How do I plan financially for self-employment in Japan?

• Jul 15, 2024
• By OPEN WORLD

Planning financially for self-employment in Japan is crucial to ensure the stability and success of your business. The startup costs and financial requirements will vary depending on the type of company or self-employment structure you choose, especially if you aim to obtain a business manager visa. Here are some key steps to help you create a solid financial plan:

1. Estimate your startup costs based on your company type: 
   1. a. Sole Proprietorship: This is the simplest and most affordable option, with no minimum capital requirement. However, it does not provide liability protection, and it may not qualify you for a business manager visa. You may need startup funds of ¥200,000 to ¥500,000 to cover equipment, supplies, and initial expenses. 
   2. b. Godo Kaisha (GK): A GK is similar to an LLC and has no minimum capital requirement. However, to obtain a business manager visa, you may need to invest at least ¥5,000,000 in your company and secure a physical office space. Expect startup costs of around ¥500,000 to ¥1,000,000, including registration fees, office setup, and professional services. 
   3. c. Kabushiki Kaisha (KK): A KK is similar to a corporation and offers the most credibility and liability protection. The minimum capital requirement for a KK is just ¥1. However, for a business manager visa, you will likely need to invest at least ¥5,000,000 and have a physical office. Startup costs for a KK can range from ¥1,000,000 to ¥3,000,000, including registration fees, office setup, and professional services.
2. Project your income and expenses: Create a detailed budget that includes your anticipated monthly income and all expected business expenses, such as rent, utilities, salaries, insurance premiums, and professional fees. Be realistic and conservative in your projections, and account for potential fluctuations in income.
3. Plan for taxes: Understand your tax obligations as a self-employed individual in Japan, including income tax, corporate tax (around 20-30% of taxable income), consumption tax (10%), and local taxes. Consult with a tax professional to develop a tax strategy and ensure you set aside enough money to cover your tax liabilities.
4. Determine your personal living expenses: In addition to your business expenses, calculate your personal monthly living costs, such as housing, food, transportation, and healthcare. As a self-employed person, you’ll need to budget around ¥30,000 to ¥50,000 per month for your National Health Insurance premiums and ¥16,610 per month for your National Pension contributions.
5. Build an emergency fund: Set aside sufficient funds to cover unexpected expenses or periods of low income. Aim to save at least 3-6 months’ worth of living expenses and business costs to provide a financial cushion.
6. Seek professional advice: Work with experienced accountants, tax advisors, and financial planners who can provide guidance on structuring your business, optimizing your finances, and planning for long-term growth. Expect to budget around ¥30,000 to ¥50,000 per month for accounting and tax filing services. Additionally, consider consulting with a visa specialist or administrative scrivener (gyoseishoshi) to help you navigate the business manager visa application process, which can cost around ¥100,000 to ¥200,000.
7. Monitor and adjust your plan regularly: Review your financial plan regularly and make adjustments as needed based on changes in your income, expenses, or business circumstances. This will help you stay on track and make informed decisions about your finances.
8. Consider the cost of living in your chosen location: The cost of living can vary significantly across Japan. For example, while rent for a small apartment in Tokyo can range from ¥100,000 to ¥300,000 per month, rent in Nagano Prefecture may be lower, around ¥40,000 to ¥100,000 per month. Factor these differences into your financial plan and consider choosing a location that aligns with your budget and business needs.

At OPEN WORLD, we provide comprehensive support to help clients create robust financial plans for self-employment in Japan. Our team of experts can assist you in estimating costs based on your desired company structure, developing a budget, and connecting you with trusted professionals who can provide ongoing financial guidance and visa application support.

By carefully planning your finances, seeking expert advice, and regularly reviewing your plan, you can ensure the financial stability and success of your self-employed venture in Japan, while also meeting the requirements for a business manager visa.