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Unleashing Your Potential as a Sole Proprietor in Japan

Updated: Jul 4, 2023

2023/07/03







Introduction:


Nice job! You’ve made the exciting decision to open your own business in Japan! While there are various ways to achieve this, one of the easiest and quickest paths is to establish a sole proprietorship. However, navigating the intricacies and language barriers associated with setting up a sole proprietorship in Japan can be daunting. To help streamline the process and allow you to focus on your passion, we have created a comprehensive and user-friendly guide outlining the steps you need to take to embark on your journey to sole proprietorship in Japan. If you're an expat entrepreneur, keep reading!


 

Section 1| What is a Sole Proprietorship?


A sole proprietorship is the simplest form of business ownership. As a sole proprietor, you will be the sole owner and responsible for the business's operations, providing you with the foundation to lay the groundwork for success. In Japan, a sole proprietorship is referred to as "個人事業" (kojin jigyo), which translates to "personal business." It differs from a "会社" (kaisha) company or "法人" (hojin) corporate body, which function as separate legal entities.


Who Can Start a Sole Proprietorship in Japan?

While having a great idea is important, not everyone can establish a sole proprietorship in Japan. If you are not a Japanese national, you will need one of the following:


1. Spouse of a Japanese National visa

2. Long-Term Resident visa

3. Permanent Resident visa

4. Spouse of Permanent Resident visa

5. Working Holiday visa (with no restrictions)

6. Dependent, Student, or Cultural Activities visa with permission to engage in other activities (you will need to apply for this permission separately)

7. Engineer/Specialist in Humanities visa (must be sponsored by a Japanese company that approves of you working on the side)

8. Skilled Labor visa (must be sponsored by a Japanese company that approves of you working on the side)


If you possess any of the above visas, you are eligible to proceed.




Section 2 | Benefits of Being a Sole Proprietor in Japan


As a sole proprietor, you gain several unique advantages that can propel your business forward. Let's explore these benefits in detail:

  1. Complete Control and Ownership: As the sole proprietor, you have the freedom to make all business decisions without the need for consensus or compromise.

  2. Potential for Brand Growth: Building a brand becomes more feasible as a sole proprietor, allowing you to establish and grow your business identity according to your vision.

  3. Control of Income and Work Hours: Enjoy the flexibility to determine your income level and set your work hours based on personal preferences and business needs.

  4. Deductions and Claims: Sole proprietors in Japan can make deductions and claims for business-related expenses, including rent for those working from home, potentially reducing tax obligations.

  5. Hiring Employees: Unlike some other business structures, sole proprietors have the ability to hire employees, enabling business expansion and delegation of tasks.

  6. Potential Visa Self-Sponsorship: As a sole proprietor, you may be eligible for visa self-sponsorship, providing flexibility and control over your immigration status.

  7. Simpler Taxes: Sole proprietors generally have simpler tax procedures compared to corporations, reducing administrative burdens.

Section 3 | Challenges and Considerations for Sole Proprietors

Running a startup as a sole proprietor also comes with its share of challenges. Here are some key difficulties and considerations to keep in mind:

  1. Unstable Income: Sole proprietors often face fluctuations in income, especially during the initial stages of the business. It's important to plan and have contingency measures in place.

  2. No Company Health Insurance or Pension: Unlike certain corporate structures, sole proprietors are responsible for arranging their own health insurance and retirement plans.

  3. Filing Taxes and Financial Management: As a sole proprietor, you'll need to handle your own tax filings and keep meticulous track of your finances. Consider seeking professional accounting advice or using financial management tools to stay organized.

  4. Total Liability: One significant drawback is the personal liability that comes with being a sole proprietor. In the event of bankruptcy or legal issues, your personal assets may be at risk.

  5. No Shared Ownership or Partnerships: If you're seeking collaboration or pooling resources with other individuals, starting as a sole proprietor might not be the most suitable option.


Section 4 | Steps for making Sole Proprietorship


Step 1: Obtain the Sole Proprietorship Application Form


1.1: Head to the National Tax Agency website and download the Sole Proprietorship Application Form (個人事業の開業届出 kojin jigyo no kaigyo todokede).


I have also provided a link to the document here.




