Sole Proprietorship in Japan: Your Quickstart Guide

Ever wondered how sole proprietorship in Japan works?

In this article, we look at the pros and cons of sole proprietorship and discuss the tax obligations and visa possibilities for foreigners interested in starting a sole proprietorship in Japan.

What is the sole proprietorship in Japan?

The sole proprietorship in Japan, known as kojin jigyo (個人事業), is the simplest legal way for an individual to operate a business without forming a corporation. Because it isn't a separate legal entity, unlike a KK or GK, the owner and the business are legally the same, meaning the sole proprietor is personally responsible for all business debts, losses, and decisions. This is worth understanding upfront, since it's one of the clearest tradeoffs against the ease of setup.

They become independent sole proprietors by submitting a Declaration of Commencement of Business (開業届 = kaigyo todoke) to the tax office. For official guidance, refer to the National Tax Agency’s Kaigyo Todoke instructions.

According to Japan's National Tax Agency tax statistics, approximately 4.12 million individuals report business income (営業等所得) as sole proprietors, a figure that captures freelancers and home-based businesses more completely than the Economic Census, which tends to undercount less visible, non-storefront operations.

Quick overview:

• Legal structure: Individual business (not an incorporated entity)

• Japanese term: 個人事業 / 個人事業主

• Setup cost: ¥0

• Registration time: Filing itself takes same-day, but you have up to a month after starting your business to submit it.

• Where to register: Local tax office (in person, by mail, or online)

• Citizenship required: ❌ No

• Visa required: ✅ Yes—must allow self-employment or business activity

• Tax filing: Personal income tax (kakutei shinkoku)

• Best for: Freelancers, consultants, e-commerce sellers, and small service businesses

Pros and cons of sole proprietorship in Japan

A sole proprietorship offers several advantages over corporations.

However, it sometimes falls short when it comes to social credibility, which can result in drawbacks when dealing with getting financing and talent acquisition.

Pros of sole proprietorship in Japan

• Easy and low-cost startup procedures—Starting a sole proprietorship involves straightforward procedures. Simply submitting the required paperwork to the tax office, local authorities, and prefectural tax office is sufficient to commence operations without any substantial expenses. In contrast, establishing a corporation demands registration fees and may take up to a month to complete.

• Simplified tax reporting—Annual tax reporting, known as "kakutei shinkoku," is common for sole proprietors. Even those opting for the more detailed "seiri-ao" blue tax return often use user-friendly accounting software to streamline the process. On the other hand, corporations must file corporate tax returns, requiring considerable knowledge and, as a result, many corporations prefer to hire accountants for tax filing.

• Lower tax burden on lower profits—Sole proprietors pay income tax, while corporations are subject to corporate tax. When profits (income) are relatively low, sole proprietors face lower tax obligations than corporations. Many choose to operate as sole proprietors until their business gains momentum and then incorporate themselves as profits increase. However, the optimal profit threshold favoring sole proprietorship varies depending on individual circumstances, and professional advice from a tax consultant is recommended.

• Keep a greater share of profits at smaller scale—Since there's no separation between the owner and the business, all profits belong directly to the sole proprietor after tax, there's no need to pay yourself a salary, withhold payroll tax on that salary, or leave retained earnings inside a separate corporate entity. At lower income levels, this often means simpler cash flow than running a company.

• Reduced administrative workload—Most sole proprietors typically join the national pension and health insurance systems, which requires minimal administrative effort. This extends to hiring, too: if you have fewer than 5 regularly employed staff and your business isn't in one of 17 specific legally designated industries (including manufacturing, construction, and finance), you generally aren't required to enroll your employees in social insurance. If your business does fall into one of those designated industries, enrollment is mandatory regardless of employee count, even with just one or two staff. In contrast, as a corporate director, one would receive salary payments from the company, leading to payroll calculations, income tax withholdings, health insurance (Kyokai Kenpo), and employees' pension (Kosei Nenkin) contributions for every employee, regardless of industry or headcount, all adding to the administrative burden.

Cons of sole proprietorship in Japan

• Lower social credibility—Sole proprietorships do not go through the formal registration process of corporations. Consequently, they may have less social credibility than corporations, making some businesses prefer dealing with registered companies over sole proprietors.

• Difficulty obtaining loans—Sole proprietors may face challenges in obtaining loans from financial institutions. The blurred line between business and personal finances in sole proprietorships can make lenders wary when assessing working capital loans, leading to stricter approval criteria. Opening a separate business bank account, while not legally mandatory, is strongly recommended for exactly this reason, it keeps your business income and expenses cleanly separated, which helps with loan applications, tax filing, and simply keeping accurate records of all business-related income and expenses, a requirement under Japanese tax law regardless of which account you use.

