How to Incorporate a Company in Japan: KK vs GK

KK vs GK: Comparison Table

The KK is Japan’s equivalent of a corporation (similar to a US C-Corp or UK Ltd), while the GK is modeled on the US LLC. Here is how they compare:

Incorporation Steps

Step 1: Prepare the Articles of Incorporation (定款)

The articles of incorporation (定款 / teikan) are the foundational document of your company. They must include:

• Company name (must include 株式会社 or 合同会社)
• Registered head office address
• Business purposes (list all activities the company may engage in)
• Capital amount
• Fiscal year end date
• Names and addresses of founders/members
• For KK: number of authorized shares, names of initial directors

Step 2: Notarization (KK Only)

For a KK, the articles of incorporation must be notarized by a public notary (公証人). This costs ¥30,000–50,000 plus stamp duty. You need to visit a notary office in the same prefecture as your registered head office. GK articles do not require notarization, which is one of the key advantages.

Step 3: Deposit Capital

Transfer the capital amount to a personal bank account of a founding member. The bank statement showing this deposit serves as proof of capital payment. There is no minimum capital requirement — technically you can incorporate with ¥1, though this is not recommended (see below).

Step 4: Register at the Legal Affairs Bureau (法務局)

Submit the registration application to the Legal Affairs Bureau (法務局). Required documents include:

• Registration application form
• Articles of incorporation (notarized for KK)
• Proof of capital payment (bank statement)
• Director consent letters and personal seal certificates (印鑑証明書)
• Company seal registration form
• Registration license tax payment (収入印紙)

The company is legally established on the date the registration application is accepted. Processing typically takes 1–2 weeks.

Step 5: Post-Registration Notifications

After registration, you must file notifications with:

• Tax office (税務署) — corporate establishment notification
• Prefecture and municipality — local tax notifications
• Pension office — social insurance enrollment
• Labor standards office — if you hire employees

Costs Breakdown

Using electronic articles of incorporation (電子定款) saves ¥40,000 in stamp duty for a KK. Many online incorporation services handle this automatically.

Capital Requirements and Considerations

While there is no legal minimum capital, your capital amount matters for several practical reasons:

• Consumption tax exemption: Companies with capital of ¥10,000,000 or less are exempt from consumption tax for the first two fiscal years (subject to conditions). This is a major advantage.
• Corporate inhabitant tax: The per-capita levy (均等割) is based on capital and employee count. Keeping capital at ¥10M or below means the minimum levy of ¥70,000/year in most cities.
• Credibility: Banks, clients, and partners may view very low capital (e.g., ¥1) unfavorably. A common starting point is ¥1,000,000–5,000,000.
• Business visa: If you are applying for a business manager visa, the immigration bureau generally expects capital of at least ¥5,000,000.

Director Compensation (役員報酬)

How you pay yourself as a director is one of the most important tax planning decisions for a Japanese company. Director compensation (役員報酬) has special rules:

Fixed Monthly Salary Rule

To be deductible as a corporate expense, director compensation must be a fixed monthly amount (定期同額給与). You set this amount at the beginning of each fiscal year and cannot change it mid-year (except under specific circumstances like a significant change in business conditions).

Optimizing Your Salary

The optimal salary balances corporate tax and personal income tax. Key considerations:

• Higher salary means higher personal income tax but lower corporate profits (and corporate tax).
• Social insurance premiums are based on salary, so very high salaries increase social insurance costs.
• The salary employment income deduction (給与所得控除) provides an automatic deduction of up to ¥1,950,000, which is a unique advantage of incorporation.
• A common strategy is setting salary in the ¥6,000,000–10,000,000 range to maximize the employment income deduction while staying in moderate income tax brackets.

Bonuses

Director bonuses are not deductible unless pre-registered with the tax office as a "pre-determined compensation" (事前確定届出給与) before the start of the fiscal year. This means you must plan bonuses well in advance.

Tax Advantages of Incorporation vs Sole Proprietorship

• Lower effective tax rate at higher income: Corporate tax rates are roughly 15% on the first ¥8M of profit and 23.2% above that (plus local taxes, total ~25–34%). For sole proprietors, income tax can reach 45% plus 10% resident tax at high income levels.
• Employment income deduction: By paying yourself a salary, you get the ¥1.95M employment income deduction that sole proprietors cannot access.
• Income splitting: You can pay family members as directors or employees, spreading income across lower tax brackets.
• Broader expense deductions: Corporations can deduct a wider range of expenses including company housing, travel allowances, and retirement allowance reserves.
• Loss carryforward: Corporations can carry forward losses for 10 years, compared to 3 years for Blue Return sole proprietors.
• Consumption tax reset: A new corporation with capital of ¥10M or less can be exempt from consumption tax for up to two years, even if the owner was previously a taxable sole proprietor.

When to Incorporate

Incorporation is not right for everyone. Here are general guidelines on when it makes sense:

Consider Incorporating When:

• Your annual business income consistently exceeds ¥8,000,000–10,000,000, where the tax savings from corporate structure outweigh the additional compliance costs.
• You want limited liability protection for your personal assets.
• You need enhanced credibility for contracts with larger companies.
• You want to hire employees with proper social insurance.
• You plan to raise capital from investors.
• Your consumption tax liability is significant and you want to reset the exemption period.

Stay as a Sole Proprietor When:

• Your income is below ¥6,000,000–8,000,000.
• You prefer minimal administrative overhead.
• You work alone with no plans to hire.
• Your business has low liability risk.