Contents   Why  Japan?  .............................................................................................................................................  4   But  isn’t  Japan  a  difficult  market  to  break  into?.....................................................................................  4   Relationships  ...........................................................................................................................................  5   Quick  guide  to  doing  business  in  Japan  ..................................................................................................  6   1.          Market  Analysis  .........................................................................................................................  6   2.          Test  the  market  for  your  product(s)  or  service(s)  .................................................................  6   3.          Route  to  Market  .........................................................................................................................  6   4.          Sales  and  Marketing  ..................................................................................................................  6   Protecting  your  IP  abroad  .......................................................................................................................  8   UK  Trade  Mark  Registration............................................................................................................  8   International  Trade  Mark  Registration  ...........................................................................................  8   Routes  to  Market  ..................................................................................................................................  10   Using  an  import  agent,  distributor  or  re-­‐seller  .............................................................................  10   Setting  up  an  office  .......................................................................................................................  11   Joint  ventures/licensing  ................................................................................................................  13   E-­‐Commerce  Website  ...................................................................................................................  13   Acquisition  ....................................................................................................................................  14   Franchising  ....................................................................................................................................  14   Japan  based  business  consultancy................................................................................................  14   Tax  considerations  ........................................................................................................................  14   Setting  up  a  business  in  Japan  ..............................................................................................................  15   Kabushiki  Gaisha  time  line  and  associated  costs  ..........................................................................  15   Godo  Gaisha  (GK)  ..........................................................................................................................  17   Godo  Gaisha  vs  Kabushiki  Gaisha  .................................................................................................  17   HMRC  and  what  you  need  to  do...........................................................................................................  17   CHIEF  (Customs  Handling  of  Import  and  Export  Freight)  .............................................................  17   Export  documentation  ..........................................................................................................................  18   Import  Procedures  for  Japan  ................................................................................................................  18   Import  licences..............................................................................................................................  18   Customs.........................................................................................................................................  18   Bill  of  Lading  ..................................................................................................................................  18   Sales  and  Marketing  Strategy  Development  ........................................................................................  19
  3. 3. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         3   Market  research............................................................................................................................  19   First  mover  advantage  ..................................................................................................................  19   Sources  of  Japanese  market  data  .........................................................................................................  20   Identifying  your  ideal  customer(s)  in  Japan  ..................................................................................  21   Product/service  considerations  ....................................................................................................  21   Payments  and  Pricing............................................................................................................................  22   Localised  pricing............................................................................................................................  22   Preferred  methods  of  payment  in  Japan  ......................................................................................  22   International  Payment  Gateways  .................................................................................................  22   Japanese  Business  Etiquette  .................................................................................................................  23   The  giving  and  receiving  of  business  cards  ...................................................................................  23   Business  Meetings  ........................................................................................................................  23   Sources  of  assistance  with  exporting  to  Japan  .....................................................................................  24
