Hiring in Japan Without an Entity: What You Can Do, and Where It Stops

A distributor in Japan has started asking for someone local to coordinate with. Or one strong candidate has surfaced, and she can start in six weeks. What has not surfaced is approval to register a company in Japan, and the meeting where that gets decided is two planning cycles away.

So you search for whether you can hire in Japan without an entity, and the results are dominated by employer-of-record and global payroll vendors. Their answer is their product, and it is often a reasonable answer. What is harder to find is the analysis that tells you when it is the right one, because writing that analysis is not in the interest of anyone selling employment as a service.

The difficulty starts earlier than the choice of vendor. The word entity is carrying three unrelated questions, and collapsing them is what makes the whole topic feel unanswerable.

The first is legal capacity: can your company lawfully engage a person to do work in Japan without registering anything? The second is tax presence: at what point does having people in Japan give you a permanent establishment, and therefore Japanese corporate tax on the income attributable to it? The third is administrative attachment: when your person needs health insurance, pension, labour insurance or a status of residence, what does the Japanese authority attach that to? Registering a company answers the first question, which you had probably already solved. The second and third are where the branching actually happens, and they do not branch at the same point.

Everything below is drawn from JETRO’s English guidance for foreign companies setting up in Japan, and it is organised around those three layers. Rules and official estimates are revised, and the tax and insurance questions in particular turn on facts a general article cannot see. Treat this as material for a conversation with a Japanese tax accountant, a certified social insurance and labour consultant (sharoushi) and a lawyer, rather than as advice you can act on directly. BLP is a hiring support company, not a law firm.

What this article covers

• The representative office: what it can do, what it cannot do, and why it needs no registration
• What happens to social insurance, labour insurance and the employer’s share of premiums when nothing is registered
• Where the permanent establishment line sits, and what changed for business years beginning on or after 1 January 2019
• Why the tax question does not disappear when you switch from employing people to contracting with them
• Whether a work visa can be sponsored before a base in Japan exists, and which people are outside that constraint entirely
• The situations where the no-entity route is the wrong instrument, including the case for simply incorporating
• The questions the official guidance leaves open, stated as open rather than papered over

Key facts at a glance

Item	What the official guidance says
Registering a representative office	Not required. “The establishment of representative offices does not require registration.”
What a representative office may do	Market surveys, collecting information, purchasing goods, publicity and advertising — preparatory and supplemental tasks.
What it may not do	Sales activities.
Bank account and premises	Neither can ordinarily be held in the office’s own name. The parent, or the representative personally, is the counterparty instead.
Health and pension insurance, under 5 employees	Voluntary in principle, with the office’s representative standing as the employer.
Health and pension insurance, 5 or more regular employees	Mandatory as a general rule, in the prescribed kinds of businesses. A representative office counts as a sole proprietorship for this; a branch counts as an incorporated business.
The representative’s own coverage	Not an insured person in principle. An exception exists on proof of employment by the overseas parent, decided by each local competent authority.
Labour insurance	Mandatory for employees other than the Representative in Japan.
Employer’s share of premiums	About 15% of total annual wages, across all five contributions.
Reach of Japanese labour law	Applies in principle to every enterprise in Japan, whatever the employer’s nationality or country of incorporation.
Corporate tax on auxiliary activity	In principle none. Publicity, information provision, market surveys and basic study are not supposed to produce income subject to corporation tax.
When it becomes a permanent establishment	Once the activities exceed those auxiliary functions — and, for business years beginning on or after 1 January 2019, potentially even when they do not (see below).
Work visa before a base exists	In principle not obtainable before a business base is established. Three exceptions: the 4-month “Business Manager” visa, the Foreign Entrepreneurship Promotion Program, and the National Strategic Special Zones programme.
Does the base have to be a registered company?	No. A status of residence is determined by the applicant’s activities, not by the type of establishment, and an unregistered representative office is named as an organization of affiliation. Expatriate staff of one are generally “Intra-company Transferee”.
Setting up a branch or subsidiary	JETRO’s estimate: about two months and around ¥700,000 for a branch, about two to three months and around ¥1,000,000 for a subsidiary, both including actual expenses and fees for professional proxies.

The representative office is the option the vendor pages skip

Start with the first layer, legal capacity, because it turns out to be the least constrained of the three.

