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 sozeishiryokan.or.jp) 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