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2022/02/25 Others

Establishing a Base for Doing Business in Japan.

Doing Business in Japan – Establishing a Base for Doing Business in Japan

When a foreign investor plans to expand its business into the Japanese market, one of its most important decisions is selecting the right approach to establishing a base for doing business in Japan.  A foreign investor establishing such a base in Japan can choose from among three approaches: (i)    a representative office,  (ii)    a branch office, or  (iii)    a subsidiary company (i.e., a Japanese entity). 1.    Representative Office The scope of activities of a representative office is limited to preparing to start carrying on a business in Japan, or ancillary activities that ease transactions with the Japanese market (e.g., transactions with Japanese distributors, sales agents, etc.).  Such activities typically include information gathering, market research, acting as a liaison office for facilitating communications, and similar activities.  Thus, establishing a representative office is an option that foreign investors can take as a first step when they seek to start doing business in Japan.  Unlike establishing a branch office or a subsidiary company, there is no requirement that the foreign investor follow any particular registration process to establish a representative office in Japan.  However, a representative office cannot open a bank account in Japan in its own name (normally the officer who manages the representative office will create an account in the officer’s name for the use of the representative office), which may cause operational issues in practice. 2    Branch Office If the foreign investor plans to immediately start carrying out business activities intended to make a profit in Japan, then the foreign investor should establish either a branch office or a subsidiary company as its base for doing business in Japan. To establish a branch office in Japan, the foreign investor must appoint a representative in Japan who resides in Japan and file registration documents relating to the establishment of the branch office with the Legal Affairs Bureau.  The following is a brief overview of the branch office registration procedure: (i)    prepare a draft affidavit, including information about the foreign company’s name, address, capital amount, business purposes, representative (name, address, etc.), representative in Japan (name, address, etc.) and the address of its office in Japan; (ii)    have the affidavit notarized; and (iii)    file an application for registration with the Legal Affairs Bureau in Japan, together with the notarized affidavit and a certification of the seal of the representative in Japan. The branch office registration process, which concludes with the issuance of the company registration certificate, normally takes about one months.  A registration tax of JPY90,000 must be paid in connection with the filing of the registration application referred to in item (iii) above. A branch office is not an independent legal entity; thus, the legal rights and obligations incurred by the branch office will extend to the foreign investor’s head office.  On the other hand, a branch office can carry out business activities and make a profit in Japan essentially in the same manner as a subsidiary company, and it also can open a bank account in Japan in its own name.  Thus, from legal perspective, a branch office is one reasonable option for a foreign investor seeking to do business in Japan, and in practice many foreign investors do business in Japan through a branch office on a permanent basis, often for decades.  However, in deciding whether to establish a branch office or a subsidiary company, it is important to obtain accounting advice and analysis, especially with respect to taxation.

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2022/02/25 Others

Dealing with Poor Employee Performance.

Doing Business in Japan – Establishing a Base for Doing Business in Japan

Sooner or later, any foreign enterprise that builds a successful business in Japan will have to face the difficult task of ending the employment of a poorly-performing employee.  However, if a foreign manager in Japan expects that the process of terminating an employee for poor performance will be roughly the same as in his or her home country, then he or she often is in for a rude awakening.  Terminating an employee for poor performance is much more difficult in Japan than in many other countries, and the process involves pitfalls that are unique to Japan.  Accordingly, in this article we would like to summarize some of the key points to consider in making and effecting the decision to terminate an employee for poor performance in Japan.   1.    Background: Termination is Very Hard In 1968, a radio announcer in Kochi Broadcasting’s news department overslept his scheduled ten-minute news program twice in two weeks.  He apologized for the first incident, but did not report the second incident to his superiors and then eventually lied about it.  Kochi Broadcasting fired him for poor performance.  He sued to get his job back. In 1977, the Supreme Court of Japan ruled that his dismissal was an “abuse of the right to dismiss” and therefore invalid.  The court noted that his oversleeping was neither malicious nor intentional, that he apologized for the first incident, that the affected news program was not very long, and that his overall work performance was not especially poor.  The court held: “Employers are not free to dismiss an employee whenever there are grounds for an ordinary dismissal; rather the expression of intent to dismiss constitutes an abuse of the right to strike and is therefore invalid if and when dismissal under the specific circumstances is notably illogical and cannot be accepted as appropriate in general societal terms.”  This principle later was expressly incorporated into the Labor Contract Law. Accordingly, under Japanese law, an employer may dismiss an employee if there are objectively reasonable grounds for dismissal, and when the dismissal is appropriate in general societal terms. Court cases have applied the “appropriate in general societal terms” requirement very strictly, and so only when the reasons are grave, with no alternative way to avoid dismissal, is the dismissal permitted. The practical effect of this principle is to require an employer who dismisses an employee for poor performance to provide documentary evidence that it gave the employee a full and clear explanation of the employee’s failings and multiple opportunities to improve the employee’s performance, and that the employee, despite repeated warnings, failed to improve.  In short, it is very hard to terminate an employee for poor performance in Japan. 2.    Take Advantage of the Probation Period In this context, it is important for foreign businesses in Japan to be aware of, and to take full advantage of, one of the most important tools available for helping to prevent poor performers from entering the work force: the probation period. Many employers in Japan require their employees to go through a probation period during the first three to six months of their employment.  Although even during the probationary period the same principles apply to termination for poor performance as apply to non-probationary employees, so that termination is invalid unless it is “appropriate in general societal terms,” this standard is less strictly applied to employees who are on probation.  Accordingly, it is important for an employer to clearly set the probation period in the employment contract and to pay strict attention to each employee’s performance, to document that performance, to make a decision on termination, and to carry out that decision — all before the probation period expires.  

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