An American CPA in Tokyo.

How an adventurous CPA runs a successful practice in Japan.

It always had been Garry Royce's dream to live and work in Japan. He was intrigued by Asia ever since his childhood days in Minnesota. After four years working for a small CPA firm in Minneapolis, Royce decided it was time to live out this dream without a hotel reservation and with no certain plan, Royce left the United States to live and work in Japan. Since that risky move 12 years ago, Royce has established his own small CPA firm that provides expatriates and non-Japanese companies a complete range of accounting and tax services.

The Asian market is one of the world's largest and fastest growing. Small CPA firms that are considering expanding into Asia may benefit from Royce's experiences. Here is first-hand account of how one CPA overcame the barriers and opened his own practice overseas.

SELLING ENGLISH

It was my intention to own my own practice overseas, but I went about acquiring my firm, Royce and Associates, in an unusual manner. I was hired by a large Japanese steel manufacturer just two weeks after my arrival in Japan. I worked in the company's foreign funds section and was responsible for project finance and collections. I later met an accountant and retired U.S. Air Force officer, and we agreed to establish a tax preparation business that would serve the U.S. military bases in and around Tokyo. During our first tax season my partner was in a car accident and was forced to leave Japan. At the same time, the value of the U.S. dollar was rapidly dropping and I wanted to find customers who would pay me in Japanese yen. I turned to expatriate tax services and began learning more about Japanese individual and corporate taxation. There is a strong market in Asia for smaller CPA firms that can help non-Japanese-owned companies and, as I expected, work came quickly.

I have been in Japan for 12 years and enjoy tremendously helping foreigners enter the Japanese market. Royce and Associates is the only small non-Japanese CPA firm in Tokyo. The firm works with Indonesians, Singaporians, New Zealanders, Australians, Canadians, Peruvians, Britons, Belgians, Indians and, of course, Americans. What do I offer that Japanese accountants do not? Native English.

My command of Japanese is adequate but not excellent. The secret of my success is that I can communicate to English-speaking people living in Japan. A Japanese person who needs accounting or tax services will not call me. But a foreign company or individual that comes to Tokyo to set up an office will look in one of Tokyo's two major English-language phone books and see Royce and Associates and call me first.

Foreigners and foreign businesses are the firm's specialty. We have come to know problems foreign companies are likely to face when entering the Japanese market, and we have the solutions to solve them. The firm specializes in three categories of services: national and local corporate tax services, expatriate tax services and business and individual consulting services, such as employment practices, the social insurance systems and visas.

HOW CAN AN AMERICAN CPA PRACTICE IN JAPAN?

Neither the American Institute of CPAs nor the Japan Institute of Certified Public Accountants (JICPA) recognizes the other's CPA license; there is no reciprocity. My firm operates legally in Japan by working in conjunction with a licensed Japanese accountant, Kenji Miyako.

Larger U.S. accounting and consulting firms operate the same way, but on a much bigger scale. For example, Price Waterhouse uses Aoyama Audit and Arthur Andersen uses Asahi Audit and Uno Tax Service.

In Japan a person must be licensed to sign a tax return for a fee; thus, Miyako reviews all Japanese tax returns and stamps them when they are ready. Our fees are carefully arranged to meet the requirements of the Japanese regulatory body. In the few cases a client has been audited, Miyako has provided representation.

I emphasize to clients that I have no Japanese CPA license, I am not licensed to sign tax returns and do not claim to be an expert in Japanese taxes. On the other hand, I explain I have been in Japan a long time and I understand Japanese business practices and taxes. I also emphasize the experience and competency of my Japanese staff.

SERVING COMPANIES

The firm's corporate services bring in the highest percentage of fees. These services include assisting in incorporation of foreign subsidiaries and branch offices, compilations, payroll services, Japanese individual and corporate tax planning and preparation and special examinations. Corporate clients range from the Tokyo offices of large non-Japanese companies to smaller start-up operations.

One of our bigger clients, a large international travel agency, pays us simply to handle its payroll operations. Another type of corporate client is the entrepreneur--usually a long-term resident of Japan who has an idea and wants to run with it. Entrepreneurs often set up small software companies that convert English-based software and market the products in Japan.