• Disadvantaged talent acquisition—In recruitment efforts, sole proprietors may find it more challenging to attract talent compared to corporations. Since corporations are obligated to provide employees with welfare benefits, such as employees' pension and health insurance, they might appear more appealing to job seekers than small-scale sole proprietorships.

• Higher tax burden on higher profits—As profits increase, so does the tax liability for sole proprietors. Income tax follows a progressive tax rate, meaning the tax rate increases as income levels rise. Additionally, individual enterprise tax (kojin jigyozei) may also apply as profits grow, further increasing the tax burden for successful sole proprietors.

• Narrower range of deductible expenses—Compared to corporations, sole proprietors generally face more restrictions on what counts as a deductible business expense, including limits around paying a salary to family members or certain retirement-related provisions that are more flexible under a corporate structure. This is one of the practical reasons some businesses eventually incorporate once profits grow.

What are the tax obligations of sole proprietors in Japan?

Sole proprietors must file their tax returns between February 16th and March 15th each year. This tax return process primarily involves calculating and declaring income tax.

Besides income tax, sole proprietors also have obligations to pay resident tax, consumption tax, and sole proprietor tax.

While income tax and resident tax are mandatory for all sole proprietors, the applicability of consumption tax and sole proprietor tax varies depending on the business type and revenue.

Japan's electronic recordkeeping requirement (電子帳簿保存法)

Since January 1, 2024, sole proprietors and corporations alike are required to preserve business documents received or issued electronically in their original electronic form. If you receive an invoice as an emailed PDF, or download a receipt from an online purchase, printing it out and filing the paper copy alone no longer satisfies your recordkeeping obligation, the electronic file itself needs to be retained in a way that meets the law's requirements (generally, organized, searchable, and unaltered).

This matters more than it might seem, because it's directly tied to your Blue Form status. If your electronic recordkeeping doesn't meet the requirements and you don't correct it after being notified by the tax office, you risk having your Blue Form approval revoked, which means losing the ¥550,000–¥650,000 special deduction covered below, along with your ability to carry forward business losses to future years.

There's a narrower accommodation for businesses that can show a legitimate reason for not yet complying (such as limited staff or systems), but it isn't a permanent exemption, the electronic data still needs to be kept somewhere in its original form, and moving to full compliance is strongly recommended rather than optional. Most cloud accounting software used by sole proprietors in Japan, including the tools already built for Blue Form filing, now has electronic document storage built in specifically to handle this requirement.

Read our complete guide to Japan's Invoice System here.

Tax rates for sole proprietors in Japan

The following are the income tax rates and deductions for the different income ranges in Japan, which also apply to sole proprietors:

Income range: 1,000 yen to 1,949,000 yen

• Tax rate: 5%

• Deduction: 0 yen

Income range: 1,950,000 yen to 3,299,000 yen

• Tax rate: 10%

• Deduction: 97,500 yen

Income range: 3,300,000 yen to 6,949,000 yen

• Tax rate: 20%

• Deduction: 427,500 yen

Income range: 6,950,000 yen to 8,999,000 yen

• Tax rate: 23%

• Deduction: 636,000 yen

Income range: 9,000,000 yen to 17,999,000 yen

• Tax rate: 33%

• Deduction: 1,536,000 yen

Income range: 18,000,000 yen to 39,999,000 yen

• Tax rate: 40%

• Deduction: 2,796,000 yen

Income of 40,000,000 yen and above

• Tax rate: 45%

• Deduction: 4,796,000 yen

These rates and deductions are used to calculate the income tax owed by individuals in Japan based on their annual income.

Note: This is about to change significantly. Under Japan's FY2026 tax reform outline (announced December 2025), the deduction structure shifts starting with the 2027 tax year, filed in early 2028: the e-Tax deduction rises to 750,000 yen, while the paper-filing deduction drops sharply to just 100,000 yen. If you're currently filing on paper, this is a strong incentive to move to e-Tax before that change takes effect, the gap between the two methods is about to widen considerably.

Consider using a Japanese tax calculator, such as this one, to find out your possible upcoming tax bills. (Use Chrome's browser translator to read the instructions in English.)

What is the Business Opening Notice (Kaigyo Todoke form) in Japan?

When starting a business in Japan, you must submit a "Kaigyo Todoke" or Business Opening Notice. You can obtain the "Kaigyo Todoke" at your local tax office or download it from the National Tax Agency's website. (Link to PDF.)