Section 1.1 of JETRO’s guidance describes three forms in which foreign companies generally establish a business presence in Japan: a representative office, a branch office and a subsidiary company. Only the last two involve registration, and it is worth being exact about what triggers that obligation, because it is not the form you pick. Section 1.1.2 states that foreign companies “wishing to engage in continuous transactions in Japan must register in the country (see Article 818 of the Companies Act)”, and that to do so they must at least register one of four things: the appointment of a representative in Japan, the establishment of a branch office, a Japanese corporation, or a partnership. So Article 818 is not the provision behind branch offices specifically. It is the provision that makes the intended pattern of business the trigger, and registration in one of those four forms the consequence — which puts continuous transactions at the boundary this entire article sits on the near side of, and makes it the phrase to put in front of Japanese counsel alongside a description of what you actually intend to do. Of the representative office, section 1.1.1 says that such offices “are established as locations for carrying out preparatory and supplemental tasks aimed at enabling foreign companies to engage in full-scale business operations in Japan”. They may conduct market surveys, collect information, purchase goods and implement publicity and advertising efforts. They are not permitted to engage in sales activities. And the sentence that most English-language coverage of this topic leaves out: “The establishment of representative offices does not require registration.”

There is a real cost attached to that convenience, and it is not the one people expect. A representative office “cannot ordinarily open bank accounts or lease real estate in its own name, so agreements for such purposes must instead be signed by the head office of the foreign company or the representative at the representative office in an individual capacity”. Read that as an operational fact rather than a legal one. Someone’s personal name goes on the office lease. Payroll runs from an account that is not the office’s. Neither is fatal, and both are the kind of thing a person discovers after they have agreed to be your representative in Japan rather than before.

What makes this more than a technicality is that JETRO’s Q&A contains, almost word for word, the situation many readers of this article are in. It describes “a foreign company which exports its goods to Japan through distributors or trade firms” that “has hired personnel in Japan to handle communication and coordination with those agents and trading companies”, and which, because it does not plan to engage in sales activities in Japan, “does not intend to register as a corporation or establish a branch office, but rather plans to operate as a ‘representative office’ or ‘liaison office'”. The question asked there is what social insurance and labour insurance apply to the people hired. Not whether hiring them is possible. The public guidance treats that arrangement as an ordinary configuration with administrative consequences, which is a different starting point from the one the vendor pages give you.

A full side-by-side comparison of the three forms — what each one costs, how long each takes, what liability each creates and which insurance duties attach to each — is a separate subject, and we have kept it out of this article deliberately rather than compressing it into a table nobody can act on.

The point to carry forward is narrower. Not needing to register is not the same as having somewhere for the administration to land. That is the next layer, and it is where the first genuine friction appears.

What happens to insurance and payroll when nothing is registered

This is the third layer, administrative attachment. Two places in JETRO’s material deal with it directly: section 4.9.6, which covers labour and social insurance coverage of a representative office, and the liaison-office worked example in the Q&A. They answer slightly different questions, and both are quoted below.

Health insurance and employees’ pension insurance work off a category. All incorporated companies without exception must take part, and so must a representative office with five or more regular employees that falls under the prescribed kinds of businesses. Below that threshold, “in case of a representative office with less than 5 employees, in principle voluntary coverage with the representative of the office as the employer (the representative does not become the person insured) is available”. The classification underneath is the part worth writing down: branches and sales offices of overseas companies “are treated as incorporated businesses, and representative offices are treated as sole proprietorships”. Your unregistered office is, for this purpose, a sole proprietor’s business.

That classification has a consequence for the one person you most want covered. Section 4.9.6 covers both sides of the five-employee threshold, and it gives the representative the same answer on both. In the voluntary case it says so in parentheses, in the sentence quoted above: the representative does not become the person insured. In the compulsory case it says it again and gives the reason — “In principle, a representative does not become the person insured, because a representative is an employer of sole proprietorship.” Headcount changes whether your staff are enrolled. It does not, on this passage, change the representative’s position. JETRO then notes that “as an exception, a representative can sometimes be granted eligibility to be insured if documents certifying the representative’s status as an employee of the overseas head office are submitted”, and adds the sentence that matters more than the exception itself: “the ultimate decision to allow for this exception lies with each local competent authority.” That is not a rule you can plan against from a spreadsheet in another country. It is an outcome that depends on which office you file with.

