Can a Business Manager Visa be renewed if the company is in the red?

Cases in which the going concern of the business is recognized.

-Pretext-

First, let us discuss the basic criteria in a deficit situation.

During business activities, “loss-making financial results” can occur due to a variety of circumstances and factors.

In some cases, it is impossible to continue business activities in the future,

In other cases, there is no problem with the continuity of business activities, such as when a stable company temporarily turns into a loss due to various reasons, but there is no problem with the continuation of the company.

Therefore, the continuity of the business “is not judged entirely based on the financial results of a single fiscal period (one fiscal year), but rather on a comprehensive judgment based on the financial results of the most recent two fiscal years, including the balance sheet situation” -this is the basic stance.

In other words, the continuity of a business in the case of a deficit is determined based on the “Income Statement (PL)” and “Balance Sheet (BS)” for the two most recent fiscal years.

The next section will explain the cases in which the going concern of a business is recognized even if it is operating at a loss.

A newly established company in its first fiscal term

If the first fiscal term, i.e., the first fiscal year after the establishment of the company, is in the red, there are many cases where the renewal of a business manager visa can be approved, as long as there is a gross profit on sales and the company does not exceed its liabilities. This is because if you are a newly established company in the early stages of business, just because you are not immediately profitable (recurring income) does not mean that your business is not sustainable. In the early years of business, the costs associated with capital investment can be significant.

Only a few companies can generate profit (recurring income) from the startup phase, especially those with new business models or highly unique products, etc., which are likely initially in the red.

Therefore, unless there are very serious reasons for the newly established company, such as no gross profit, severe insolvency, relocation to an inappropriate business location that is different from the one where the visa was originally granted, or an extreme reduction in executive compensation. As long as you can explain that your business plan can generate recurring income in the future, there is a high possibility that the renewal of your business manager visa will be approved.

Cases of new startups (domestic unlisted companies established within 5 years)

The Immigration Bureau considers domestic unlisted companies that have been in business for less than five years to be different from other companies. This “emerging company” naturally includes the aforementioned newly established companies.

Not as much as a newly established company (in its first term),

When a startup company tries to grow its business based on unique technology or service, a new business model, etc., it can be expected that it will continue to lose money in the early years of its existence.

As before, with certain exceptions, if you can explain in your future business plan that you can generate recurring income, there is a good chance that the renewal of your business administration visa will be approved.

Single-period financial loss

Determining whether or not a business can continue to operate in a deficit situation is “a comprehensive judgment that includes the balance sheet situation and other factors based on the most recent two fiscal years, rather than judging everything based on the financial results for a single fiscal year. Even if the company has a deficit, there is a good chance that the visa renewal will be approved if it is only for one fiscal year.

The explanation of the reasons for the deficit and the prospects for improvement should be well explained.

For example, in recent years, companies have experienced a decrease in demand due to the coronavirus or an increase in the cost of international transportation due to the international situation, etc. If these force majeure factors cause the company to lose money, the renewal may be approved if the company explains the reasons.

However, please note that you must not forget that you are the manager of the company. No matter how force majeure it may be, it is the role of a business owner to be prepared for any eventuality and to manage the company while hedging risks and taking new steps as soon as possible.

Keep in mind that if you do not take measures to turn profitable from the next fiscal year onward, it will be difficult to renew the visa from the next fiscal year onward.

Deficit in financial statements for two consecutive fiscal years (without insolvency)

The reasons for the second consecutive fiscal year in the red are many and varied, and are the result of a mixture of multiple factors,

There are as many reasons for this as there are companies, and it is difficult to make a blanket judgment on whether it is good or bad. On the other hand, the failure of a company to make a profit for two consecutive years is not a small matter of the company’s management policy.

In the case of a single period with a deficit, it may be sufficient just to attach a statement of reasons, but in the case of two consecutive periods of deficit, it is necessary to explain not only the reason for the deficit but also the change in business direction and improvement plan due to consecutive periods of deficit.

Furthermore, it is also important to prove that the plan is feasible. If the company’s business situation is expected to be profitable in the next fiscal year, renewal may be possible.

Even if the company has been in the red for two consecutive fiscal years, if the surplus has only decreased and there is no deficit, and if the company has sufficient assets to continue its business, it is considered to be in a position to continue its business. In this case, a business plan such as an improvement plan may be sufficient to obtain a permit.

Single-period insolvency

*In simple terms, insolvency means having more liabilities than assets.

*A balance sheet is a type of document that shows the financial condition of a company at a certain point in time.

As shown in the balance sheet on the right above, an insolvent company has negative equity. This means that the company is unable to repay its debts even with all of its assets.

Needless to say, the Immigration Bureau would consider this a precarious situation, which is in charge of managing the residency of foreign nationals, as it is likely not in Japan’s national interest to leave such a company in operation and management. It is a very dangerous situation, so will be a very tough decision in the examination for renewal of residency status.