Image. Kaigyo todoke form. Business opening notification form in Japan.

Traditionally, the notice was submitted in person at the tax office, but there are now alternative methods for submission. Business owners have the option to send the completed form through the post office or electronically via an online platform provided by the tax authorities. This offers greater flexibility for entrepreneurs, enabling them to choose the method that best suits their preferences.

The kaigyo todoke form should ideally be submitted within one month from the date of business commencement, but there are no penalties for not doing so. However, there are compelling advantages for those who submit the notice.

For instance, it allows them to take advantage of the highly advantageous "青色申告" (Blue Form Tax Return) for tax savings during the annual tax filing.

Additionally, presenting a copy of the "Kaigyo Todoke" can serve as proof of the business's existence when dealing with office rental agreements or applying for startup loans, making it a handy document to have on hand.

Can sole proprietorships in Japan use a virtual office address on their business opening form?

Most sole proprietorships in Japan can use a virtual office address on their business opening form, including consulting services, e-commerce shops, and a wide range of freelance businesses.

The few exceptions are for those who are in a legal profession, real estate, and a handful of other cases. But pretty much everyone else can use a virtual office address on a business opening form.

The advantages of using a virtual office address instead of renting office space include the following:

Your own upscale virtual address, located in Japan.

• A business address you can use for company registration—at the most competitive price in Japan.

• At your request, physical mail is opened and OCR-scanned.

• Everything is stored in the cloud for easy access and forwarding to the key players in your team.

• With 1-click, request a translated summary of any letter or bills paid on your behalf. 

• Fully bilingual digital mailroom customer support to ease language concerns.

• If you are working from home, you can create a professional impression by having a business address.

• No more hiding from or dreading Japanese-language mail. 

The sole proprietorship in Japan and visa requirements for foreign nationals

Starting a sole proprietorship in Japan is not determined by registration alone. While anyone can submit a Kaigyo Todoke, your visa status determines whether you can legally operate the business.

Visa statuses that generally allow sole proprietorship

According to the Ministry of Foreign Affairs and the Immigration Bureau of Japan, the following residence statuses allow business activity without additional immigration permission:

• Permanent residents

• Spouses of Japanese nationals

• Spouse or child of a Permanent Resident

• Long-Term Resident

Holders of these visas may operate a sole proprietorship freely, provided the type of business itself is lawful.

Work visas: Important limitations

Most standard work visas do not automatically permit self-employment.

Common examples include

• Engineer/Specialist in Humanities/International Services

• Instructor

• Professor

• Skilled Labor

These visas are tied to employment with a specific organization. Operating as a sole proprietor under these statuses to work a side job may violate visa conditions unless additional permission is granted.

About "self-sponsored" work in Japan

Japan does not have an official “self-sponsored visa.”

However, in limited cases, individuals on certain work visas may apply for a Permission to Engage in Activity Other Than That Permitted Under the Status of Residence Previously Granted (資格外活動許可).

Approval is case-by-case and typically requires:

• Stable and continuous income

• Long-term contracts with Japanese companies

• Proof that the activity aligns with the scope of the existing visa

• A clean immigration and tax record

Approval is not guaranteed, and engaging in business activities without permission may lead to visa cancellation or future renewal issues.

Business Manager visa and sole proprietorship

The Business Manager visa is intended for people who establish and manage a company in Japan.

• It generally requires incorporation, typically as a KK or GK entity registered at the Legal Affairs Bureau, not the tax office where a sole proprietorship registers

• Requires a physical office, a home address alone generally isn't sufficient

• Requires significant capital investment, currently a minimum of ¥30,000,000, following an October 2025 revision that raised the threshold from the previous ¥5,000,000

• Is not typically suitable for sole proprietorships

For this reason, the Business Manager visa is usually chosen by those forming a company with meaningful capital behind it, not individuals starting a lower-cost sole proprietorship. If ¥30 million in capital isn't realistic for your situation, a sole proprietorship under an existing eligible visa status remains the more accessible path into business in Japan.

Visa statuses that do NOT allow sole proprietorship

You cannot legally operate a sole proprietorship in Japan under the following statuses:

• Tourist visa or visa waiver

• Student visa (without explicit work permission, and even then only part-time)

• Dependent visa (without additional permission)

• Designated Activities (unless explicitly permitted)

Engaging in business activity under these statuses can result in penalties, visa revocation, or deportation.

While there have been positive changes in making it easier for foreigners to start a sole proprietorship in Japan, visa-related barriers still exist for some individuals. It is crucial for foreign entrepreneurs to ensure they have the appropriate visa status or seek professional guidance to navigate the complexities of company registration and visa applications.

