Impact of Two Consecutive Deficit Terms on Permanent Residence for Business Manager Visa Holders#

The examination process for Permanent Residence (PR) in Japan has become increasingly strict in recent years. This trend is particularly pronounced for foreign entrepreneurs holding a “Business Manager” visa (formerly Investor/Manager visa). Unlike employees on standard working visas, business owners face a complex scrutiny that evaluates not only their personal conduct but also the financial health of their corporate entities.

A common and critical question among business owners is: “Can I obtain Permanent Residence if my company is losing money?” Specifically, the impact of having a deficit (financial loss) in the most recent fiscal year, or worse, two consecutive terms of deficit, is a major concern. This article explains how the Immigration Services Agency of Japan views such financial situations objectively.

The “Independent Livelihood” Requirement and Business Stability#

One of the fundamental requirements for Permanent Residence is possessing “assets or skills sufficient to earn an independent livelihood.” For a standard employee, the immigration bureau primarily assesses personal annual income and tax payment history. However, for a holder of a Business Manager visa, the scope of examination expands to include the financial statements of the company they manage.

The rationale behind this is straightforward: a business owner’s personal income is derived from the company’s profits. If the company’s survival is in jeopardy due to poor performance, the authorities judge that the applicant’s ability to maintain a stable life in Japan in the future is compromised. Therefore, corporate financial health is not just a business matter; it is a direct component of the applicant’s eligibility for PR.

The Impact of Two Consecutive Deficit Terms#

To address the core question: applying for Permanent Residence while the company has reported deficits for two consecutive fiscal terms creates a significant hurdle.

While a deficit in a single fiscal year might be overlooked if there are rational explanations—such as heavy initial investment, purchasing real estate, or temporary market fluctuations due to exchange rates—two consecutive years of losses change the narrative.

The Immigration Bureau places immense importance on “Business Continuity.” Two consecutive terms of red ink suggest to the examiners that the losses are not temporary but rather indicative of structural flaws in the business model or a lack of management ability. Even for a standard visa renewal (Extension of Period of Stay), two consecutive deficits trigger a stricter examination requiring a detailed business turnaround plan. For Permanent Residence, which is a lifetime permission, the standard is much higher. The authorities are likely to deny the application on the grounds that the applicant lacks financial stability.

The Critical Distinction: Net Loss vs. Insolvency (Excess Debt)#

When discussing “deficits,” it is crucial to distinguish between two different financial states in Japanese accounting terms: simple “Net Loss” (Akaji) and “Insolvency” or “Excess Debt” (Saimu Choka).

1. Net Loss (Operating in the Red): This means the company’s expenses exceeded its revenue for the year. However, if the company has accumulated retained earnings from previous profitable years and its total assets still exceed its total liabilities, the situation is not fatal. Even with two years of operational losses, if the company remains solvent (assets > liabilities), PR might still be possible, provided a strong explanation and a credible path to profitability are presented.

2. Insolvency (Liabilities Exceed Assets): This is a critical “red flag.” Insolvency means the company’s net worth is negative; it owes more than it owns. If the most recent financial statement shows insolvency, or if the company has been insolvent for two consecutive terms, the probability of obtaining Permanent Residence is close to zero.

   From the Immigration Bureau’s perspective, a company in a state of excess debt has lost its creditworthiness. It raises serious doubts about whether the business can continue. In such cases, it is generally advised to delay the PR application until the insolvency is resolved (net worth becomes positive) and the company has achieved at least one, preferably two, subsequent years of black-ink profits.

The Balance Between Director’s Remuneration and Corporate Tax#

Some business managers attempt to manipulate their finances by drastically reducing their own director’s remuneration (salary) to minimize corporate expenses and artificially create a corporate profit. However, this strategy can backfire significantly in a Permanent Residence application.

If a manager’s personal income drops too low (for example, below 3 million yen per year, though this threshold varies based on the number of dependents), the application will be rejected based on the failure to meet the personal “Independent Livelihood” requirement. Conversely, taking a high salary that plunges the company into a deficit questions the business’s sustainability.

A successful PR application requires a healthy balance:

1. The company generates legitimate profit and pays Corporate Tax.
2. The individual receives a sufficient salary and pays appropriate Income Tax and Residence Tax.

Immigration examiners are trained to spot unnatural accounting practices. Sacrificing one side to save the other is rarely a successful strategy.

Conclusion#

For Business Manager visa holders, reporting deficits for two consecutive terms is a severe disadvantage when applying for Permanent Residence. If the company is in a state of insolvency (excess debt), applying immediately is likely to result in rejection.

To maximize the chances of success, it is often necessary to prioritize business recovery over an immediate application. The most prudent course of action is to turn the business around, resolve any insolvency, and demonstrate a track record of profitability (black figures) in the most recent fiscal term. Permanent Residence is a privilege granted to those who can prove long-term stability in Japan, and financial soundness is the bedrock of that proof.