Indie Dev Incorporation — When Should You Form a Company?
The "should I incorporate?" question has a break-even answer rooted in tax math.
Sole Proprietor vs Corporation Tax Rates (Japan)
Sole proprietor (income tax + resident tax + business tax):
Taxable income ¥3.3M–¥6.95M: 20% + 10% = ~30%
Taxable income ¥6.95M–¥9M: 23% + 10% = ~33%
Taxable income ¥9M–¥18M: 33% + 10% = ~43%
Corporation (corporate tax + local taxes):
Annual income ≤ ¥8M: corporate tax 15% + local = effective ~21%
Annual income > ¥8M: corporate tax 23.2% + local = effective ~30%
Rule of thumb break-even: annual profit ¥6M–¥8M
At ¥6M annual profit:
Sole prop: ~¥1.8M in taxes (30%)
Corp: set executive salary to split income → effective rate 20–25%
→ Saves ¥300K–¥600K / year
Setup cost (LLC): ~¥100K
Recouped in year one.
Main Benefits of Incorporating
1. Split income via executive salary
Corporate profit → executive salary (employment income deduction applies)
→ lowers effective tax rate
2. Broader expense deductions
Portion of rent / car / insurance / employee benefits
3. Loss carryforward period
Sole prop: 3 years → Corporation: 10 years
4. Business credibility
B2B contracts, API agreements, bank loans
5. Retirement savings
Small business mutual aid + executive retirement bonus (large tax-free allowance)
LLC vs Corporation (Japan)
LLC (Godo-kaisha):
Setup cost: ~¥60K (no notary required for articles)
Financial disclosure: not required
External investment: harder to accept
Best for indie devs: tax savings + low cost + simple structure
Corporation (Kabushiki-kaisha):
Setup cost: ~¥250K
Credibility: higher
Equity funding / IPO: supported
Choose this if you're building a startup
Incorporation Decision Checklist
// Consider incorporating when 2+ of these apply
final shouldIncorporate = [
annualProfit > 6_000_000, // tax benefit kicks in
hasBToBClients, // corporate entity often required
planningToHire, // triggers social insurance obligations
seekingExternalFunding, // need to issue equity
].where((c) => c).length >= 2;
Summary
Break-even → annual profit ¥6M–¥8M is the rule of thumb
Entity type → LLC for indie devs (¥60K setup / simple structure)
Key benefits → income splitting + broader expenses + 10-year loss carryforward
Timing signal → 2+ of: profit threshold / B2B / hiring / funding
Incorporation is not just about taxes — it also signals that the business is serious.