  4. 4. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         4   Why  Japan?   Japan  is  the  world’s  third  largest  economy  after  the  US  and  China  and  second  largest  computer  and   telecommunications  market  in  the  world.    The  World  Bank  ranks  Japan  as  the  27th   easiest  country  to   do  business  with  out  of  189  economies1 .   The  Japanese  market  is  characterised  by  consumers  with  high  levels  of  disposable  income  who  are   drawn  to  premium,  high-­‐end  goods  and  services.    Japanese  companies  often  exhibit  a  global  outlook   and   a   willingness   to   invest   long-­‐term   in   viable   products   and   services.      Japan   is   synonymous   with   quality    and   innovation    and   this    goes    hand-­‐in-­‐hand    with    Japanese   companies’    commitment   and   loyalty  to  business  partners.2       Furthermore,  for  many  foreign  companies,  Japan  has  also  become  the   place  for  development  of  new  products  and  concepts.   There  are  strategic  advantages  and  cost  advantages  in  doing  business  in  Japan.     It  is  possible  to  set   up    a    business   entity    in    Japan   in   just   14   days   and   successful    business   in   Japan   can    generate    a   significant   proportion   of   global   profits   within   3   -­‐   5   years.3         According   to   a   global   study   of   online   consumer    behaviour    commissioned    by    UPS    in   2013,    by    2016    it    is    expected    that    40%    of    all    e-­‐   commerce  sales  will  come  from  the  Asia-­‐Pacific  region.4   Japan  has  a  highly  developed,  modern  infrastructure  of  roads,  highways,  railroads,  subways,  airports,   harbours,  warehouses  and  telecommunications  for  the  distribution  of  all  types  of  goods  and  services.   Japan  has  over  20  ports  and  5  international  airports.     Tokyo  International  Airport  (HND)  and  Narita   International  Airport  (NRT)  are  the  two  major  airports  in  the  Tokyo  region  while  Osaka  International   Airport   (ITM)   and   Kansai   International   Airport   (KIX)   are   the   two   major   airports   serving   the   Osaka   region   of   Japan.       Japan's   ports,   airports   and   import   processing   are   generally   well   organised   and   efficient.   If    you    succeed    in    Japan,    you    can    succeed    anywhere    as    it    means    you    have    developed    a   product/service  which  has  met  the  high  expectations  of  the  discerning  Japanese  market  which  has   extremely  high  standards  for  quality.   But  isn’t  Japan  a  difficult  market  to  break  into?   UK   companies   may   be   concerned   about   Japan’s   complicated   distribution   channels,   a   high   concentration  of  domestic  competitors  and  Japan’s  unique  business  culture.    However,  thanks  to  the   internet,  a  lack  of  physical  geographical  boundaries  means  it’s   easier  to   reach  customers  in  Japan   than   ever   before.       In   addition,   global   payment   gateways   and   mobile   payment   solutions   offer   convenient  ways  to  receive  funds  in  different  currencies.    While  Japan  does  have  a  well  established   domestic  market  in  many  sectors,  there  is  an  exoticness  and  status  associated  with  Western  brands   1   World  Bank  Group,  Ease  of  doing  business  in  Japan,  2014.    www.doingbusiness.org/data/exploreeconomies/japan.  Accessed  24/03/14.   2   www.austrade.gov.au/Export/Export-­‐Markets/Countries/Japan/Doing-­‐business#.Uy6na4UVUUg   3   Venture  Japan,  www.venturejapan.com.   Setting  up  in  Japan,  Accessed  28/03/14.   4   Source:  United  Parcel  Service  of  America,  Inc,  UPS  Pulse  of  the  Online  Shopper:  A  Customer  Experience  Study,  September  2013.   http://pressroom.ups.com/pressroom/staticfiles/pdf/fact_sheets/2013_PulseShopper_FINAL.pdf.  Accessed  21/03/14
  5. 5. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         5   that   drives   Japanese   consumer   demand   for   Western   products   and   services.       Moreover,   Japan’s   business   culture   isn’t   as   challenging   as   many   businesses   believe   –   patience,   integrity,   respect   for   their  business  customs  and  a  long  term  view  to  business  success  are  the  main  ingredients  to  success   in  Japan.   Relationships   Japan‘s  business  culture  attaches  a  high  degree  of  importance  to  personal  relationships  and  these   take  time  to  establish  and  nurture.   A  strong  network   of  personal  contacts  is  vital   in  the   Japanese   market.   It   is   also   advisable   to   understand   the   network   of   relationships   which   your   partners   and   competitors  work  within.   It   can  be  difficult  for  UK  firms  to   gauge  the   real  thoughts   and  intentions  behind  the  politeness  of   Japanese  people.     It  is  a  common  mistake  for  Western  companies  to  return  from  negotiations  with   Japanese  businesses  to  celebrate  success  while  in  time,  it  becomes  apparent  that  the  Japanese  are   in  fact,   not   interested  in  doing  business   with  your   company.      This  is   where   a  local   representative   who    has   experience   of   doing   business   in   Japan   can   be   invaluable   as   they   will   be   able   to   read   between  the  lines  of  the  behaviour  and  language  used  by  your  Japanese  counterparts  and  interpret   them  for  you  to  minimise  your  chances  of  misunderstanding  and  miscommunication.     The  pace  of   decision-­‐making  in  Japan  is  generally  much  slower  than  in  the  UK.  Patience  and  repeated  follow-­‐up   are  typically  required  to  successfully  close  a  deal.     However,  once  the  Japanese  have  decided  to  do   business  with  you,  things  can  then  move  very  quickly.   Historically,  traditional  big  industry  in  Japan  was  organised  around  industry  groups  called  Keiretsu.   Each  Keiretsu  tended  to  have  a  large  bank  and  trading  company  at  the  centre  with  a  large  number  of   companies  in  many  different  areas  grouped  around  it.    Traditionally,  Japanese  companies  would  only   do   business   within   the   same   Keiretsu.      High   levels   of   merger   and   acquisition   activity   in   Japan   in   recent    years    brought    about    by    challenging    economic    conditions,    have    seen    a    decrease    in    the   influence   of   the   Keiretsu,   however   Keiretsu   relationships   are   still   hugely    important   in   Japanese   business.  In  Japan  today,  you  will  find  both  competitive  bidding  and  cases  where  traditional  business   relationships    take    priority    over    achieving    the    best    price.        Therefore,    it    may    be    useful    for    UK   companies   to   research   and   understand   the   Keiretsu   structure   in   their   targeted   business   sector   or   industry   and   construct   their   business   plan   accordingly.
