Entering Japan as a Foreign Company: Representative Office, Branch or Subsidiary, and the Governing Law of Your Contracts

When a foreign company starts doing business in Japan, the first decision is whether to enter through a representative office, a branch or a subsidiary. A foreign company may not carry out transactions in Japan on a continuous basis until it has registered as a foreign company (Companies Act, Article 818(1)). In practice, this means that a company that wants to sell must either register as a foreign company (with or without a branch) or incorporate a subsidiary, while a representative office stays limited to preparatory activities such as market research and liaison. At the same time, the governing law and jurisdiction of local contracts, Foreign Exchange Act filings and the immigration status of the executives you send should be checked early in the plan.

• Your sales team at home has started signing contracts with Japanese customers on a regular basis, but nothing has been registered in Japan.
• Management is split between opening a branch and incorporating a subsidiary, and wants to compare liability and administrative burden.
• A Japanese counterparty has sent a draft contract governed by Japanese law with the Tokyo District Court as the forum, and you are unsure whether to push for your home law and courts.
• You want to send an employee to run the Japanese entity, and have heard the immigration criteria have changed.

"Representative office" is not a form defined in the Companies Act. It is the practical name for a base that the foreign company runs without registering as a foreign company, limited to market research, information gathering, liaison with the head office and preparation for marketing.

A foreign company that has not registered may not carry out transactions in Japan on a continuous basis (Article 818(1)). A person who transacts in breach of this is jointly and severally liable with the foreign company to the counterparty for the resulting obligations (Article 818(2)), and is subject to a non-penal fine equal to the registration and licence tax for incorporating a company (Article 979(2)).

What matters is what the office actually does, not what it is called. Once local staff issue quotations, close deals and collect payment, that can amount to continuous transactions. When sales are in sight, plan the switch to a branch or a subsidiary.

A foreign company that intends to carry out transactions in Japan on a continuous basis must appoint a representative in Japan, and at least one representative must be domiciled in Japan (Article 817(1)). The representative has authority to perform all judicial and extra-judicial acts relating to the company's business in Japan (Article 817(2)), and any limit placed on that authority cannot be asserted against a third party acting in good faith (Article 817(3)).

A branch is not a separate legal entity. Debts arising from the branch's business are debts of the foreign company itself, so losses or disputes in Japan reach the head office's assets directly.

A subsidiary is a separate legal entity incorporated under the Japanese Companies Act, usually a stock company (kabushiki kaisha, KK) or a limited liability company (godo kaisha, GK). As a rule, the parent is liable only to the extent of its investment, so the risk of the Japanese business is ring-fenced in the subsidiary.

In a GK, all members are limited liability members (Article 576(4)). A limited liability member is liable for the company's debts up to the value of its contribution, less what it has already paid in (Article 580(2)).

A KK must publish its balance sheet (for a large company, its balance sheet and profit and loss statement) without delay after the annual general meeting (Article 440(1)). There is no equivalent publication rule for a GK.

The main points of comparison are:

• How it looks to others: Japanese counterparties and job applicants are more familiar with the KK. Companies that prioritise relationships with large customers or banks often choose a KK.
• Administrative burden: a GK has a simpler governance structure and no balance sheet publication. It suits a wholly owned subsidiary that starts small.
• Future plans: if a listing in Japan or outside investment is on the horizon, a KK is easier. A GK can later be converted into a KK, but this requires a formal procedure.

The formation and effect of a contract are governed by the law the parties chose at the time of the contract (Act on General Rules for Application of Laws, Article 7). Without a choice, the law of the place with the closest connection at that time applies (Article 8(1)). Where only one party performs the characteristic obligation, such as selling goods or providing a service, the law of that party's habitual residence, or of its relevant place of business, is presumed to be the law of the closest connection (Article 8(2)).

So if you provide services to a Japanese customer without stating the governing law, the law of the provider's place of business is presumed to apply. If your Japanese branch or subsidiary is the provider, Japanese law becomes likely. State the governing law in the contract rather than leaving it to be decided in a dispute.

