How to set up an NPO in Japan

There are two types of NPO that you can practically set up. One is Standard Corporate Organization (SCO or 一般社団法人) and another is Standard Fund Organization (SFO or 一般財団法人). Others are so difficult that it is practically unrealistic.

SCO is much easier to set up than SFO because the number of people needed to be involved is much less.

Requirement for SCO 一般財団法人

Two initiating members and one director are required at minimum.

Initiating members are similar to shareholders in corporation. They have voting right per head-count and elect directors who represent the company and run day-to-day operation. Members can make resolution of the organization on anything like shareholders of a corporation. The significant difference is members do not have ownership of assets of the organization nor receive dividends unlike shareholders.

Members and directors can be the same person. Corporation can be a member. But a director has to be a natural person.

About the nature of activities, you need to mention purpose(s) of the organization. It can be like promotion of specific cultures, enhancement of certain public community in Japan etc.

Process for incorporation of SCO

You need to prepare an Article of Incorporation. This should include:
1) Name and address of the organization,
2) Objects,
3) Accounting period. It can start from any date during a year but it cannot be longer than 1 year,
4) Names and address of members,

The Article of Incorporation has to be notarized by Public Notary.

After notarizing the Article, you need the following documents to submit to the Registration Bureau with its main application form:

1) Memorandum to determine the location of the head office in detail, and directors,
2) Memorandum to elect the representing director,
3) Acceptance letters from directors and the representing director,
4) Stamp certificate or notarized signature. For foreigners who do not have one’s seal registered can have their signatures notarized in the embassy of their home country in Japan.

Requirement for SFO 一般財団法人

There is another type of organization whose nature is more like a mixture of trust and corporation. We call it Standard Fund Organization (SFO) or “Ippan Zaidan Hojin”. It has a nature of organization like a mixture of trust fund and corporation. It has to have at least 3 councilors, 3 directors and one auditor. Councilors elect directors and an auditor. Councilors and directors have to be different persons. The minimum fund requirement is 3 million yen.

Compared to the organization type I was talking Standard Corporate Organization (SCO) or “Ippan Shadan Hojin”, SFO requires more complex organization structure and it seems over-kill for now but you may want to know more.

The cost of setting up an organization will be the same but future running cost may be higher for SFO.

These organization can be tax free for certain type of incomes.

Consumption tax refund – be careful with ex-works or how you pay freight and insurance. You may not get it back.

Exporting used cars to Russia. Consumption tax refund rejected

There was a tax ruling in the past where a car exporter to Russia was rejected for a consumption tax refund. The company was buying used cars in Japan and exporting to Russia. Because all the purchases took place in Japan and cars were exported to overseas, we would think that consumption taxes paid on top of the price of used cars would surely be refunded.

Niigata tax office turned down the tax return they submitted for refund saying the cars were handed down to Russian importers in Niigata (Japan), meaning their transactions were not crossing the border, but were domestic transactions at all.

In real world tax audit, evidences to be used by the tax office are often “Export Permission Certificate”. Export Permission Certificate is a document provided by Customs before shipping things from Japan with information such as name of exporter, destination, price of goods, terms defined by incoterms etc. If the term mentioned in the certificate is EXW or EX-WORKS (or EX-FACTORY), transactions will be regarded as domestic.

EX-WORKS means the term where a seller provides goods to a buyer at their factory gate, meaning the place of delivery will take place at the place of seller in the origin country. Therefore, it is a domestic trade.

To prove that ownership of goods are transferred across the border, the term shown in its export permission certificate has to be “FOB” or “CIF”.

You also need to be careful that the transportation cost of the goods to airport or port has to be paid by you but not your purchaser. It will be regarded as a strong evidence that ownership or control of the goods are transferred only in Japan. The same for insurance on domestic transportation.

Sometime, you are a SME and your counter party buyer is a very large company and goods are so expensive that you may want your customer to take control here and pay all the cost of transportation, insurance, paperwork to ship. Those facts are all to be used as evidences against you.


















Blurred line between Resident and non-resident

The definition of non-resident is defined by the definition of resident under Japanese tax law.

A non-resident is a person who is not a resident. It looks very clear, but it is sometime difficult to tell whether one is a resident or non-resident and it often becomes one of the hot subjects for heated discussion in case of tax audit.

A resident is a person who has a domicile in Japan or a place to stay for equal or more than 1 year.


“Domicile” is a tricky word, because it is sometime not very obvious. For example, if you have two residences one in Japan and one in your home country. You have a full time job here and you have your family left in your home country. You own a house in your home country but you live in a rented apartment in Japan. You have your main bank account in your home country.

According to the tax law, domicile is determined not by a single decisive factor like her nationality or number of days in a year in Japan but by weighing multiple factors such as locations of job, family and assets that you have etc. It is not determined by type of visa you have. Even if you have a permanent visa, you are not always a resident, like Japanese nationals are not always residents if they live abroad.

place to stay

“Place to stay” or kyosho in Japanese is a place one stays temporarily, not as serious or committed place as domicile. Examples of “place to stay” are hotels, company dormitory for short stay etc, without family members left in your home country or without full time job here. Even if so, if you stay longer than more than one year, you will be regarded as a resident.

Real world application

1) If you come to Japan for a full time job with no definite date fixed to return, you are regarded as a resident from Day 1. That is especially true, if you bring your family with you. Job and family locations are the two strongest factors.

The reason you will be regarded as a resident from the beginning is because you have “domicile” from Day 1.

2) If you come with working holiday visa, you are usually regarded as non-resident because working holiday visa is temporary. You are not expected to stay and work more than 1 year from the beginning. But once your stay lasted 365 days, you will be regarded as a resident from Day 366. Please be noticed that you are not to be regarded as resident until the 365th day. Your salary will be subject to 20.42% tax rate up to that date.