How to register as a sole proprietor in Japan (step-by-step)

Starting a sole proprietorship in Japan is relatively straightforward. Below is a simple step-by-step overview of how to get started.

Step 1. Confirm your visa or residency status

Before registering, make sure your visa allows you to operate a business in Japan. Permanent residents, spouses of Japanese nationals, and certain work visa holders may be eligible. If unsure, consult with immigration or a visa specialist.

Step 2. Download or pick up the Kaigyo Todoke form

You can get the Kaigyo Todoke (開業届) form at your local tax office or download it from the National Tax Agency’s website. The form is only one page and fairly straightforward to fill out.

Step 3. Fill in the form

You’ll be asked to provide basic details such as:

• Your full name and contact information

• Business type and a brief description of activities

• Your start date

• Your business name (optional)

• The location of your business (which can be a virtual office in most cases)

Tip: You can also check the box to apply for the Blue Form Tax Return at the same time.

Step 4. Submit the Kaigyo Todoke

There are three submission options:

• In person at your local tax office

• By post (mail it to the tax office)

• Online via the e-Tax system (requires setup in advance)

There’s no fee to submit this form.

Step 5. Keep a stamped copy for your records

Once submitted, you’ll receive a stamped copy of your Kaigyo Todoke. This document can serve as proof of business for opening a business bank account, renting an office, or applying for startup loans.

Sole proprietorship vs incorporation in Japan

If you're unsure whether to register as a sole proprietor or incorporate your business as a KK (Kabushiki Kaisha), here’s a quick comparison to help you decide.

One structural difference worth understanding is that a sole proprietorship registers with your local tax office, the same office that handles your income tax declaration, while a KK or GK registers with the Legal Affairs Bureau, a separate government body entirely. This is part of why sole proprietorship setup is faster and cheaper: you're filing one simple notification with an office you'll already be dealing with for taxes, rather than going through a formal corporate registration process.

A worked example: ¥8,000,000 in annual profit

Numbers make this comparison easier to understand than percentages alone. Here's a simplified illustration using ¥8,000,000 in annual profit, a level right around where Japanese tax advisors commonly say the balance starts tipping toward incorporation.

As a sole proprietor, using the income tax brackets above and the e-Tax Blue Form deduction of ¥650,000:

• Taxable income after the Blue Form deduction: ¥8,000,000 − ¥650,000 = ¥7,350,000

• Applying the 23% bracket (¥6,950,000–¥8,999,000) with its ¥636,000 deduction: (¥7,350,000 × 23%) − ¥636,000 = ¥1,054,500 in national income tax, before the 2.1% reconstruction surtax

• Adding roughly 10% flat resident tax on the same taxable base adds approximately ¥735,000

• Rough total: around ¥1.8 million, close to 23% of the original ¥8,000,000

As a KK, using Japan's current small-company corporate tax rate (National Tax Agency), companies with capital of ¥100 million or less pay a reduced 15% rate on the first ¥8,000,000 of annual taxable income, rather than the standard 23.2% rate that applies above that threshold:

• ¥8,000,000 × 15% = ¥1,200,000 in national corporate tax

• Once you add local corporate and business taxes on top, the commonly cited effective rate for small companies under this ¥8,000,000 threshold runs roughly 21–23% in total

• Rough total: also around ¥1.7–1.8 million, landing in a similar range to the sole proprietor figure above

The catch: this KK figure assumes the profit stays inside the company rather than being paid out as a director's salary, which is rarely how it actually works in practice. Once you factor in a director's salary, drawn from company profit and then taxed again as personal income, the math shifts meaningfully and depends heavily on how much salary you set versus how much stays retained in the company.

This is exactly the kind of optimization a licensed tax accountant (zeirishi) can model properly for your specific numbers, this example is meant to show why the crossover point exists, not to replace that calculation. You can also plug your own numbers into the tax calculator linked above for a more personalized estimate on the sole proprietor side.

Many entrepreneurs in Japan choose to begin as sole proprietors because of the ease and affordability. Later, as the business grows or when credibility becomes essential, they may choose to incorporate.

Still unsure which option fits your situation best? It may be worth consulting a licensed tax accountant (zeirishi) or legal advisor before deciding.

✈️ Planning a move to Japan more broadly?

If you're weighing sole proprietorship against a bigger relocation decision, career planning, and lifestyle logistics beyond just the business structure itself, Japan Remotely is a resource worth exploring alongside this guide. They specialize in immigration and business support for remote workers and entrepreneurs relocating to Japan.