The Q&A then answers a question about the same kind of arrangement and reads differently. Of an office conducting market research, liaison and coordination, or procurement in Japan without registering a company or branch office, it says social insurance is in principle voluntary, that enrolment “can be determined by agreement between the company and the employees whether to be enrolled into the social insurance as a whole”, and that there are “two possible approaches: excluding the representative of the Japan office from coverage by treating that person as the business owner, or enrolling the representative as an employee together with other staff.” The second of those approaches is the one section 4.9.6 puts outside the principle. We are not going to pretend these two passages have been reconciled somewhere, because as far as we can find they have not been. Note the divergence, take both texts to a sharoushi, and get the position confirmed with the office that will actually process the enrolment — that is the item to settle, rather than picking whichever of the two readings suits the plan.

Labour insurance runs on a different logic. In the liaison-office scenario in the Q&A, JETRO states that “coverage is mandatory for employees other than the Representative in Japan”, and that for the Representative it is “in theory, determined based on whether the Representative is deemed to have employee status. However, in practice, it is currently difficult for administrative procedures to accommodate such treatment.” A public body writing that a legally available treatment is difficult for the procedures to accommodate is itself the information. What is available in theory and what is available at the counter are not the same thing here, and your representative will be dealing with the counter. Section 4.9.6 does point at a route that survives that gap: “under certain conditions, there is a scheme in place to allow the representative insured by Worker’s Accident Compensation Insurance as a special enrollment at his/her own cost.” Special enrolment is worth raising with the person you are asking to represent you, on the understanding that the guidance conditions it and that the cost sits on them rather than on the company.

For budgeting, JETRO’s Q&A gives one figure: “The insurance premium rate borne by companies is about 15% of total annual wages”, covering workers’ accident compensation insurance, employment insurance, health and nursing care insurance, employees’ pension insurance and child-rearing contributions. That number is the employer’s share on top of salary, and it applies once coverage applies. We are not breaking it into individual rates here, because the rates move and the breakdown is a separate exercise.

One assumption to discard before it costs you something. Having no registered entity does not put you outside Japanese employment law. JETRO’s section 4.1 states that the Labor Standards Act, the Industrial Safety and Health Act and the Minimum Wage Act “apply in principle to all enterprises in Japan, regardless of whether the employer is Japanese or foreign, or the company is a foreign or Japanese-registered corporation”. The statutes follow the work, not the registration.

There is a limit to how far this takes you, and it is worth being blunt about where it falls. Every one of the passages above assumes there is an office in Japan, even an unregistered one. What happens where a foreign company has no office in Japan at all and directly employs somebody resident there is not addressed in these pages, and we are not going to infer an answer from silence in either direction. That is a question for a sharoushi, and it is a question worth asking before the first payroll run rather than after.

Permanent establishment is the line that actually decides

The second layer, tax presence, is the one that determines how long the no-entity arrangement survives. It is also the one where the guidance changed in a way that removes a comfort many companies are still relying on.

The baseline is generous. JETRO’s Q&A states that representative offices “through which a foreign corporation engages in business in Japan are not supposed to derive any income subject to corporation tax from publicity/advertising, information provision, market surveys, basic study and other activities auxiliary to the performance of its business”. The wording is worth reading precisely: the guidance says such an office is not supposed to derive taxable income from those activities, which states a principle rather than granting an exemption you can rely on after the fact. It is also qualified by the 2019 change set out further down this section, which is what makes the principle harder to apply than it first looks.

Step outside it and the position inverts: “When the activities exceed the auxiliary functions described above, the representative office is subject to taxation as Permanent Establishment (PE).” What the tax then attaches to is the income attributable to that permanent establishment. JETRO’s section 3.1 describes the same mechanism for registered branches — since business years commencing on or after 1 April 2016, a Japanese branch and its head office are “respectively deemed to be an independent corporation and subject to taxation”, with the branch taxed on the income attributable to it, calculated as though it were separate from the head office.

Now the part that breaks self-assessment. JETRO flags it explicitly: “since the business year commencing on or after January 1, 2019, even where the activities of the foreign corporation or a person who has a special relationship with the foreign corporation are preparatory or supplementary in nature, they may fall under the category of PE if they fulfill a complementary function as part of an integrated business.” The older mental model — we only do research and liaison, therefore we are auxiliary, therefore we are safe — no longer terminates the analysis. Activities that are preparatory in character can still be a permanent establishment if they complement the rest of what the group does. Whether a particular set of activities does that is a facts question, and it is one for a Japanese tax accountant with your actual operating description in front of them.

