AWI Tax Consulting

Tax Differences between Kabushiki Kaisha and Go-do Kaisha

By Ryohei Yanagihara

Both Kabushiki Kaisha (KK) and Go-do Kaisha (GK) are subject to Corporation Tax and Japan Consumption Tax (JCT), and there are no significant differences in the calculation of these tax amounts. The following two points are the most likely differences in taxation when a foreign company establishes a Japanese subsidiary.

  1. In many cases, Registration Tax to be paid at the time of incorporation is 90,000 yen lower for a GK than for a KK.
  2. In the case where the foreign parent company is a Managing Member (Gyo-mu Si-kko Sha-in) of a GK and a Person of Performance of Duty (PPD, Syokumu Si-kko Sha) of the Managing Member works in Japan, the salary paid to the PPD is treated as follows, to be precise.
    1. First, the GK pays the service fee to the foreign parent company (Managing Member), and then
    2. the foreign parent company pays the salary to the PPD.

    Regarding (a), although the payee is a corporation, “Director Salary Deductible/Non-Deductible Rule” applies, so it is necessary to make arrangements so that the salary is deductible under the rule. In addition, since the payment of (a) is for services provided by a company, it would be a JCT taxable transaction in principle. Regarding (b), since the salary is paid from a foreign company and no Japan withholding tax is imposed at the time of the salary payment, the PPD is required to file his/her Japan Individual Income Tax return by themselves.

Regarding (1) above, since it is a one-time expense, the impact on the decision to choose KK or GK would be minimal. However, (2), which requires consideration for tax purposes may be a slight disadvantage of GK.

From legal perspective, the flexibility in designing Articles of Incorporation and Company Organization exists as an advantage of GK, while from a business perspective, KK tends to be (somewhat) more trustworthy than GK.

Finally, as an additional point from U.S. tax perspective, if a U.S. parent company establishes a Japanese subsidiary as a GK, the profits/losses of the GK will be included in the U.S. taxable income of the U.S. parent company under certain conditions (U.S. Pass-Through taxation). Therefore, if a Japanese subsidiary established by a U.S. parent company is expected to be in a loss position for a certain period of time after its establishment, it may be advantageous to choose GK to offset the Japanese loss against U.S. profit.
Please note that the profits/losses of a GK are always subject to Japan Corporation Tax, regardless of whether or not Pass-Through taxation is applied in the U.S.


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