Step 2: Fill in the Form


2.1: Circle or highlight 開業 to indicate that you intend to start a business.


2.2: Write the name of your tax office. You can find that here.


2.3: Insert the date you'll submit the form.


2.4: Provide your business address and phone number.


2.5: Choose 住所地 if it's your home address, or select 事務所等 if it's an office or shop.




2.6: If you don't reside in Japan but your business will be conducted there, select 居所地.


2.7: Fill out Box 4 only if your business address for tax purposes is different from your actual business location.

2.8: If applicable, write the second business location in Box 4 and your home address in Box 3.


2.9: Enter your personal details, including your name, birthdate, "My Number" (個人番号), occupation, and sole proprietorship trade name.


2.10: Stamp your hanko (if you have one) in the designated space.


2.11: Select 開業 and re-enter your name and address.


2.12: Skip the remaining sections unless they apply to your situation.


2.13: Choose whether you'll be sending additional documents along with your application.


2.14: It's generally recommended to select 有 to send the 青色申告, an application for the Blue Tax Return scheme with various benefits.


2.15: Provide a brief overview of your business in Japanese.


2.16: For example, if you're opening a translation business, write something like 和英翻訳 with additional details.


2.17: Write the number of employees you have. If it's just you, write 0 and skip the rest of the form.


Step 3: Don't Forget Valid ID!


Ensure you include a copy of your My Number Card or alternative identification documents, such as:

  • Tsuchi Card (通知カード)

  • Juminhyo (住民票) displaying your Personal Identification Number (個人番号).

  • Attach a copy of one of the following: Driver's License, Passport, or Zairyu Card (在留カード).

Section 5 | Why Not Start a Company Instead?


Starting a company (法人) in Japan comes with its own set of advantages, including the ability to bring in partners, generate higher profits with lower taxes, and attract investments and funding. However, for those starting alone with a small idea, beginning as a sole proprietor is less stressful and pressurizing. Companies require accountants, complex paperwork, dealing with national pension and health insurance.


For additional insights on creating an LLC company in Japan, including its benefits and challenges, I encourage you to refer to both this article and the blog I have already created. These resources will provide valuable information to assist you in determining the best course of action for your startup journey.


Section 6 | Conclusion


In conclusion, starting your own business as a sole proprietor in Japan can be an exciting and rewarding endeavor. Despite the language barriers and technical subtleties that may arise, following the steps outlined in this comprehensive guide will help you navigate the process with ease. By understanding the concept of a sole proprietorship, the requirements for eligibility, and the advantages and disadvantages it offers, you can make an informed decision about pursuing this path.


While a sole proprietorship allows you to have complete control over your business, the potential to grow a brand, and simpler tax obligations, it's important to consider the potential challenges such as unstable income and the absence of company benefits like health insurance and pension. Starting a company may offer certain advantages, but it also comes with additional complexities and responsibilities.


Remember, the requirements for starting a sole proprietorship in Japan are relatively straightforward, and the application process can be completed online or via post. Additionally, understanding the tax obligations and considering the benefits of the Blue Tax Return scheme can help optimize your financial management.


While this guide provides a solid foundation, it's always advisable to seek professional advice and consult with experts in the field to ensure compliance with current regulations and to receive personalized guidance based on your specific circumstances.


Embarking on your entrepreneurial journey in Japan requires determination, adaptability, and a willingness to overcome challenges. With careful planning and a clear understanding of the process, you can set yourself up for success in your new venture. We wish you the best of luck as you embark on your entrepreneurial endeavors in Japan!


 

This blog is intended for informational purposes only and should not be considered a substitute for professional legal advice. The content provided in this blog is based on general knowledge and research, but laws and regulations can vary and change over time. Each individual or entity's situation is unique, and it's crucial to consult with qualified legal professionals or seek advice from relevant government agencies to obtain accurate and up-to-date information specific to your circumstances.


While we strive to provide reliable and accurate information, we cannot guarantee the completeness, accuracy, or timeliness of the content in this blog. Therefore, any actions taken based on the information provided in this blog are at your own risk.


By using this blog, you acknowledge that we are not responsible for any losses, damages, or legal consequences that may arise from your reliance on the information provided. Always seek professional advice when making important legal or business decisions.





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