The part that runs against our own model

BLP’s approach to market entry is to break the required work into defined tasks and place them with contractors, so what follows costs us something to write. Switching from employing someone in Japan to contracting with someone in Japan does not make the permanent establishment question go away.

It genuinely changes the third layer. Contracting removes the employer-side insurance enrolment problem and the employment-law exposure that comes with being someone’s employer, and those are real. The second layer is untouched by that choice, because it turns on what is being done in Japan and how it connects to your business, not on the label of the agreement with the person doing it. If the arrangement evolves into somebody in Japan regularly involving themselves in putting contracts in place on your behalf, a second question sits on top of the auxiliary-activity one. Tax practitioners call it agency permanent establishment. It is a distinct issue from the auxiliary-activity test above, it is not addressed on the JETRO pages this article is built from, and we are flagging it as a question to raise rather than describing how it resolves.

We are deliberately not stating the conditions under which that question resolves against you. We were unable to source the criteria from an official English-language primary text, and inventing precision here would be worse than leaving the edge undrawn. Take the absence of detail in this article as a description of the published English guidance, not as a signal that the issue is small. What we will say is that anybody telling you that a contractor arrangement removes Japanese tax presence as a category is going further than the published guidance does. The right move is to put both the contract and an honest description of the activities in front of a Japanese tax accountant.

One layer down from the tax question sits a mechanical one that catches companies immediately: paying a Japanese individual involves Japanese withholding rules and consumption tax treatment that do not depend on whether you have an entity. We have written that up separately in paying contractors in Japan, including where the official guidance stops for a payer with no office in the country.

If your first person needs a work visa, what you need is a base — not necessarily a company

Back to the third layer, in its other form. Immigration is where the sequencing becomes rigid, and where a plan that works on paper can fail on ordering alone.

JETRO’s Q&A puts it plainly: “In principle, working visas cannot be obtained before establishing the business base since working visas are issued for applicants (foreign nationals) on the premise that they have a secured place of employment in Japan.” Three exceptions are named — applying for a 4-month “Business Manager” visa, using the Foreign Entrepreneurship Promotion Program, or using the programme to promote the reception of foreign entrepreneurs in the National Strategic Special Zones. Under the startup route described in section 2.12, an entrepreneur whose business preparation plan is certified by a designated promotion organisation can obtain “Designated Activities” status for a maximum of two years in order to prepare, and the grace period for securing a business office and meeting the required business scale has been set at a maximum of two years, with the programme rolled out nationwide effective 1 January 2025.

Note the precise thing that is required, though, because it is not what the headline suggests. What must exist is a base and a contracting organisation in Japan, not necessarily a registered company. JETRO states that a status of residence “is determined by the applicant’s activities in Japan, and not by the type of establishment of the foreign company”, and its own mapping puts expatriate staff of a representative office under “Intra-company Transferee”. A person employed by a representative office, branch or subsidiary may alternatively qualify for a status such as “Engineer/Specialist in Humanities/International Services” where they do work related to their academic background or professional experience “based on a contract with a public or private organization in Japan” — the same phrase that defines that status in section 2.4.

You do not have to take that as inference, because JETRO names the representative office in that role twice. Section 2.4.6, on the necessity of having an office, opens: “In order to obtain the status of residence for ‘Business manager,’ it is required for the Japanese subsidiary, branch, or representative office, etc. that serves as the organization of affiliation to have an exclusive and physical office independent from other companies.” And the documentation guidance in section 2.4.2 works through the practical consequence: “when the organization of affiliation in Japan is a representative office of a foreign company, it is not possible to obtain the certified copy of the company register”, so documents such as the lease agreement, a layout plan and photograph of the office, and a document certifying the home-country resolution to open a Japanese representative office may be required instead. A body of guidance that tells you which substitute documents to file when your organization of affiliation has no company register is not one that assumes registration. What it does assume throughout is that some organisation in Japan exists — the requirement the Q&A states as a “secured place of employment in Japan” — which is the thing you cannot skip.

The “Business Manager” status is the other branch of this, and we are keeping it to its outline here. JETRO notes that capital of 30 million JPY or more is one of the requirements, and section 2.4.6 goes on from the sentence quoted above to warn that a non-physical virtual office, a shared office with a related corporation, or an open space such as a co-working space raises the likelihood of the status not being granted. The detail of that status is a subject in its own right and we are not compressing it into a paragraph.

