1-1 How Can a Foreign Company Sell to Consumers in Japan?

August 24, 2026 YamaguchiYoshio

A foreign company does not necessarily need to establish a Japanese subsidiary from the outset in order to sell to consumers in Japan.

This chapter introduces the following three main options available to foreign companies entering the Japanese market:

Selling goods or services to Japan from overseas (e-commerce)
Hiring personnel in Japan through an Employer of Record (EOR)
Establishing a subsidiary or branch office in Japan

1. Selling Goods or Services to Japan from Overseas

A foreign company can sell goods or services to customers in Japan without establishing a company or branch office in Japan. Examples include:

Selling physical goods through platforms such as Amazon or Rakuten (physical goods through a platform)
Selling physical goods through a company’s own e-commerce website, such as Shopify (physical goods through an independent website)
Providing SaaS or cloud services (B2B digital transactions)
Selling smartphone applications or digital content (B2C digital transactions)

These four business models all involve selling online without establishing a physical presence in Japan. However, because they are treated differently under Japanese tax law, they can be classified according to two distinctions:

Physical goods or digital transactions
Sales through a platform or through the company’s own website

1-1. Physical Goods or Digital Transactions

1-1-1. Physical Goods

Physical goods are transported from outside Japan and delivered to consumers in Japan. This constitutes an “import” under Japan’s Customs Act.
Various parties and facilities may be involved, including the importer, freight forwarder, customs broker, bonded area, customs authorities, Attorney for Customs Procedures (ACP), and Amazon. When a foreign company ships goods to Japan, it is important to determine who the importer will be. This affects whether the import consumption tax can be recovered.
The main taxes imposed on a foreign company are customs duties and import consumption tax. The foreign company must understand how import consumption tax works and complete the procedures necessary to recover it.

1-1-2. Digital Transactions:

Digital transactions are transactions in which services are supplied over the internet. Under Japan’s Consumption Tax Act, they are referred to as the “provision of electronic services.”

Examples include providing access to a specialized cloud-based application, allowing customers to download music data from an online store.

Whether a transaction is classified as a digital transaction may affect whether the foreign company is required to pay Japanese consumption tax. A foreign company must therefore determine whether its transactions constitute the provision of electronic services under the Consumption Tax Act.

Digital transactions are further divided into business-to-business services and business-to-consumer services. The consumption tax filing method differs depending on this classification. A foreign company engaging in digital transactions must therefore determine whether its services are B2B or B2C.

1-2. Sales Through a Platform or Through the Company’s Own Website

Many foreign companies sell goods and services to Japanese consumers through major platforms such as Amazon, Rakuten, the Apple App Store, and Google Play.

Because these transactions are conducted in Japan, foreign companies are generally required to file for and pay Japanese consumption tax, except where a small-business exemption or another exemption applies.

In practice, however, the Japanese tax authorities have limited capacity to monitor every foreign company. Consequently, some foreign companies may not be complying with their consumption tax filing and payment obligations.

Therefore, for sales made by foreign companies through certain major platforms, the platform operator will be required to file and pay consumption tax on behalf of those foreign companies. This system will apply to transactions conducted on or after October 1, 2028.

Sales through a major platform: The platform operator files and pays the consumption tax.
Sales through the foreign company’s own website: The foreign company files and pays the consumption tax itself.

2. Hiring Personnel in Japan Through an EOR

A foreign company that wishes to hire personnel in Japan without establishing a Japanese subsidiary or branch office may use an EOR.

EOR stands for “Employer of Record.” The EOR provider becomes the employee’s formal employer and employs the individual in Japan to work for the foreign company.

An EOR provider generally handles matters such as:

Entering into an employment agreement governed by Japanese labor law
Processing payroll
Withholding income tax and resident tax
Handling social insurance and labor insurance procedures

An EOR may be used in situations such as the following:

The foreign company wants to hire one representative to research the Japanese market.
The foreign company wants to hire a salesperson before establishing a Japanese subsidiary.
The foreign company wants to assign personnel to support customers in Japan.
The foreign company wants to begin hiring in Japan soon.

By using an EOR, the foreign company does not need to establish its own Japanese company or handle payroll and social insurance procedures directly.

However, using an EOR does not mean that the foreign company can conduct business freely in Japan without restrictions.

Depending on the instructions the foreign company gives to the EOR employee and the activities the employee performs in Japan, issues may arise under Japan’s Worker Dispatching Act.

