“Entrepreneur” does not mean owning a company.

Photo by Birger Strahl on Unsplash

When I joined one of the events for entrepreneurs, a moderator asked

“how can I be a CEO?”

“well, if you bring 250,000 JPY and fill out around 20 pages of papers, you can be a CEO in 1–2 weeks” — that was my answer.

International entrepreneurs struggle with the order of launching a company under Business Manager Visa (or Startup Visa of course!), securing their residential status or taking the new challenge to start a business.

Starting a business ≠ Establishing a company

Many people think they need to create a company in order to start a business, but that’s not true.

個人事業 / sole-proprietor is the easiest business entity that we can create in Japan. Submit 2 pages of A4 papers to the national tax agency in your jurisdiction — and done!

What we need to be careful about is basically TAX FILING. usually from February 15th to March 15th every year, but the tax filing period is extended due to covid-19.

As long as we are working for a company as an employee, the employer will take care of all the taxation for us, and what we need to do is only year-end tax filing (年末調整 / Nen-matsu-chosei) happening around the end of December. Your employer should have asked how many dependents you have in your household, and how much life insurance or earthquake insurance you paid in a year.

Unlike employees, sole-proprietors have to claim their tax by themselves between February 15th and March 15th every year, and pay the correct income tax amount.

Immigration does care about whether you are doing the activities designated under your visa status. For example, if you have the most common working permit called Engineer/Humanity/International Services visa, your activities should be restricted to engineering, humanity-related or international service activities (which covers almost everything what we do in our workplace). However, this visa does not allow the holders to “manage” a company.

Sole-proprietor vs Freelancers

These two terms means sometimes (or most of the time) the same.

Freelancers often become sole-proprietors because sole-proprietors can submit blue taxation form to claim their tax deduction. Sole-proprietors can deduct 650,000 JPY from their annual income by submitting the blue taxation form, and pay less income tax compared to unregistered freelancers.

According to the National Tax Agency, income tax is based on progressive tax system. The higher your income is, the higher the tax rate is.

Especially between ¥8,999,000 and ¥9,000,000, there is a huge jump.

A sole-proprietor to a Company

Regardless of the nationality, many people start thinking about creating a company if the taxable income exceeds around 5–6 million annually.

There are 5 major taxes that a company has to pay. There are some special formula to calculate the tax rate, but I will just skip it for now. Effective Tax Rate is around 30.62% as of now.

1)法人税 / Corporate Tax (23.2% — for over 8 million JPY)
2)地方法人税 / Corporate Local Tax (10.4%)
3)住民税 / Residential Tax (10.4%)
4)事業税 / Business Tax (1.18%)
5)特別法人事業税 / Special Corporate Business Tax (2.9%)

Side note : this website explain easily and well if you want to know more.
https://ventureinq.jp/effectivetaxrate/

Entrepreneurs have different reasons to start companies, but some popular reasons are :

  • to get investment (investors often invest to KK with A type stock)
  • to get a business deal with some corporate clients (some companies refuse to make a deal with sole-proprietors)
  • to get some tax benefit

As we discussed sole-proprietors have to follow the progressive tax system, but corporate tax rate is fixed. The representative director, board members or employees have to pay their own income tax attached to their remuneration/salary, but they can also reimburse business expense from the company.

Photo by Wade Lambert on Unsplash

If you launched a company as the representative director under the normal working permit, let’s change your visa to either Startup Visa or Business Manager Visa asap! Only 2 months left until you can legally stay in Japan.

Business Manager Visa is, as you all know, super-difficult to get — and everybody understands the difficulty, so there are some special programs.

#1 Startup Visa!

As Shibuya recently started its own Startup Visa initiative along with the other startup cities, entrepreneurs have in total of one year to prepare the startup.

Opening a bank account is extremely difficult for those who hasn’t stayed in Japan for over 6 months with residential status, so many startup cities made effort to provide at least one year startup visa.

#2 Highly Skilled Professional

As you may have heard, Highly Skilled Professionals (HSP) can exceptionally own a company without having a Business Manager Visa as long as the business activities fall under the activities in the scope of their visa.

There are three categories :

  1. Advanced Academic Research Activities
  2. Advanced Specialized / Technical Activities
  3. Advanced Business Management Activities

The least requirement to get the HSP is having over 70 points on this calculation sheet.

#3 Business Manager Visa

You are super brave.

Photo by Joshua Hoehne on Unsplash

Please keep in your mind that, “starting a business does not mean creating KK or GK”.

Being entrepreneurial is not about creating a legal entity. I think entrepreneurs are naturally good at finding market needs and make money out of it. Some of my salaryman friends told me “I have no idea how you make money by yourself.” And I admire them and say “I have no idea how you can stay in the political environment based on seniority forever.”

I also think startups often need a legal entity (=KK), in order to scale up fast by making use of investment.

Everybody can be an entrepreneur, but not all of them are startups. That being said, I cannot position myself as a startup yet.

And please remember — Shibuya is welcoming STARTUPS !

Startup Work Inc.