The Immigration Bureau has announced “Regarding the clarification of the status of residence of ‘business manager’” evaluates an insolvent company as “one whose creditworthiness as a company has declined and the continuation of its business is in jeopardy, making it difficult to recognize its business continuity.

In this case, to recognize the business’s going concern, the company is required to submit a written report by a small business consultant or certified public accountant that evaluates the prospects for improving the business situation and getting out of insolvency within one year.

If you can firmly rebuild your business plan for the future, you may still be able to renew your status of residence, but make a feasible plan by consulting with a specialist, rather than making one based solely on the assumptions of the business owner.

Cases in which the going concern of the business is likely to be not recognized

So far, we have presented examples such as “If you can submit some documents, you still have a good chance of getting your visa renewed.

From here, we will discuss situations that are likely to result in disapproval even with thorough preparation.

Two consecutive fiscal years of insolvency

Consecutive insolvencies are said to be the situation most likely cause of disapproval.

The reason is quite simple: the company is approaching the point where it is no longer feasible to continue operations, and the second insolvency is the result of the failure of the business policy change that was implemented in the previous year.

If this happens, it will be very difficult to renew the status of residence without a very reasonable reason.

• reasonable cause
• evaluation documents by a Small and Medium Enterprise Management Consultant (SMEC), a certified public accountant, etc.
• other measures

In a situation where debts that cannot be repaid accumulate with each passing business year, it is not enough to submit the statement of reasons and qualified evaluation documents that we have introduced so far, but unless you come up with other measures in addition, it is unlikely that you will get a renewal permit for your status of residence down the road.

In addition to a business plan and a written evaluation of the prospects for improvement, a common strategy is for management to increase capital either using their own money or obtaining support from other companies.

*Capital increases and external support are only temporary measures, and if the underlying business problems are not resolved, the company will continue to suffer.

In addition, there is no guarantee that you will be able to renew your visa even if you have taken all of these measures; two consecutive terms of insolvency is such a severe situation that at worst you may be forced to withdraw from the business. Therefore, we strongly recommend that you consult with a specialist as soon as possible at the stage of “possibly insolvency again this fiscal year…”.

If there is no gross profit for both the most recent fiscal year and the most recent previous fiscal year

In the main business of a company, if there is no gross profit where the net sales are less than the cost of sales, it is difficult to recognize that the company is engaged in normal business activities.

While it is of course possible to assume that there may be cases where there is no gross profit due to special circumstances, the absence of gross profit for two consecutive fiscal years does not indicate that the company in question is not capable of continuing its principal business operations.

As a rule, this makes it more difficult to update management control.

However, if a start-up company intends to grow its business based on unique technologies, services, or a unique business model, it is expected that it will continue to lose money in the initial period of its establishment, so a renewal may be permitted with a business evaluation document from a small business consultant or certified public accountant, an explanation of financial preparation, a business plan for business expansion, etc. In this case, a renewal may be approved with a business plan for business expansion, etc.

Summary (Requirements for Renewal of Status of Residence by Case in the Deficit Financial Settlement)

The essential of a business/management visa in deficit accounting is as follows:

[Key Indicators and Checkpoints for Screening]

• whether it is a new startup
• whether there is gross profit (if sales are less than the cost of sales)
• Whether there will be a deficit at the end of the most recent fiscal year or in the immediately preceding fiscal year
• whether the deficit would result in a loss of capital or only a decrease in retained earnings
• whether or not the company is insolvent

summary

The first term deficit ⇨ If the company is not insolvent, it can be renewed with certain explanations.

The company is in the red for the second fiscal year ⇨ due to consecutive deficits, renewal is possible only if the management change direction and provides an improvement plan.

Insolvency for a single period⇨Possibility of renewal based on a written evaluation of the company by a small business consultant or certified public accountant, and an explanation of the company’s financial reserves, etc.

Consecutive insolvencies ⇨ Increased likelihood of disapproval, so other measures need to be taken.

No gross profits ⇨ Difficult to be recognized as a going concern.

However, in the case of a start-up company, there is a possibility of renewal based on a written company evaluation by a registered small business consultant or a certified public accountant, etc., an explanation of financial preparation, a business plan for sales expansion, etc.

As you can see, the availability of renewal and the steps that can be taken to renew will vary depending on each company’s situation. If your company is about to incur a loss, it is important to resolve the issue early and comprehensively from tax, legal, and visa perspectives!

For more information on business and management visas, please click here↓↓↓

経営・管理ビザ

Our group has a variety of specialists on staff, so please feel free to contact us if you are having trouble keeping your business out of the red!

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We are Yanagi Group, which have offices in Osaka (Abeno and Tennoji), and our affiliated offices in Tokyo (Shibuya and Ebisu) are also available for an on-site consultation. We have handled many applications for permanent residence permits, naturalization permits, work visas, college student visas, management visas, etc., as well as visa renewal procedures related to the status of residence with the Immigration Bureau (Immigration Bureau) as a one-stop service. Our experienced administrative scriveners are also available to help you with any problems you may have.

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