The inversion of all this is the practical conclusion, and it is the structural reason a no-entity entry model can work at all. If the person you want does not need you in order to be in Japan lawfully — a Japanese national, or a resident whose existing status of residence already covers the work — none of the sequencing above applies to your first engagement. A foreign national must not, in principle, engage in income-generating activities beyond what their status of residence permits unless a permit for another activity is obtained, so this is a question about that individual’s status rather than about your company. The honest corollary is that the model has a defined population. It works with people who are already established in Japan on their own footing, and it does nothing for you if the person you need is currently outside the country and dependent on you to get in.

If the answer lands on engaging someone already established there, the contract side has its own rules — what has to be disclosed, how fast you have to pay, and what happens to intellectual property. That is covered in how to hire freelancers in Japan, written from the client’s side of the table.

Where the no-entity route stops working

Three failure modes are worth naming, and the last one competes with what BLP sells.

The first is misclassification. Contracting is not a container you can pour any role into, and the criteria that decide whether someone is a worker are published, weighed together, and applied to how the relationship actually runs — we set them out, with their sources, in our article on disguised employment in Japan. Read against those criteria, a role built around daily direction, hours you set, no right of substitution and effectively full-time commitment is pointing at employment, whatever the agreement is called. We are not classifying your engagement here, and no article can: that assessment belongs to a sharoushi or a lawyer looking at your facts. What is worth knowing before you design the role is the shape of the downside, which reaches backwards into insurance enrolment and employer obligations you did not know had started rather than forwards into a penalty you can budget for. This is also the honest case for an employer of record over a contractor arrangement: an EOR takes on the employer’s obligations for you, and where the role genuinely needs to be employment, that is the more appropriate instrument. BLP does not offer it.

The second is activity. A representative office is not permitted to engage in sales activities, so if the role you are trying to fill is a salesperson closing business in Japan, the unregistered configuration is unavailable from the start — and the permanent establishment analysis is live in any case. This constraint is not negotiable through contract drafting, and it is the point at which most companies discover that their real question was about incorporating after all.

The third is the one that runs against our own proposition. Incorporating in Japan may be less heavy than the framing around it suggests. JETRO’s own estimate is about two months and roughly ¥700,000 to establish a branch, and about two to three months and roughly ¥1,000,000 for a subsidiary, both figures described as estimates including actual expenses and fees for professional proxies — and there is at least one prerequisite that money does not solve, since a branch requires at least one representative in Japan who has an address in and is resident in Japan. We are not comparing the routes here beyond that, and we are certainly not going to argue that a two-month, seven-hundred-thousand-yen process is prohibitive when the published numbers say otherwise. If you were going to end up incorporating within the year anyway, doing it first is a defensible decision, and it is the one that makes the second and third layers stop being open questions.

What incorporating does not do is make the employment decision reversible. On JETRO’s summary of the position, dismissing an employee requires objective and reasonable grounds, and redundancy is justifiable only after satisfying several criteria, among them the necessity of the dismissal and the efforts made to avoid it. How that plays out in a given case is a matter for Japanese employment counsel, and the general shape of it is enough to explain why the first hire is worth deliberating over rather than defaulting into.

What the official guidance does not settle

Five things stayed open after working through these pages. None of them is open because it is obscure. They are open because the published English guidance does not reach them, which means a confident answer from a non-official source should make you more suspicious rather than less.

The first is the case of no office at all. Every insurance passage in JETRO’s material presupposes something in Japan — a representative office, a branch, a subsidiary. A foreign corporation with nothing in the country that directly employs a person resident there is not described, and the answer is not derivable from what is written.

The second is expressly left open by the guidance itself. Whether a representative office’s representative can be enrolled as an insured person depends on an exception whose “ultimate decision” rests with each local competent authority. That is a rule that tells you it will be decided elsewhere. It is unsettled in a second way as well, which is more awkward: section 4.9.6 and the Q&A do not say the same thing about the representative, and nothing in the published material reconciles them.

The third is the labour insurance position of the Representative in Japan under ordinary coverage, where the guidance states that the theoretical test is employee status while noting that administrative procedures currently find that treatment difficult to accommodate. Note that this gap is narrower than it first appears: special enrolment in Workers’ Accident Compensation Insurance, at the representative’s own cost, is described in the same section as a scheme that exists under certain conditions. What is unsettled is ordinary coverage, not every route to being covered.

