Setting up a Company in Japan for Real Estate Investment Purpose
Have you considered buying property in Japan but had to scrap the idea because you couldn’t get mortgage? Here is one of the solutions.
Being a foreigner plus non-resident in Japan can be challenging when it comes to buying property by getting mortgage from a Japanese bank. But it is not that all banks are unwilling to lend you money.
➟ Who is offering mortgage?
For example, Shinhan Bank Co., Ltd., a commercial bank headquartered in South Korea, has a fully owned subsidiary in Japan and offers mortgage loan for foreigners buying property in Japan. As of December 2022, a 90% of the credit balance of the subsidiary is for funding real estate purchases in Japan. The LTV (loan-to-value, the ratio of the loan amount to the total value of the property) varies depending on the property value and other conditions but is roughly 70% in many cases. And one important condition is that the purchaser should set up a company in Japan and appoints a manager residing in Japan for such company.
➟ What is good about setting up a company in Japan?
The ultimate reason is that you can start building trust, because setting up a company demonstrates your commitment. The trust opens a door to getting mortgage even being a non-resident.
It also brings tax benefits. A corporation can recognize a wider range of expenses than an individual. Moreover, tax rate can be more favorable in some cases. Since individual income tax is imposed progressively in Japan, if your income in Japan is greater than a certain amount, the income tax rate for corporation (about 30%) is actually lower than that for individuals (maximum 45%).
Of course, it comes with cost. You will need more complex administration work such as accounting and tax reporting. There is also a local corporation tax, or corporate resident tax that is levied regardless of whether your company actually has taxable income or not. In the case where your company does not have any taxable income, the tax amount will be around 70,000 yen yearly in Tokyo.
➟ What type of company is suitable for me?
There are two common types of company in Japan: (1) Kabushiki Kaisha (often abbreviated as K.K. or KK) and (2) Gōdō Kaisha (G.K. or GK). Both are limited liability companies.
Let’s find the differences between the two.
One major advantage of GK is that it’s much cheaper to set up and maintain compared to KK. Apart from the setup fees (registration fee, etc.), it costs at least 30,000 JPY to announce financial results in the official gazette annually and 10,000 JPY for registration every time any director is appointed/re-appointed/resigned when his/her term is expired for KK, while these are not required for GK.
We need to take note of the disadvantages as well. There is a limitation in financing because GK cannot issue shares to raise funds. Some people may say GK is a less known form of company than KK. But it is worth mentioning that actually more and more multinational companies choose GK as the form of company for their subsidiaries in Japan due to its easiness to set up and maintain. These multinational companies include Apple Japan, Amazon Japan, Google, Exxon Mobile Japan, and P&G Prestige to name some.
➟ What do I need to do to set up a company in Japan?
First of all, you will need an address in Japan to register as the head office of your company. Making a company seal is recommended (though actually you can go without it), because seals are customarily used in many business occasions. After that, you will need to prepare documents for registration of your company, such as application form for registration, articles of incorporation, certificate of capital contribution, etc. and file with the appropriate legal affairs bureau having jurisdiction over the location of your company and also register your company seal. Once the company is established, then you need to notify the tax office, local tax office and social security office in your area of the establishment of your company.
Does the process look troublesome?
All these procedures and preparations may sound troublesome, if you plan to do it by yourself. But what if you can skip the preparation process and have a company already established? We, PropertyAccess, can act as your agent to do the process of setting up a company for you.
Would like to learn more?
Please contact our team by clicking here.