A few of our small corporate clients have taken off. One such client, an American and his Japanese wife, set up their own Japanese corporation that sells a U.S. educational company's CD-ROM products exclusively to large Japanese computer companies. Sales in Japan are good, and the couple has agreed to sell their company to the U.S. supplier in return for stock options. We have been engaged to ensure everything is done according to both Japanese and U.S. regulations.

Our firm does not perform audits; however, for many years we have performed a review for the Employees' Welfare Association at the American embassy. My own firm is required by the AICPA to participate in a quality review program and is subject to an offsite review.

HELPING EXPATRIATES

Every year we prepare approximately 300 tax returns for U.S. expatriates. We also prepare a limited number of subchapter S, foreign corporation and miscellaneous returns. All of these returns are prepared by my employees in Hawaii and California. Cynthia Vogt heads up one side of the operation from her home in Honolulu, and Mary Ann Miller reviews Cynthia's work from her home outside Berkeley. Both worked for me in the Tokyo office before moving back to the United States.

Both Vogt and Miller have good knowledge of Japanese tax regulations as they apply to U.S. international taxation. Write-ups from tax interviews at our Tokyo office, along with completed tax organizers from clients, are sent by courier to Vogt for processing. With clerical help, she arranges the preparation, review; assembly and mailing back to Tokyo for the taxpayers' signatures and payments. The IRS does not allow electronic filing of returns with foreign addresses or for taxpayers who use Form 1116, "Foreign Tax Credit."

This arrangement is exceptionally valuable when you consider the high costs of employment in Japan. My clients also appreciate the expertise, and as costs of communication continue to decline, this arrangement becomes even more worthwhile.

Ten years ago, all our revenues came from U.S. tax return preparation at military bases in the Tokyo area. However, the dollar weakened and we learned it was more profitable to earn yen. Thus, we now maintain only one office at a military installation. Under contract, we process annual returns for some 600 officers and sailors stationed at the Yokosuka naval base.

CONSULTING

The firm offers a wide variety of consulting services, most commonly computer related. Surprisingly, Japan lags behind the West in integrating computer and accounting software into the corporate environment. Accounting is still labor intensive, especially in small companies. This is a particular handicap for foreign companies, which are required to keep records of Japanese taxes and financial reporting.

Although bilingual accounting software is still too expensive for our client base, Japanese-only accounting software remains reasonably priced. We are training the Japanese staff of one American company with large inventories and receivables to use a Japanese-language software package. The general manager, an American, speaks excellent Japanese, but his Japanese staff has difficulty working in English.

However, it is more common that the Japanese staff speaks good English; few non-Japanese general managers speak proficient Japanese. In this situation, we generally recommend one of a few reasonably priced English-language accounting software systems available off-the-shelf in the United States or the United Kingdom. The Japanese tax office accepts accounting statements in English.

We also provide foreign businesspeople with tax, reporting and regulatory information not readily available in English. Corporate headquarters have stepped up the demand to know more about their payroll costs, corporate taxes, national health and pension systems so they can seek less costly alternatives. My firm will explain in detail these kinds of data.

MARKETING

I often attend meetings and functions of the American Chamber of Commerce in Tokyo. We advertise by direct mail to both the American Chamber of Commerce in Japan and members of the British Chamber of Commerce. We also publish an occasional newsletter. There are endless subjects for articles and our readers are grateful for the information. We also distribute a firm brochure.

WHY WOULD A CPA FIRM ENTER A FOREIGN MARKET?.

For me, there was only one reason to open a practice in Japan--adventure. However, there are many good reasons why others would be interested in doing the same thing. For one, there are very few firms like ours in Asia. Non-Japanese companies have basically three choices: a large international CPA firm, a Japanese firm or my' firm.

Other business opportunities develop. You become a center for information-people call you with ideas and you develop a keen knowledge of what is happening and what is likely to happen. Also, international communication is no longer expensive or difficult. With e-mail, fax, courier service and continually dropping telephone rates, doing business internationally is remarkably easy.

THE PITFALLS

Almost everything is more expensive in Japan than it is in the United States. We live in very close quarters, and we often joke about the extraordinary convenience of being able to lie down to sleep, cook a meal and take a bath all in the same room.

If a firm earns a yen profit, it is even more impressive when it is converted to U.S. dollars. But this is a double-edged sword--operating at a loss can be extremely costly if you enter this market using dollars.