  6. 6. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         6   Quick  guide  to  doing  business  in  Japan   Here  is  a  quick  checklist  of  things  you  need  to  do  on  your  journey  to  doing  business  in  Japan:   1.       Market  Analysis   o Research    and    understand    the    opportunities     in    the    Japanese    market     for    your   product(s)  and  service(s)  including  the  potential  market  value  of  your  products  and   services  in  Japan.    Include  a  SWOT  analysis  as  part  of  your  research.   o Identify   any   government   bureaucracy,   certification  or   regulations   (import  tariffs   or   quotas,  approval  processes,  testing  processes,  labelling  requirements  etc.)  that  may   apply  to  your  products  and  services  in  Japan.   o Conduct  a  competitor  analysis.   o Profile  your  ideal  prospective  customers  in  Japan  and  complete  pre-­‐launch  product   evaluations.   2.       Test  the  market  for  your  product(s)  or  service(s)   o Attend  a  trade  show  or  trade  mission  to  test  the  market  in  Japan  for  your  product(s)   or  service(s).   o Contact  UKTI  Japan  (exporttojapan@fco.gov.uk)  or  Export  to  Japan   (info@exporttojapan.co.uk)  for  details  of  support  available  to  UK  firms  wanting  to   exhibit  in  Japan  or  participate  in  a  Trade  Mission  to  Japan.   3.       Route  to  Market   o Determine  your  route  to  market  (i.e.  direct  selling  online,  distribution,  joint-­‐venture,   representative  office,  acquisition  etc).   o Check    your    business    insurance    covers    you    in    Japan.         Most    standard    business   insurance  policies  in  the  UK  do  not  cover  companies  for  business  outside  of  the  EU.   o Locate  office  space  that  meets  your  market  entry  strategy,  cost  and  location  needs.   o If  applicable,  setup  a  local  IT  infrastructure  that  is  fully  integrated  with   your  head-­‐   office   infrastructure.      Also   ensure   that   all   utilities   are   connected   e.g.   broadband,   electricity,  telephone.   o Recruit  relevant  staff  (e.g.  Sales  Manager,  Business  Development  Manager  etc)  and   induct  them  into  your  corporate  culture  and  sales  and  marketing  strategy.   4.       Sales  and  Marketing   o Clearly  define  your  sales  and  marketing  strategy  for  Japan  including  online,  in-­‐store   and  mobile  channels  as  appropriate.   o Decide    on    branding    for    your    company,    product(s)    and    service(s)    -­‐    this    may    be   different  to  your  branding  for  the  UK  market.   o Consider   localising   your   web   site,   corporate   literature,   business   cards,   sales   and   technical  materials  and  presentations.   o Identify   potential   distributors,   suppliers,   joint-­‐venture   partners,   acquisition   targets   etc.,  negotiate   distribution  agreements  with  them  and   help  to   integrate  them  into   your   existing   sales   channel   infrastructure.
  7. 7. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         7   o Check  that  the  financial  controls  and  systems  in  place  for  doing  business  with  or  in   Japan  are  fully  compliant  with  both  Japanese  and  UK  accounting  requirements.
