Should You Set Up an Asset Management Company? Benefits, Taxes, and Costs

Among people who hold substantial stock and real estate assets, establishing an asset management company (a private company) has been drawing increased attention. In this article, we explain in detail the basic concept of an asset management company, the benefits of setting one up, the costs involved, and the asset and income levels for which incorporation is appropriate.

What Is an Asset Management Company? Defining a Private Company

An asset management company is a corporation established for the purpose of managing personally owned assets such as stocks and real estate in a more advantageous way. It is also referred to as a "private company." Because it offers more advantages than managing assets as an individual, more high-income earners and asset holders are choosing to establish one.

What Are the Benefits of Having an Asset Management Company? Three Tax Advantages

Tax Savings Through the Corporate Tax Rate (Maximum Rate of Approximately 30%)

The maximum combined rate of individual income tax and resident tax is 55%, while the effective corporate tax rate is approximately 30% at most. If your annual income exceeds 9 million yen and you personally manage assets such as real estate investments, incorporating can allow you to benefit from the difference in tax rates.

Effective as an Inheritance Planning Measure

By establishing a corporation and appointing a spouse or children as officers and paying officer compensation, it becomes possible to transfer assets during your lifetime. If your expected estate exceeds 100 million yen, we recommend considering the establishment of a corporation. Officer compensation can also be used to secure funds for future tax payments.

Reducing the Overall Family Tax Burden Through Income Splitting

By employing family members who have little or no income and paying them salaries, you can distribute income across the household. When the family's total income is spread out in this way, the overall tax burden is reduced and more cash remains on hand. However, because the tax authorities will assess whether substantive work is actually being performed, there is a risk that salary payments made in name only may be denied.

What Are the Costs of an Asset Management Company? Key Points to Understand in Numerical Terms

Establishment Cost: Approximately 150,000 to 300,000 Yen

Expenses include judicial scrivener fees, registration and license tax, articles of incorporation certification fees, and stamp duty. The total will vary depending on the amount of capital, but in general you should expect establishment costs of around 150,000 to 300,000 yen.

Asset Transfer Cost: Tax Burden of Up to 55%

When corporate funds are transferred to an individual (through officer compensation or dividends), they are subject to comprehensive taxation at rates of up to 55%. This is the asset transfer cost, and it is important to understand that it can offset the tax-saving benefits.

Ongoing Cost: Taxes + Tax Accountant Fees

Ongoing expenses include corporate resident tax (at least about 70,000 yen per year even if the company is in the red) and tax accountant fees for corporate tax filing (typically about 300,000 to 800,000 yen per year). If the benefits do not exceed these costs, there is little reason to establish the company.

Steps for Setting Up an Asset Management Company

1. Decide on the company name, head office location, investors, capital amount, and fiscal year-end month
2. Prepare the representative seal, company seal, and bank seal, along with the articles of incorporation and registration documents
3. Submit the registration documents to the Legal Affairs Bureau, and file the business commencement notice and blue return approval application with the tax office

Who Should Consider Establishing One?

If any of the following apply to you, it is worth considering incorporation.

• Annual employment income exceeds 9 million yen
• You personally manage assets through activities such as real estate investment
• Your expected estate exceeds 100 million yen
• You have family members with little or no income

Frequently Asked Questions (FAQ)

Q1. What is the minimum amount of capital required to establish an asset management company?

Under current law, there is no minimum capital requirement for a stock company, so it can be established with as little as 1 yen. However, when considering credibility with business partners and financing reviews, in practice capital of at least 1 million yen is common.

Q2. What tax burden arises when transferring personally owned real estate to a corporation?

As a general rule, the sale of real estate from an individual to a corporation must be conducted at "market value." If there is unrealized gain, capital gains tax will arise, so we strongly recommend having a tax accountant calculate both the transfer cost and the tax-saving benefits.

Q3. Does appointing family members as officers always result in tax savings?

Tax audits will examine whether the family members are actually performing work and whether the compensation amount is reasonable. Even in past Supreme Court cases, there have been instances where officer compensation was denied because no substantive duties were being performed.

Q4. How much does it cost each year to maintain an asset management company after it is established?

Even if the company runs at a loss, corporate resident tax of at least about 70,000 yen per year will apply, and tax accountant fees are typically about 300,000 to 800,000 yen annually. It is important to simulate in advance whether the expected benefits will justify these costs.

Q5. Is there any point in maintaining the corporation if it has no business activity after establishment?

Even without activity, the per capita portion of corporate resident tax (minimum 70,000 yen) will still be imposed. If no tax-saving or inheritance-planning benefits can be expected, you should consider making the company dormant or dissolving it.