Branch or Subsidiary

“Which legal structure is optimal for my business requirements?”

Once you have decided to open an office in Japan, the next decision is whether to form a branch or subsidiary. There are only a few differences between a branch and a subsidiary, but they are important ones.

Click here for a table that highlights the main differences between a branch and a subsidiary.

A branch has the benefit of being less costly to start. Because the procedures are much simpler, J-Seed typically charges about half as much for setting up a branch than for a subsidiary. Branches are able to do all the important things that a subsidiary can do: conduct transactions, rent an office, hire staff, and send profits back home. For some companies, a branch as an extension of headquarters fits best with their legal and tax structure.

However, a subsidiary is the preferred structure for about 80% of J-Seed’s customers. Despite a higher start-up fee, a subsidiary offers many important advantages to foreign companies setting up in Japan. These include:

  • Recognition by local customers of your commitment to the Japanese market
  • Ability to sell shares in the Japanese entity to raise funds for operations
  • A legal shield that prevents liability in contract and labor disputes from reaching headquarters

In case you have already decided on a branch or subsidiary office for your operations in Japan, please download and fill out the appropriate template and send it to us at info(at)

We will reply quickly with recommendations on what to do next. If you are unsure which solution is best for you, please contact us directly to schedule an appointment to discuss which legal form is appropriate for your business.

Comparison between Branch and Subsidiary


Branch Office


Minimum Capitalization

No requirement

No requirement


Foreign company fully liable to creditors, etc.

The liability of the subsidiary shareholders typically limited to the amount of their equity participation

Losses of the Entity

Losses are included in the head office's income statement

Losses of the subsidiary are generally not included in the parent company's income statement

Local Corporate Income Tax (per capita tax)

The head office's capital is used to calculate the tax.
10 million yen or less 70,000 yen
10 - 100 million yen 180,000 yen
100 million - 1 billion yen 290,000 yen
1 - 5 billion yen 950,000 yen
More than 5 billion yen 1,210,000 yen

The KK's capital is used to calculate the tax. For example, if the KK's capital is 10 million yen or less the per capital tax is 70,000 yen.

Transfer Pricing Issues

High risk

Low risk

Directors & Statutory Auditors

Not applicable

At least 1 Director

1. stated capital < 500 million yen;
2. debts < 200 million yen; and
3. private corporation

Classification for Tax Purposes

Foreign corporation

Domestic corporation

Taxable Income

Only income attributable to Japanese operations is taxable

Income gained not only in Japan but also abroad is taxable
(The foreign tax credit system is provided to avoid double taxation)


There is no concept of capital for branch offices and various decisions for tax purposes are made based on the capital of the headquarters

The amount of capital can be determined freely. However, consideration should be made in deciding the amount of capital since it affects the tax calculation


Lending and/or borrowing between the headquarters and branch offices will not be recognized as a loan transaction since it falls under intra-company transactions.
Interest that may be paid to the headquarters will not be recognized as interest expenses for tax purposes.

A formal agreement and the payment of reasonable interest are required for borrowing and lending within the parent-subsidiary relationship.
Interest expenses arising from the above-mentioned agreements are treated as expenses for tax purposes
(rules for thin-capitalization apply).

Other Fund Transfers

Surplus funds which are remitted to the head office will not be recognized as dividends but as interoffice transfer of funds with no relevance to taxation

Transfers of funds between the parent and the subsidiary need to be classified within the following categories; payment of dividends, repayment of borrowings, payment of interest expense, payments of royalties and accounts payable. Tax withholding may be required for payments such as dividends.
The remittance of surplus funds by the subsidiary to the parent is considered lending and the subsidiary must account for interest payments received.

Expenses of the Head Office

Expenses to be borne by the branch office may be allocated to it (based on reasonable standards). Proper documentation of transfers between the head office and the branch office is required for future tax audits. Financial statements of the head office must be attached to the tax returns.

There is no procedure for expense allocation since the subsidiary is considered to be a separate legal entity. Expenses paid on behalf of the subsidiary need to be charged, documented and settled through an actual payment.