The employee’s activities may also create a risk that the foreign company will be regarded as having a permanent establishment, or PE, in Japan.

Tax considerations become particularly important when an EOR employee continuously engages in activities such as contract negotiations, sales, customer relations, or service delivery in Japan.

The structure, advantages, and potential issues associated with EOR arrangements are explained in detail in Chapter 3.

3. Establishing a Subsidiary or Branch Office in Japan

A foreign company planning to conduct substantial and long-term business in Japan will generally establish a local business presence.

The two main types of presence that a foreign company may establish in Japan are:

A Japanese subsidiary
A Japanese branch office

Japanese Subsidiary

A Japanese subsidiary is a company established in Japan as a legal entity separate from the foreign parent company.

The principal forms of company used in Japan are:

Kabushiki Kaisha (KK)
Godo Kaisha (GK)

Establishing a Japanese subsidiary generally makes it easier to conduct activities such as:

Entering into contracts with Japanese companies
Issuing invoices and collecting payments in Japan
Opening a Japanese bank account
Hiring employees in Japan
Entering into leases for offices or retail premises
Obtaining licenses and permits
Conducting sales activities in Japan

A Japanese subsidiary is often suitable when the foreign company intends to conduct business in Japan continuously or hire multiple employees.

However, after the company is established, the subsidiary will have ongoing administrative obligations, including corporate and consumption tax filings, accounting and bookkeeping, payroll processing, and social insurance procedures.

Japanese Branch Office

A Japanese branch office is not a separate legal entity. It is established in Japan as part of the foreign company.

A branch office is registered in Japan and can conduct business activities in the country. It can enter into contracts, issue invoices, and hire employees.

However, because the Japanese branch and the foreign head office are the same legal entity, the foreign head office is directly responsible for the liabilities and obligations arising from the branch’s activities.

Unlike a subsidiary, a Japanese branch office must have a representative who resides in Japan.

The decision between a Japanese subsidiary and a Japanese branch should not be based solely on tax considerations. The company should also consider legal liability, the movement of funds, credibility with customers and business partners, and its internal management structure.

The differences between Japanese subsidiaries and branch offices are explained in detail in Chapter 4 and the chapters that follow.

4. Comparison of the Main Market-Entry Options

The following table summarizes the general features of each option.

If You Want to Sell Goods or Services to Japanese Customers

The first option to consider is selling directly to Japan from overseas.

If demand in the Japanese market remains uncertain, testing the market through cross-border e-commerce or online services may be more prudent than immediately establishing a company.

However, a foreign company importing goods or supplying digital services to Japanese consumers must consider matters such as customs duties, consumption tax, importer status, and Japan’s qualified invoice system.

If You Want to Hire a Small Number of Employees in Japan

An EOR may be an option if the foreign company wants to hire only a small number of employees, such as sales representatives or customer support personnel, before establishing a Japanese subsidiary.

If You Want to Conduct Substantial Business in Japan

A foreign company should consider establishing a Japanese subsidiary or branch office if it intends to conduct continuous sales activities, hire multiple employees, and enter into contracts or issue invoices in Japan.

A Japanese subsidiary is generally preferred when the foreign company wants to manage its Japanese business independently.

A Japanese branch may be an option when the company places greater importance on operating in Japan as part of the foreign head office.

Market Entry Can Be Undertaken in Stages

A foreign company does not have to continue using the same market-entry method permanently once it has selected its initial approach.

In practice, companies may change their market-entry structure as their businesses grow. For example, a company may:

Begin by selling goods or services to Japan from overseas.
Hire a representative in Japan through an EOR.
Establish a Japanese subsidiary once sales and staffing levels increase.
Transfer the EOR employee to the Japanese subsidiary.

This allows the company to enter the Japanese market on a small scale and expand its local presence as the business grows.

5. Conclusion

Foreign companies have three principal options for entering the Japanese market:

Selling goods or services to Japan from overseas
Hiring personnel in Japan through an EOR
Establishing a subsidiary or branch office in Japan

Selling from overseas may be suitable for market research or trial sales.

An EOR may be suitable when the company wants to hire a small number of personnel quickly.

A Japanese subsidiary or branch office should be considered when the company intends to conduct substantial, long-term business in Japan.

When considering entry into Japan, foreign companies should compare not only the initial establishment costs but also the ongoing administrative burden associated with tax compliance, accounting, payroll, and social insurance.

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