The short answer
If the Japanese operation will trade, employ, borrow or be sold, use a subsidiary. It is a separate company, so the Japanese entity’s liabilities stay in Japan and the parent’s exposure is limited to its investment. If the Japanese operation is an extension of the parent — a sales office, a project office, a temporary presence — a branch is simpler to control, but the parent is directly liable for what the branch does.
Legal personality and liability
A subsidiary has its own legal personality. It owns its assets, signs its contracts, employs its staff, and is taxed in Japan. The parent owns the shares and is not liable for the subsidiary’s debts beyond the capital it has subscribed (subject to limited exceptions such as guarantees or disregard of the corporate form).
A branch has no separate legal personality. It is the foreign company operating in Japan. The foreign company is liable for the branch’s obligations, and a judgment against the branch can be enforced against the parent’s assets. That is the trade-off for central control: the branch is not a separate balance sheet.
Registration, cost and timeline
A subsidiary is incorporated under the Companies Act as a KK or GK. The registration and licence tax is ¥150,000 minimum for a KK and ¥60,000 minimum for a GK, plus notarisation and professional fees. A branch is registered under the Companies Act’s foreign-company provisions; the registration and licence tax is ¥90,000 per branch, and the branch must appoint a representative in Japan (支店長) who resides in Japan.
| Subsidiary (KK/GK) | Branch (支店) | Representative office | |
|---|---|---|---|
| Legal entity | Separate Japanese company | Part of the foreign parent | No trading entity |
| Liability | Limited to subscribed capital | Parent liable | Parent liable |
| Registration cost | KK ¥150k+ / GK ¥60k+ tax | ¥90,000 tax per branch | No commercial registration |
| Japan-resident representative | Not legally required | Required (支店長) | Required for the office |
| Corporate bank account | Possible, with KYC | Possible, with parent documents | Generally not a trading account |
| Can invoice Japanese customers | Yes | Yes | No |
| Hiring in Japan | Yes, as the employer | Yes, as the employer | Limited / no |
| Typical setup time | 2–4 weeks | 2–4 weeks | 1–2 weeks |
Tax treatment
A subsidiary is a Japanese resident company. It pays corporate tax on its worldwide income, files Japanese corporate tax returns, and can use Japanese tax treaties and incentives. Its profits are taxed in Japan; dividends to the parent may be subject to withholding tax, reduced by treaty.
A branch is a permanent establishment of the foreign company. Japan taxes the branch’s Japan-source profits, and the branch must file Japanese returns. Transfer pricing rules apply to transactions between the branch and the parent, and the branch’s capital and profit attribution can be contentious. The branch does not pay Japanese tax on the parent’s non-Japan income, but the parent remains liable for the branch’s Japanese obligations.
Banking and hiring
A subsidiary is the easier entity to bank and hire through. It has its own corporate register, its own seal, and its own employment contracts. A branch can bank and hire, but the bank will want the parent’s constitutional documents, a certified copy of the register, and evidence of the branch manager’s authority — a longer KYC chain.
For hiring, a subsidiary is the cleaner employer: payroll, social insurance and visas are all in the name of a Japanese entity. A branch can employ, but the employment contract is with the foreign company, which some candidates and immigration filings handle less smoothly.
Exit and restructuring
A subsidiary can be sold, merged, or wound up as a Japanese company. A branch can be closed by deregistration, but the parent remains responsible for its liabilities. If a future sale or investment is plausible, the subsidiary is the structure that gives you something to sell. If the Japanese presence is a project office that will close when the project ends, a branch avoids a separate entity to liquidate.
Which one, by stage
Market research, no revenue: representative office or a light branch. First Japanese hire or first domestic customer: subsidiary. Enterprise sales, bank financing, government incentives, or a future raise: subsidiary. A single project for a known client with a fixed end date: branch. If you are unsure, the default for a trading business is a subsidiary, because the liability and hiring consequences are easier to live with.
Frequently asked questions
Is a branch cheaper than a subsidiary?
The registration tax is lower (¥90,000 vs ¥150,000 for a KK, ¥60,000 for a GK), but the branch requires a resident branch manager and exposes the parent to liability. Total cost depends on the office, professional fees and tax position.
Can a branch employ staff in Japan?
Yes, but the employer is the foreign company. A subsidiary is usually cleaner for payroll, social insurance and visa sponsorship.
Does a representative office need registration?
No commercial registration is required, and it cannot trade. It is a liaison/research office; it should not invoice customers or hold itself out as a Japanese business.
Which structure is better for a startup?
If you will raise money, hire, or sell to Japanese enterprises, a KK subsidiary is the standard. A GK subsidiary is cheaper and faster for an early-stage test. A branch is usually a project structure, not a startup structure.
Can I convert a branch to a subsidiary later?
Yes, but it is a new incorporation plus a business transfer, not a simple form change. Plan the structure before you trade to avoid re-registering contracts, employees and bank accounts.