Frequently asked questions

What is a sole proprietorship in Japan?

Sole proprietorship in Japan is referred to as kojin jigyo (個人事業). Essentially, sole proprietors in Japan are those doing business without the status of an incorporated entity.

How can I start a sole proprietorship in Japan?

To start a sole proprietorship in Japan, you must have legal residency status and then submit a Business Opening Notice to the tax office.

Do I need to be a Japanese citizen to start a sole proprietorship?

One does not need to be a Japanese citizen to start a sole proprietorship. However, one must have a valid visa that allows you to open a sole proprietorship in Japan.

What are the taxes for a sole proprietorship in Japan?

The income tax rates and deductions for different income ranges in Japan, including for sole proprietors, are as follows: For an income range of 1,000 yen to 1,949,000 yen, the tax rate is 5% with no deductions. From 1,950,000 yen to 3,299,000 yen, the tax rate increases to 10%, with a deduction of 97,500 yen. For those earning between 3,300,000 yen and 6,949,000 yen, the tax rate is 20%, with a deduction of 427,500 yen. In the range of 6,950,000 yen to 8,999,000 yen, the tax rate is 23%, accompanied by a deduction of 636,000 yen. A further increase in the tax rate to 33% applies to the income range of 9,000,000 yen to 17,999,000 yen, with a deduction of 1,536,000 yen. For earnings between 18,000,000 yen and 39,999,000 yen, the tax rate is 40%, and the deduction is 2,796,000 yen. Finally, for incomes of 40,000,000 yen and above, the tax rate is set at 45%, with a deduction of 4,796,000 yen.

Is the Blue Form tax deduction changing?

Yes, starting with the 2027 tax year (filed in early 2028), Japan's Blue Form special deduction structure shifts: the e-Tax filing deduction increases to ¥750,000, while the paper-filing deduction drops sharply to ¥100,000. Currently, filers still receive ¥550,000 (paper) or ¥650,000 (e-Tax), but this is a legislated change worth planning around if you're not yet filing electronically.

What's the difference between a sole proprietorship and a KK (Kabushiki Kaisha) in Japan?

Sole proprietorships are operated by individuals while a KK is a joint-stock corporation with shareholders.

Can I convert my sole proprietorship into another type of business in Japan?

Converting a sole proprietorship into another type of business entity such as a KK or GK (Godo Kaisha) is possible. Keep in mind that the procedure may involve additional legal procedures and costs.

Can I open a business in Japan on a tourist visa or student visa

No. You cannot legally operate a business in Japan on a tourist visa or visa waiver—these do not permit any remunerative activity, including starting a sole proprietorship. You must hold a visa status that allows business activity, such as a Business Manager visa or one of the status‑type visas (permanent resident, spouse of Japanese national/permanent resident, long‑term resident). Violating visa conditions can result in deportation or entry bans.

What kinds of businesses can sole proprietors run in Japan?

Sole proprietors commonly operate freelance or small service businesses—IT consulting, writing, translation, e-commerce, teaching, content creation, etc. However, professions like law, real estate brokerage, or medical services are regulated and may require licenses or a different business structure.

How do I open a business bank account as a sole proprietor in Japan?

Banks don’t offer separate corporate accounts for sole proprietorships, but many allow business accounts under a trade name appended to the proprietor’s own name. You’ll typically need your stamped Kaigyo Todoke, residence card, My Number, and sometimes proof of address or your business address. Using the same bank where you already have an account may improve your chances.

Can sole proprietors in Japan hire employees?

Yes. Sole proprietors may hire staff but must complete additional administrative procedures: register with the Labor Standards Office, submit a notification of employer's office (給与支払事務所等の開設届出書), create a formal employment contract (雇用契約書), and enroll employees in appropriate social insurance (health or workers' accident insurance, employment insurance) depending on hours worked.

A sole proprietor can also legally sponsor a work visa for a foreign employee, most commonly the Engineer/Specialist in Humanities/International Services visa. Immigration screening is notably stricter than for a corporation, though, since a company has a registry certificate and articles of incorporation to prove its stability automatically, while a sole proprietor has no equivalent public document and must substitute other evidence, such as a business website, signed contracts, and proof of stable income, to demonstrate the business is substantial and ongoing.

How do I close a sole proprietorship in Japan?

To officially close your business, submit a Notification of Discontinuance of Business (廃業届／haigyo todoke) to the local tax office. If you had declared Blue Form (aoiro shinkoku) status, you must also file the corresponding cancellation. Be sure to settle any remaining tax obligations and keep records for your files.