  8. 8. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan        8   Protecting  your  IP  abroad   Before  you  launch  your  product  or  service  in  a  foreign  market,  consider  whether  you  have  sufficient   protection  of  your  brand  name  and  logo.   If  you  have  built  up  significant  value  in  your  brand  name  or   logo,  it  may  be  worth  considering  registering  them  as  a  trade  mark.   To    register   a   trademark   in   Japan,   you   first   have   to   have   the   trade   mark   registered   in   the   UK.   However,    an    international    trade    mark    application    can    be    submitted    while    a    UK    trade    mark   application  is  in  progress.     It  is  important  to  note  that  the  international  trade  mark  application  will   be  linked  to  the  domestic  registration.    This  means  that  if  your  UK  trade  mark  registration  is  allowed   to   lapse   due   to   lack   of   use   etc,   then   the   international   registration   will   also   end.       Similarly,   the   international  trade  mark    must  be  identical  to  your  UK  trade  mark.   There  is  an  international  system  of  trade  mark  classification  which  allocates  trade  marks  to  a  specific   class  of  goods  and  services.      There  are  45  different  classes  of  goods  and  services.      A  list  of  these   classes  can  be  found  at  www.ipo.gov.uk/tm/t-­‐find/t-­‐find-­‐class.htm    .   UK  Trade  Mark  Registration   To   register  a   trade  mark  in   the   UK,   simply  go   to   www.ipo.gov.uk/types/tm/t-­‐applying/t-­‐apply.htm   and  follow  the  step-­‐by-­‐step  instructions.   Trade  mark  registration  is  usually  valid  for  10  years.   International  Trade  Mark  Registration   For   international   registration   of   a   trade   mark,   there   are   two   main   options:   the   first   is   to   file   a   trademark   application   directly   with   the   trademark   office   in   Japan,   or   you   can   apply   through   the   Madrid   Protocol   which   is  administered   in   Geneva   by   the   World   Intellectual   Property   Organisation   (W.I.PO.).   You   must   submit   your   application   to   WIPO   to   register   a   trademark   in   Japan   through   the   UK   Intellectual   Property   Office   who   will   then   submit   it   on   your   behalf.       You   cannot   submit   the   documentation   directly   to   WIPO.       An   international   application   form   can   be   downloaded   at   www.wipo.int/export/sites/www/madrid/.../form_mm2-­‐editable1.pdf         along  with  notes  on  how  to   complete  the  form  at    www.wipo.int/export/sites/www/madrid/en/.../form_mm2_inf.pdf.   Fill  in  the  information  requested  in  the  form  and  select  Japan  as  the  designated  country  where  you   are  seeking  international  trade  mark  protection.     To  give  an  idea  of  the  fees  involved,  as  of  March   2014,  a  colour  trade  mark  was  903  Swiss  Francs  (approx.  £612)  +  £40  IPO  charge  for  submission  +   Japan  country  charges  of  114  Swiss  Francs  (£77)  for  one  class  of  goods/services  and  87  Swiss  Francs   (£  59)  per  additional  class.5   Please  note  that  these  costs  are  indicative  and  are  subject  to  change.   Any  questions  about  UK  or  international  trade  mark  filings  can  be  sent  to   information@ipo.gov.uk   or  you  can  call  the  Intellectual  Property  Office  direct  on  +44  (0)300  300  2000.    Contact  details  for  the   Japan  Patent  Office  (JPO)  can  be  found  at    www.jpo.go.jp.   5   World  Intellectual  Property  Office,  Schedule  of  Fees  and  Individual  Fees,  6/03/14,   www.wipo.int/madrid/en/madridgazette/remarks/ind_taxes.html.  Accessed  28/03/14.
  9. 9. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan        9
  10. 10. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         10   Routes  to  Market   There  are  many  routes  to  market  entry  for  UK  firms  wanting  to  do  business  in  Japan:   § Using  a  distributor  or  re-­‐seller   § Setting  up  an  office   § Set  up  your  own  Limited  Liability  Partnership  (LLP)  company  in  Japan   § Joint  ventures/Licensing  of  your  company’s  technology/IP   § Direct  sales  via  your  own  e-­‐commerce  site   § Established    online    ecommerce    site    such    as    Amazon    Japan     www.amazon.co.jp,    Nissen   www.nissen.co.jp  ,  Yahoo!  Shopping  Japan    www.yahoo.co.jp  or  Rakuten    www.rakuten.co.jp.   § Serviced  office   § Virtual  office   § Acquisition   § Franchising   § Japan  based  business  consultancy  or  OEM  sales  representative.   If   you   are   just   starting   to   do   business   in   Japan,   then   the   research   done   in   your   first   month   of   business   (e.g.   the   data   accumulated   regarding   your   product's   value   and   projections   of   future   revenues)    will    be    crucial    in    deciding    whether    starting    a    Japanese    company,    setting    up    a   representative   office   or   contracting   a   distributor   is   the   most   efficient   route   to   market    for   your   company.   To  help  you  decide  which  business  entity  is  best  for  you  in  Japan:   1.        Examine  each  entity's  administrative  requirements  and  tax  structure   2.        Consider  the  statutory  paid-­‐in  capital  requirements  for  each  type  of  business  entity   3.        Investigate  how  HMRC   treats  income  from  each  entity   4.        