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Representative office vs Branch

Representative office vs Branch

PE (Permanent Establishment) issue should be investigated with a tax specialist before setting up a Japan office.

The essential issue which type of vehicle (Rep office, Branch or Subsidiary) would be appropriate for a Japan office of a foreign company is whether the Japan office do sales activities or not. 

If sales activities are required for the Japan office by Japanese customers, it is suggested to set up Branch office or Subsidiary rather than Representative office so that to avoid any PE risks. 

  Representative office (Rep office) Branch
1. Representative office's activities A foreign company can establish a presence in Japan as a Rep office. The purpose of the Rep office is limited to gathering information etc.
- Advertising
- Market research
- Other preparatory and supplemental tasks.

Rep office is NOT permitted to engage in sales activities.
If a Japan office engage in sales activities, they would be recognised as a Branch office from the tax point of view and required to file corporation tax return on their Japan source income.
2. Tax perspective Do NOT be recognised as a PE of a foreign company

In connection with a definition of PE (Permanent Establishment) of a foreign company, please refer Article 141 of Japanese corporation tax law for detail.
<Refer =comment of P328/1126>
(translation is prepared by

If a Rep office recognised as "Agent PE" of a foreign company, the Rep office would be a Branch under the Japan tax perspective and has to file corporation tax return on their Japan source income of the foreign conpany.

Sales activities (including negotiation with customers, visit with price list and etc.) by a Rep office may cause any PE risk.
Branch has to file corporation tax return on their Japan source income         

Per capita levy on corporation inhavitane tax for Branch

Branch office has to pay per capita levy on local corporation inhabitant tax even though their taxable income is less than Nil.  Per capita levy on local corporation inhabitant tax is mandatory for doing a business in Japan.

Whereas Rep office is not required to pay per capita levy on local corporation inhabitant tax.

Local corporation tax (Per capita levy on corporate inhabitant tax) - Tokyo Metropolitan
Category of corporation main office is located
within the 23 wards
Other than left area
Capital Amount Number of staff Metropolitan tax Metropolitan City
Over JPY 5,000,000,000 Over 50 JPY 3,800,000 JPY 800,000 JPY 3,000,000
Or under 50 JPY 1,210,000 JPY 410,000
Over JPY 1,000,000,000
Or under JPY 5,000,000,000
Over 50 JPY 2,290,000 JPY 540,000 JPY 1,750,000
Or under 50 JPY 950,000 JPY 410,000
Over JPY 100,000,000
Or under JPY 1,000,000,000
Over 50 JPY 530,000 JPY 130,000 JPY 400,000
Or under 50 JPY 290,000 JPY 160,000
Over JPY 10,000,000
Or under JPY 100,000,000
Over 50 JPY 200,000 JPY 50,000 JPY 150,000
Or under 50 JPY 180,000 JPY 130,000
Or under JPY 10,000,000 Over 50 JPY 140,000 JPY 20,000 JPY 120,000
Or under 50 JPY 70,000 JPY 50,000
Other than above JPY 70,000 JPY 20,000 JPY 50,000