Beware—Disadvantages of Using a Virtual Office as a head office

When starting a business in Japan by investing from abroad, at first glance, a virtual office, which has only a mailing address but no physical office, may seem attractive because of its low cost. It projects an image associated with a prestigious address in the city center and gives you access to a host of services, such as receiving and forwarding mail and others.

Since some countries allow business owners to start a business without a physical office if the business owner rents an address and registers the company, you might assume that doing this is also possible in Japan.

However, when a establishing a company, there are several disadvantages you should be aware of when choosing a virtual office as the head office for your business in Japan. It is important to not make a snap decision about choosing a virtual office over a physical office. In this article, we will explore in detail the disadvantages of using a virtual office as the head office.

Difficult to obtain a license [for your business] with a virtual office

First of all, in industries where licenses are required to start a business, it may not be possible to use a virtual office as the head office. A wide variety of businesses require licenses, such as construction, real estate, temporary staffing, employment placement, secondhand goods, waste disposal, transportation, and financial instruments trading.

These are certain types of businesses that are required to have an established physical office in order to do business. These certain industries must have facilities, space and independence to run the business. This means that a virtual office address alone is not enough to meet the requirements.

It is essential that you do your own due diligence in advance to avoid a situation where you cannot start the business or have to relocate your head office after you have established your business.

Inability to get a business manager visa

In order to obtain a business manager visa, you must have a physically independent office. If you only have a virtual office, you will not be able to obtain a business manager visa, since you will not meet this requirement.

In addition, even though having a physically independent office is not a requirement for a work visa, the immigration authorities are likely to conduct a stricter examination of your application since a virtual office will raise concerns about the continuity and stability of the business.

Inability to Open a Bank Account

After establishing a company, it is essential to open a corporate bank account in order to operate the business. However, if you use a virtual office as your company's headquarters, the bank (or other financial institution) screening process will be stricter.

In recent years, due to concerns about preventing money laundering and bank transfer scams, financial institutions have tended to place more importance on the actual condition a business rather than just the registered address of the main office.

Banks find it difficult to confirm the actual state of business in the case of a virtual offices that does not have a physical office. It will be practically impossible for a bank to open an account for such a business.

Difficulty in gaining the trust of customers and business partners

In business in Japan, trust from customers and business partners is extremely important. Using a virtual office as your head office may give the impression that you do not have a real office or that you do not have the funds to rent an office.

In particular, you should be aware that face-to-face transactions are common in certain industries. There are still many people who highly value this traditional business practice and it is an important factor for making and keeping relationships with customers and business partners.

In addition, the fact that multiple companies have the same address for their virtual offices and are listed at the same address in internet searches is also a reason for concern with respect to reliability and trustworthiness.

Other Demerits

In addition to those mentioned above, you should also keep the following potential risks concerning virtual offices in mind.

• Delays in receiving mail and parcels: There may be a time lag when using a forwarding service.
• Bankruptcy risk of the virtual office management company: In the event of the bankruptcy of the management company, you will suddenly become unable to use the address.
• Potential disadvantage in recruitment: Some job seekers value physical offices.

Summary

A virtual office can be a viable option if you want to keep your upfront costs down. However, when using it as the head office when establishing the company, it is important to understand that there are many disadvantages as mentioned in this article.

In particular, if you invest from a foreign country and start a business in Japan, even if you can register your company in a virtual office, it will be difficult to start and operate your business due to the disadvantages mentioned in this article. When expanding into Japan from overseas, it is necessary to have a solid business plan that also takes into account the cost of the office.