The fourth is the reach of the Freelance Act over a business operator established outside Japan. We have written up the client-side duties that Act imposes separately; what neither the statute’s official English translation nor the guidance around it settles is the territorial question, which is precisely the one a foreign company with no entity has.

The fifth is agency permanent establishment, and it needs separating from the rule above it. The 2019 change is about preparatory and supplementary activities and it is published in JETRO’s Q&A; agency permanent establishment is a different question, about a person in Japan acting for you in relation to contracts, and the pages this article draws on do not deal with it. Neither the criteria nor the point at which a particular contract structure crosses them can be taken from the English guidance we used.

We have listed these as questions to take to a professional rather than as things to research harder. Four of them are matters on which a Japanese tax accountant, a sharoushi or a lawyer will give you a view on your specific facts. The second one is different in kind: the guidance says in terms that the decision rests with each local competent authority, so the answer is whatever the office you file with decides, and no adviser can pre-empt it.

Questions to ask before you commit

Worth putting to a Japanese tax accountant, a sharoushi and a lawyer before the first person starts, rather than after:

• Given what we actually intend our person in Japan to do, do those activities stay within the auxiliary functions described in the guidance, or do they complement our wider business in a way that raises the permanent establishment question?
• If we contract rather than employ, what would have to be true of the person’s activities for an agency permanent establishment issue to arise, and does our draft contract make that more or less likely?
• We have no office in Japan and want to employ a resident directly. What is the social insurance and labour insurance position, and on what authority?
• If we open an unregistered representative office, will the local competent authority for our area accept the representative as an insured person, and what documentation would that require?
• Does the person we want to place require a status of residence sponsored by us, or does their existing status already permit this work?
• At our planned headcount and line of business, are health insurance and employees’ pension insurance voluntary or mandatory for us, and what changes at five regular employees?
• What is our total employer cost per person, applying the roughly 15% employer share to our actual salary bands?
• If we expect to incorporate within twelve months anyway, what do we lose by doing it now instead of running an interim arrangement first?

Frequently asked questions

Can a foreign company hire someone in Japan without setting up a company there?

Separate the questions. Nothing in the guidance requires a registered entity in order to engage a person to do work in Japan, and JETRO describes the representative office as a form of business presence that needs no registration and whose employees’ insurance treatment it then sets out. What a lack of registration does affect is where Japanese administration attaches the person for insurance purposes, whether a status of residence can be sponsored, and whether your activities create a taxable presence. Those three answers are not the same, so treat the question as three questions and take them to a Japanese professional individually.

What is a representative office, and does it have to be registered?

It is a location for the preparatory and supplemental work that precedes full-scale operations: research, information gathering, buying goods, and publicity. Selling is out of scope. Setting one up requires no registration, which is the single feature that separates it from a branch office or a subsidiary, and the reason it exists as an option at all for a company that has not yet decided to commit.

Can a representative office open a bank account or sign a lease in its own name?

Not ordinarily, on JETRO’s account. Both the account and the premises have to sit with somebody else: either the overseas parent, or the office’s representative acting personally. Plan for a named individual, or your head office, appearing as the counterparty on a Japanese lease, and plan for the awkward conversation with the person whose name it will be.

Do we have to enrol staff in Japanese social insurance if nothing is registered?

It depends on headcount and on the kind of business. Below five employees the health and pension side is voluntary in principle; at five or more regular employees in one of the prescribed kinds of businesses it becomes compulsory as a general rule, because the office is classified as a sole proprietorship. The representative’s own position is where the guidance stops agreeing with itself: section 4.9.6 says the representative does not in principle become the insured person on either side of that threshold, while the Q&A, answering on an unregistered office, offers two possible approaches — leaving the representative out as the business owner, or enrolling the representative as an employee alongside the other staff. Treat that as a point to settle with your sharoushi and the competent office rather than a settled rule. Labour insurance is a separate question with a stricter answer: it binds for everyone except the Representative in Japan. Where a foreign company has nothing in the country at all, the guidance we reviewed does not address the position, and we are not going to guess at it.

When do people in Japan create a permanent establishment for us?