Estimate  the  fixed  and  variable  costs  each  entity  will  incur  to  achieve  your  projected  revenue   The   most   frequently   used   type   of   business   entities   used   by   foreign   companies   when   starting   a   business  in  Japan  are  Kabushiki  Gaisha  and  Godo  Gaisha.    A  Kabushiki  Gaisha  is  similar  to  a  plc  in  the   UK  while  a  Godo  Gaisha  is  the  equivalent  to  a  Limited  company  in  the  UK.    Most  SMEs  enter  Japan   with  the  support  of  local  partners.   Setting  up  a  Japanese  company  or  representative  office  is  a  major  commitment  which  needs  to  be   carefully  structured  in  order  to  extract  maximum  value  from  your  investment.   Using  an  import  agent,  distributor  or  re-­‐seller   Hiring  a  reputable  import  agent  or  distributor  is  a  popular  first  step  for  SMEs  entering  the  Japanese   market   for   the   first   time.      Using   a   distributor   or   re-­‐seller   to   take   care   of   product   localisation,   in   country  marketing  and  to  provide  technical  support  can  be  a  cost  effective  route  to  market  for  firms   dipping  their  toes  into  the  Japanese  market  for  the  first  time.   Most   Japanese   people   prefer   to   do   business   with   someone   they   have   met   face-­‐to-­‐face   and   have   established      a      rapport      and      level      of      trust      with.      Utilising      the      strong      relationships      built      by
  11. 11. JMG  CONSULTING  UK  LTD|  Getting  started:  A  guide  to  doing  business  in  Japan         11   agents/distributors   with   their   customers   over   many   years   can   help   UK   companies   quickly   expand   their  sales  network.         In  addition,  using  third  parties  for  introductions  such  as  UKTI  Japan,  JETRO,   Trade  Associations,  Chambers  of  Commerce,  other  Japanese  companies  or  other  UK  companies  who   have  successfully  done  business  in  Japan,  can  accelerate  the  relationship  building  process  as  they  are   effectively  vouching  for  you  to  your  Japanese  counterparts.   Distributors  in  Japan  usually  cover  a  specific  territory  or  industry  and  importers  are  often  appointed   as  sole  agents  for  the  entire  country.  Exclusive  distribution  agreements  may  be  used  to  encourage   loyalty  and  strong  commitment  from  a  Japanese  agent.  While  the  Japanese  Fair  Trade  Commission   has   guidelines   applicable   to   exclusive   agency   contracts,   there   are   no   statutory   damages   required   upon  termination  of  an  agency  agreement.    However,  given  the  close-­‐knit  nature  of  business  circles   and   the   traditional   wariness   towards   foreign   suppliers   in   Japan,   replacing   an   agent   or   distributor   could   damage   a   UK   firm‘s   reputation   –   and   even   compromise   its   entire   market   strategy   –   if   not   handled    sensitively.    Japanese    agents    may    request   “parting   compensation”    in    the    event    the   UK   exporter  decides  to  dissolve  the  distribution  agreement.    Since  this  is  common  practice  in  Japan,  UK   companies  should  address  this  eventuality  prior  to  signing  a  contract.   UK  companies  should  ensure  comprehensive  due  diligence  is  carried  out  prior  to  the  signing  of  any   distribution   agreements.       In   addition,   UK   firms   should   check   whether   the   distributor   handles   competing  lines,  is  restricted  to  operating  in  a  particular  industry  group  (keiretsu)  or  has  any  other   potential  conflicts  of  interest.   Another   important   consideration   is   sales   commissions   paid   to   agents   and   distributors.   Under   an   agency  contract,  the  supplier  normally  invoices  the  agent  for  the  same  amount  that  the  agent  will   sell  to  the  customer  (”back-­‐to-­‐back”).  The  supplier  then  pays  a  sales  commission  to  the  agent  at  the   percentage  provided  for  in  the  agency  contract  or  agreement.  Under  a  distributorship  contract,  the   supplier  sells  the  product  to  the  distributor,  who  then  adds  a  mark-­‐up  which  determines  the  final   sales  price  to  the  customer.    Commission  rates  vary  according  to  the  product  and  contract  terms.   Once  an  agent  or  distributor  agreement  is  signed  and  the  UK  company‘s  products  gain  a  foothold  in   the   Japanese   market,   the   UK   company   may   want   to   establish   a   representative   office   in   Japan   to   support  the  distributor's  sales  and  marketing  efforts.   Setting  up  an  office   Representative  Office   The  representative  office  is  the  easiest  way  of  establishing  an  office  in  Japan   and  is  typically  used   when  a  foreign  company  wants  to  conduct  market  research  in  Japan  before  committing  to  a  branch   or  subsidiary.       Under  Japanese  law,  a  representative  office  can  only  engage  in  the  limited  business   activities   of   purchasing   and   storing   assets,   and   auxiliary   services   such   as   advertising,   information   gathering  and  market  research.   A    representative    office    cannot    participate    in    sales    activities    but    can    supply    information    to   distributors,  communicate  prices  and  terms  of  sale  and  identify  sales  opportunities.    There  is  no  legal   restriction  on  the  number  of  employees  a  representative  office  can  have  and  as  it  is  considered  an   extension   of   the   parent   company   there   are   no   shareholding   requirements   or   restrictions.