The parties may agree on the courts of which country an action may be brought in (Code of Civil Procedure, Article 3-7(1)). The agreement is effective only if it concerns actions based on a specific legal relationship and is made in writing (Article 3-7(2)). An agreement recorded electronically is treated as made in writing (Article 3-7(3)).

Arbitration is an alternative to the courts. See our articles "International Arbitration Basics" and "International Business Contracts in Japan" for clause drafting.

An investment by a "foreign investor", such as a legal entity established under foreign law, in a Japanese company may be "inward direct investment, etc." under the Foreign Exchange and Foreign Trade Act (Article 26). Where the investment falls within categories set by Cabinet Order as possibly requiring screening, the investor must notify the Minister of Finance and the minister responsible for the business in advance (Article 27(1)). Even where prior notification is not required, a report after the investment may be required (Article 55-5(1)).

Whether a filing is needed depends on the business of the target and the form of the investment. After a prior notification, the investment may not be carried out until 30 days have passed from the date the notification was accepted (Article 27(2)), so check this before fixing the timetable for incorporating a subsidiary or acquiring a Japanese company.

Many businesses in Japan, such as recruitment, real estate brokerage, finance, travel, food and medical devices, require a licence, registration or notification. Licences can take time, and the requirements can differ depending on whether the branch or the subsidiary holds them. Identify the licences you need at the same time as choosing the form of entry.

A foreign national who will manage or administer a business in Japan usually needs the "Business Manager" status of residence. Its criteria were amended with effect from 16 October 2025. According to the Immigration Services Agency, the main changes are:

For people who already held Business Manager status before the amendment, the Agency states that until three years have passed since it took effect, an extension will not be refused merely because the new criteria are not met.

1. List what you are currently doing in Japan, and check whether quotations, contracts or payment collection amount to continuous transactions.
2. Compare the three forms of entry on liability, administrative burden and future plans.
3. If you choose a branch, decide who will be the representative in Japan domiciled in Japan.
4. Add governing law and jurisdiction (or arbitration) clauses to your template contracts for Japanese customers, and keep the jurisdiction agreement in writing or electronic form.
5. Check whether a Foreign Exchange Act prior notification or post-investment report is needed for the business you are investing in.
6. Check whether the executive you will send can meet the new Business Manager criteria on capital, employment, language and experience.

• You are signing, or plan to sign, contracts in Japan on a continuous basis without having registered.
• You want to decide between a branch and a subsidiary, taking tax, liability and licensing into account.
• A Japanese counterparty has proposed Japanese law and Japanese courts, and the clauses need to be negotiated.
• You plan to invest in or acquire a Japanese company and need to confirm Foreign Exchange Act filings and timing.
• You need to restructure capital or hiring plans to support a Business Manager application.

Our firm advises foreign companies entering Japan in both English and Japanese. Please contact us through our enquiry page.

A foreign company may not carry out transactions in Japan on a continuous basis until it registers (Companies Act, Article 818(1)). A person who transacts in breach of this is jointly liable with the company and is subject to a non-penal fine. Once you reach the stage of regular contracts, switch to a registered branch or a subsidiary.

A branch is not a separate entity, so its debts are debts of the foreign company itself. A subsidiary is a separate Japanese entity, and the parent is, as a rule, liable only to the extent of its investment. Companies that want to ring-fence the risk of the Japanese business usually choose a subsidiary.

In a GK all members have limited liability, there is no balance sheet publication rule, and governance is simpler. A KK must publish its balance sheet, but is more familiar to Japanese counterparties and job applicants, and suits a future listing or outside investment. Choose according to the size of the business and your plans.

The law of the place with the closest connection at the time of the contract (Act on General Rules for Application of Laws, Article 8(1)). Where only one party performs the characteristic obligation, the law of that party's place of business is presumed (Article 8(2)). State the governing law in the contract so the outcome is predictable.

For people who held the status before the amendment, the Immigration Services Agency states that until three years have passed since the amendment took effect, an extension will not be refused merely because the new criteria are not met. For later extensions, the new criteria apply in principle, but where they are not met, business performance, payment of corporate tax and other circumstances will be considered as a whole.