Introduction
When you start your business in Japan, Kojinjigyonushi(個人事業主), which means a sole proprietorship is one of the business forms you can choose. This is different from an organization style (Hojin (法人)) like the stock company (Kabushiki Kaisha=株式会社), the limited liability company (Godo Kaisha=合同会社), the general incorporated association (Ippan Shadan Hojin=一般社団法人) and Non-Profit Organization corporation (NPO Hojin=NPO法人).In this article, we have discussed the characteristics of Kojinjigyonushi (個人事業主), including its advantages & disadvantages, and compared it with the Hojin (法人). Also, the two processes involved in establishing a Kojinjigyonushi have been discussed.
Characteristics
Kojinjigyonushi(個人事業主) means a sole proprietorship which refers to a person who has own a business, and is personally responsible for the debts from the business.
It is sometimes misunderstood with a freelance worker, but there are a few differences between them. For example, a Kojinjigyonushi (個人事業主) must register the name of the business in a local office and can hire employees legally if needed. On the other hand, a freelance worker is not required to register the business in a local office, which means you can work freely, but doesnot have the legal ability to hire someone.
The comparison between the characteristics of Kojinjigyonushi and that of Hojin (法人), it is summed up in the following table
| Kojinjigyonushi(個人事業主) | Hojin(法人) | |
| The cost of establishment | 0 | 60,000~250,000yen |
| The procedure of establishing | Easy …you have to submit only notification of opening your business | Complicated …you have to make some documents like articles of association(teikan= 定款) and registry |
| The period of loss(赤字) carried forward from the previous term | 3 years *in case you file a blue form for an income tax return | 9 years |
| Social credibility | Low | High |
| The process of accounting | Easy | Complicated then you usually need a licensed tax accountant |
| The cost to dissolve | 0 | about 100,000yen to make the registration of dessolution |
Advantages & Disadvantages
In this section, you can learn advantages and disadvantages of a Kojinjigyonushi(個人事業主).
Advantage 1 – You can decide freely where to work and when to work
If you want to work in your working style, it is recommended to work as a Kojinjigyonushi(個人事業主) as you can work at any time and place. It is suitable for designers, engineers and writers.
Advantage 2 – There is no cost and paperwork to establish and also to quit your business
Compared with Hojin(法人), a Kojinjigyonushi(個人事業主) does not have to prepare the money for establishment and dissolution. You are also not required to prepare documents to submit to the offices. Thus, the process of starting and quitting your business is easy.
Advantage 3 – You don’t need to hire a licenced tax accountant
If your business is not big, the accounting is not complicated when compared with managing a Hojin. If you establish a Hojin, you usually need to hire an accountant who has a reliable licence, but if you start your business as a sole proprietorship (Kojinjigyonushi=個人事業主), hiring an accountant is not a must.
Disadvantage 1 – It is difficult to gain a social credibility.
Because the process to start your business is very easy, it is difficult for Kojinjigyonushi to have a social credit. Especially when you want to get a loan, a Hojin(法人) has much more advantage over a Kojinjigyonushi, because a Hojin has the status as a corporation. If your business is small and doesn’t need a lot of money, it is not a problem, but if you want to expand your business, it is at a disadvantage.
Disadvantage 2 – There are few ways to save tax when your business is expanded
Although establishing a Kojinjigyonushi don’t have any cost , if your business gradually expands, you will have to pay taxes and cannot save those. If your business can be expected to make a profit of about 8~10 millions a year, it is totally better to do your business as a Hojin
Disadvantage 3 – You cannot carry forward the deficit to next term for over 3 years.
The period to allow you to carry forward your loss of business from the previous term to the next term is only for 3 years(※in case you have filed a blue form for an income tax return, not a white form). If you can anticipate that the loss in business would continue for over 4 years, it is recommended you start your business as Hojin, which is allowed to carry forward losses for 9 years.
Procedure
When you start your business in Japan as a sole proprietorship(Kojinjigyonushi=個人事業主), you have to go through two processes at least.
1 Submit the notification of opening your business to the tax office
You are required to report the opening of an individual business to the tax office within 1 month after starting your business. There is no handling charge, thus you can submit the file for free.
2 File a tax return
There are two ways to file a tax return, and it is strongly recommended to choose a “Blue Form(Aoiro Shinkoku=青色申告), instead of “White Form(Shiroiro Shinkoku=白色申告). The Blue Form is equipped for those who are qualified to receive special treatments like saving a tax. Compared with White Form, it is a little complicated to apply for, but you can receive a special deduction of 650,000 yen. In addition, you can carry the loss of your business forward to the next term for 3 years if you file a blue form for a tax return.
The deadline is within 2 months after starting your business, but we recommend you submit this form with the notification of opening your business at the same time not to forget.
Conclusion
In conclusion, if you want to start your business without a high cost and complicated procedure, Kojinjigyonushi is a perfect choice. However, looking at the long term, it is sometimes better to establish a corporation(Hojin=法人). Please check the other ways of starting your business in Japan and choose the best form suited for your business.
SUGEE Magazine is sharing the articles about other types of incorporation and some good contents which help you when you want to start your business in Japan. Please check this website and we hope you can find useful information.
Notes for the readers:
Please use this article only as a reference, not as a legal guideline. Therefore, sugee.jp will take no responsibility or liability, so far as legally possible, for any consequences of your actions. This article was written by Kyoko, a SUGEE writer, on 1 June 2020.
Reference
[1]個人事業主と企業メリット・デメリット(2020) Retrieved 31 May 2020 from https://www.manegy.com/news/detail/2165
[2] 法人とは？個人事業主との違いを超わかりやすく解説(2020) Retrieved 1 June 2020 from https://suke10.com/article/2806
[3] 個人事業主になるために必要な2つの手続きと7つのマストアイテムとは？(2020) Retrieved 1 June 2020 from https://navinavi-creditcard.com/freelance-necessary-2715
