Levelling up Your business: A Toolkit for SMEs and Entrepreneurs
Navigating challenges in the business landscape, tapping into support such as government subsidies and understanding key considerations when setting up a corporation were among the topics discussed at a special workshop hosted by the British Chamber of Commerce in Japan in collaboration with the Tokyo One-Stop Business Establishment Center (TOSBEC) and JETRO.
Isao Ohashi, SME consultant at TOSBEC—which unifies the procedures needed to establish a business in Japan—outlined Japan’s current environment for SMEs and entrepreneurs.
The Japanese government’s “Start-up Development Five-year Plan” focuses on supporting startups, including through subsidies. The Ministry of Economy, Trade and Industry’s supplementary budget proposal for fiscal 2024 is ¥4.4 trillion. It includes support to increase the productivity of SMEs and invest in their growth, specifically by implementing subsidies for manufacturing/merchandising, IT introduction, sustainability, business succession and labour saving.
Major subsidy programmes
Ohashi introduced several examples of financial support for SMEs, pointing out that there is no need to pay back subsidies and grants. However, the subsidised business should be started after the adoption is notified, not before, and all payments and deliveries should be completed during the “support period.” Subsidy rates and the maximum amount of support available are determined for each programme. Subsidies are provided after all the eligible expenses are paid out; they are not provided upfront.
The subsidy information outlined below is based on fiscal 2024 programmes; detailed conditions for fiscal 2025 programmes are yet to be announced.
First up was a subsidy for small businesses to create their own business plans for sustainable management and to develop sales channels or improve productivity. Enterprises can receive up to ¥2 million for activities, such as raising wages or growing to a medium enterprise, provided they meet the criteria. These include not exceeding ¥1.5 billion in average annual taxable income in the last three years. Costs for machinery, advertising, website development, labour, research and so on could be reimbursed by the subsidy.
Next, Ohashi explained a subsidy to support SMEs’ development of innovative products/services or capital and system investment to increase productivity, which is eligible for small businesses that have their headquarters and place of operations in Japan. This financial support allows successful applicants to receive ¥7.5–12.5 million for investment in equipment and systems needed for innovative product and service development. Applicants would submit a 3–5-year business plan that meets the requirements, including that the “value added” grows by 3% or more annually, the amount of salary expenses grows by 1.5% or more annually and the lowest wage in the workplace is at least the regional minimum wage plus ¥30/hr.
Finally, there is a subsidy for small businesses to introduce IT tools, such as software and cloud services, to improve operational efficiency, digitalisation and increase sales. The applicant can apply in five categories and should apply jointly with a registered IT tool vendor. For example, it is possible to apply for support of up to ¥3.5 million to introduce accounting software, order and supply software, settlement software and so on to become a qualified invoice issuer.
Considering incorporation
Ohashi advised participants to consider the differences between establishing a corporation and a sole proprietorship. Advantages of a corporation include that it offers higher social credibility and ease in terms of doing business and recruiting, as well as limited liability to the amount of equity contribution. Moreover, for SMEs, corporation tax has a two-tiered flat rate of 15% and 23.3%. For personal tax, income and payroll deductions are available for executive compensation.
Disadvantages include that the scope of business must remain within the scope stated in the Articles of Incorporation, formal accounting and financial statements are required, business owners are subject to corporate and personal income taxation and the process to set up is relatively time-consuming and expensive.
A sole proprietorship, meanwhile, is simple and low cost to set up, with no restrictions on the scope of business and more simplified accounting books and financial statements. However, the business has unlimited liability with less social credibility than a corporation. The business owner is subject only to personal income tax, but it has a progressive rate system (5–45%).
If establishing a corporation is the chosen option, there are four types of corporation in Japan, although the most common are Company Limited (KK) and Limited Liability Corporation (LLC or Godo-gaisha). A Company Limited is considered credible but is more expensive to set up, while an LLC is difficult to manage with many shareholders since it requires their anonymous consent for some critical decisions, explained Ohashi.
Both options require Articles of Incorporation to be prepared, but these need to be certified at a notary public office only for a Company Limited. The following details must be stated: scope of business, company name, location of the headquarters, the amount (or minimum amount of capital contributions upon establishment) and the names and addresses of the founders.
Corporations need to file public notifications for tax, employment and social insurance and enrol in social insurance (health and pension) regardless of employment. Enrolment in employment insurance and workers’ compensation insurance is mandatory if the corporation employs one person or more.
While Company Limited corporations account for more than 90% of all corporations in Japan, LLC corporations have been increasing in recent years, explained Ohashi.
Other support
JETRO
Sumire Saito shared how JETRO offers support to those looking to expand their businesses into Japan, as well as help for SMEs to maximise their potential within Japan and abroad. With 51 offices in Japan and 76 offices globally, JETRO provides advice on market entry, incorporation and visa issues, tax and accounting, human resource management and government incentives. It also offers networking opportunities with national and local governments, businesses, partners, experts and academia.
BDCT
The Business Development Center Tokyo is the Tokyo Metropolitan Government’s support desk for foreign companies or foreign entrepreneurs trying to set up a business in Tokyo, and is located in Akasaka, Marunouchi and Yurakucho. Its support covers both business and daily life issues.
TOSBEC
At TOSBEC, all filing procedures to set up a business, including certification of Articles of Incorporation, Company Registration, and advice on various matters such as tax consulting, immigration and employment and social insurance issues, can be carried out. Support for Japanese and non-Japanese is available free of charge at Akasaka, Shibuya and Yurakucho.
JMEC
Supported by 18 chambers of commerce in Tokyo, The Japan Market Expansion Competition (JMEC) is a Japan-based business training programme designed to foster the development of foreign businesses in Japan while strengthening the business skills of up-and-coming executives. JMEC representatives Trond Varlid and Tom Whitson attended the event to share details on JMEC and provide advice on setting up and running a business in Japan.
Learn more about JMEC business plans at: www.jmec.gr.jp