The published line runs through the word auxiliary. Research, information gathering, publicity and similar support work is not supposed to generate income taxable in Japan; go past it and the office is taxed as a permanent establishment on the income attributable to it. The 2019 change described above narrowed that shelter further, so a self-assessment that stops at “our people only do research” no longer closes the question. Whether your activities cross the line is a facts question for a Japanese tax accountant, and one worth asking early, since the answer applies to a whole business year.

Can we sponsor a work visa without a Japanese entity?

Not before the base exists, as a general rule — the premise of a working visa is that somewhere in Japan has already secured the applicant’s employment. JETRO names three ways around the sequence, all aimed at founders rather than staff: the four-month “Business Manager” route and the two entrepreneur programmes described above. Note also that the requirement is an affiliated organisation, which is not identical to a registered company. An unregistered representative office appears in JETRO’s own mapping as the employer of “Intra-company Transferee” staff, so registration and sponsorship capacity are not quite the same threshold.

Does Japanese labour law apply to us if we have no entity in Japan?

In principle yes, on JETRO’s account. The three statutes named in section 4.1 — covering minimum working conditions, workplace safety and minimum wage — apply in principle to every enterprise in Japan, and neither the employer’s nationality nor its country of incorporation changes that. They cover foreign workers in Japan too, provided those workers meet the statutory definition of a worker. Whether a specific obligation reaches your specific arrangement is still a question for Japanese counsel, but planning on the assumption that an unregistered arrangement sits outside the employment statutes is not supported by the guidance.

Summary

• A representative office requires no registration and can be the place where your first person in Japan sits, but it cannot make sales, hold a bank account in its own name or take a lease in its own name.
• With fewer than five employees, health and pension insurance is in principle voluntary; at five or more regular employees in a prescribed kind of business it becomes mandatory, and labour insurance is mandatory for everyone other than the Representative in Japan.
• Japanese labour statutes apply to enterprises in Japan regardless of the employer’s nationality or place of registration, so having no entity does not put you outside them.
• Auxiliary activity is not taxed, exceeding it creates a permanent establishment, and since business years beginning on or after 1 January 2019 even preparatory or supplementary activity can qualify if it complements an integrated business.
• Working visas are in principle unavailable before a business base exists — but the base is what is required, not a registered company, and an unregistered representative office is named in the guidance as an organization of affiliation.

The reason this topic resists a straight answer is that the straight answer differs by layer. You can contract and you can staff an unregistered office. Whether the administration has somewhere to put those people depends on what you have in Japan and how many of them there are. Whether the tax authority treats you as present depends on what they do, and that test got harder to pass in 2019.

Which means the useful question is not whether you need an entity. It is which of the three layers your specific plan actually collides with. A company placing defined project work with an established Japanese freelancer is in the configuration that runs into fewest of them soonest — which is not the same as being clear of them, because the tax presence question turns on what is actually done in Japan rather than on what the agreement is called, and the questions in the section above stay open regardless. A company putting a salesperson in Tokyo to close deals runs into all three at once, and would be better off costing out incorporation honestly than looking for a structure that avoids it.

BLP is a Japanese company that helps overseas businesses get work done in Japan by defining the work and placing it with contractors, rather than starting from a permanent hire and the entity that has to exist underneath one. If you are trying to work out which layer your plan runs into first, we are happy to talk it through — and to tell you when the answer is that you should incorporate.

Related reading

Two things become relevant immediately after you decide not to register an entity yet. One is what you are avoiding, and the other is what you are not avoiding.

• Firing employees in Japan — the constraints that switch on if you take the other branch and employ someone directly, which is the real reason the first hire is worth slowing down over.
• The Freelance Act and foreign companies — the client-side duties that attach to the work you place, which do not change according to whether you have registered anything in Japan.

Sources

• JETRO, "1.1 Types of operation in Japan", Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section1/page1.html
• JETRO, "Investing in Japan Q&A" (Incorporating Your Business / Visa and Status of Residence / Taxation in Japan / Human Resource Management) — https://www.jetro.go.jp/en/invest/setting_up/qa.html
• JETRO, "2.4 Types of working statuses", Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section2/page4.html
• JETRO, "2.12 Promoting the acceptance of foreign entrepreneurs", Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section2/page12.html
• JETRO, "3.1 Overview of Japanese corporate tax system for investment in Japan", Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section3/page1.html
• JETRO, "4.1 Application of laws", Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section4/page1.html
• JETRO, "4.9 Japan’s social security system" (4.9.4 to 4.9.6), Laws and Regulations on Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/section4/page9.html