  12. 12. There  are  no  legal  registration  requirements  for  a  representative  office  and  there  is  no  requirement   to   report   the   direct   inward   investment   to   the   Ministry   of   Finance   via   the   Bank   of   Japan   which   is   required   under   the   Foreign  Exchange   Law   for   Branch  entities.      The   representative  office   needs   to   have   a   representative  resident  of   Japan   (i.e.   someone   with   a   legal   address   and   right   to   work   in   Japan).    Note  that  where  there  are  employees  receiving  remuneration  into  a  Japanese  bank  account,   there  are  payroll  and  social  insurance  registration  requirements.   A  representative  office  needs  to  be  able  to  show  the  following  in  order  to  prove  existence:   § A  lease  for  office  space  in  its  own  name  -­‐  the  lease  for  a  representative  office’s  space  may  be   signed  between  the  head  office   in  the  home  country  and  the  Japanese   building  owner.  In   many  cases,  however,  the  owner  will  require  that  the  representative  office  have  a  guarantor   resident  in  Japan   § A  utility  bill  in  the  name  of  the  representative  office   § A  copy  of  the  contract  between  the  representative  and  the  foreign  company.   A   representative   office   can   hold   a   bank   account   in  Japan   but   is   not   required  to   retain   books   and   records  in  Japan  unless  the  representative  office  claims  input  tax  credits.  There  is  no  statutory  audit   requirement  and  representative  offices  are  not  subject  to  taxation  in  Japan.   Subsidiary  or  Branch  Office   The  simplest  form  for  a  foreign  company  to  establish  a  base  for  business  operations  in  Japan  is  to  set   up  a  branch  office.    The  branch  office  can  begin  business  operations  as  soon  as  an  office  location  is   secured,   the   branch   office   representative   determined,   and   the   necessary   information   registered   with   the   Legal   Affairs   Office.       A   branch   office   does   not   have   its   own   legal   corporate   status,   but   instead  is  deemed  to  be  an  extended  arm  of  the  foreign  company.   A  branch  office:   § Must  be  registered  with  the  Japanese  Ministry  of  Justice’s  Legal  Affairs  Office   § Must  have  a  registered  representative  who  is  resident  in  Japan   § Must  have  a  registered  office  in  Japan  (can  be  the  representative's  home  address)   § A  branch  office  can  operate  a  bank  account,  rent  office  space,  lease  equipment  and  do  most   other   things  a  domestic  company  can  do   § A  branch  office  can  employ  any  number  of  employees  but  must  adhere  to  all  requirements   of  the  Labour  Standards  Law   § A  branch  office  is  governed  by  Japan's  Commercial  Code  and  is  liable  under  Japanese  law  for   its  debts  etc   § A  branch  office  is  subject  to  corporate  income  tax  on  all  of  its  Japan  income,  including  all   revenue  derived  in  Japan  by  its  foreign  parent   § A  branch  office  is  not  required  to  deduct  any  withholding  taxes  when  transferring  revenue   back  to  the  foreign  parent   § The  head-­‐office  is  allowed  to  assign  some  part  of  its  G&A  costs  to  the  branch-­‐office  to  offset   against  Japanese  corporate  tax  restrictions  if  applicable  

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