Continuing professional education is very difficult to obtain while living outside the United States. Even though the AICPA grants foreign residency waivers for CPE requirements, I always attend a CPE course during my annual trip to Minnesota when I visit my family. Unfortunately, in a one- or two-week period it often is hard to find CPE courses that relate to international tax or accounting.

IT'S WORTH TAKING THE RISK

My recommendation to CPA firms interested in expanding abroad is first to research what professional accounting activities may be possible in the countries of interest. Next, develop a professional relationship with a firm of licensed accountants in the target country by proposing a tie-up or joint venture similar to what I have established with Miyako.

If the domestic laws of the chosen country permit, the domestic firm should provide the license and the local expertise, and the U.S. firm should do the marketing. An American partner or employee should be brought in to market in the foreign community and should also act as a liaison between the accountants of the domestic firm and clients.

HOW TO ADVISE YOUR CLIENTS

If your clients are interested in starting a business venture in Japan, membership in the American Chamber of Commerce will provide them with a treasure chest of information and contacts, including reports from its many committees and a good opportunity to meet local businesspeople during social events and business meetings. If you want more information on the American Chamber of Commerce, call (81) 3-3433-5381.

Another good source for contacts and information is the Japan External Trade Organization  (JETRO), which maintains offices in major U.S. and Japanese cities. JETRO provides export promotion support and Japanese domestic market information, issues a variety of English-language publications that deal specifically with entering the Japanese market and operates an extensive business research library at its Tokyo headquarters. The number for JETRO is (81) 3-3582-5522.

Last, I would advise any CPAs to make use of the International Society of CPAs (ISCPA). It is an excellent international networking and referral resource for CPAs in small to midsized CPA firms. The ISCPA also admits non-CPA associate members, such as international attorneys, bankers, securities brokers and architects, to expand the international network. For additional information on the ISCPA call (800) 95241272.

REAPING THE REWARDS OF INTERNATIONAL LIFE

Working in Japan has been as challenging as it has been rewarding. I genuinely enjoy doing my part as an American CPA who can assist the foreign business community, and my wife and I have enjoyed giving our children the gifts that come with learning multiple cultures and languages. There are high barriers to practicing accounting in a foreign country, but as better communication and easier travel make the global community a global village, I believe many of these barriers will fall. Case in point: Language, perhaps the greatest barrier, has become my best marketing tool.

CHECKLIST

Opening Shop Overseas

Opening a business in a foreign country involves many unknowns. Consider some of this preparatory work:

* Research requirements for obtaining a work visa. The work you can engage in may depend as much on the visa you are granted as it does on the professional licensing requirements. Obtaining a visa may depend on having a guarantor of sufficient professional or political standing, such as a licensed accountant who will employ you, simply to get you in the country and working. Major companies often can obtain visas for consultants with comparative ease.

* Investigate licensing and reciprocity issues. Some countries, such as Hong Kong and Singapore, have less severe requirements than others. A good source of information is Accounting Certification, Educational & Reciprocity Requirements: An International Guide, by Jack R. Fay, CPA, PhD, associate professor of accounting, Southern Florida University.

* Contact the country's professional accounting organizations and standard-setting bodies.

* Consider alternatives and limitations to market entry. Determine whether the firm can practice under its own name or if it must work under a joint-venture agreement with a local firm. If a partnership is required, determine if restrictions on percentage of ownership exist.

EXECUTIVE SUMMARY

* THE ASIAN MARKET IS ONE of the world's largest and fastest growing. Small CPA firms considering expanding into Asia may benefit from the author's experiences.

* GARRY ROYCE MOVED TO JAPAN and opened his own small CPA firm that provides expatriates and foreign-based companies a complete range of accounting and tax services.

* FOREIGNERS AND FOREIGN BUSINESSES are Royce's specialty. CPA firms interested in working in Asia should be able to offer solutions to problems foreign companies face when entering the Japanese market. The secret of Royce's success is that he can communicate with English-speaking people living in Japan.

* ROYCE'S FIRM SPECIALIZES IN three categories of services: national and local corporate tax services, expatriate tax services and business and individual consulting services, such as personnel, employment practices, the social insurance systems and visas.

* THERE IS NO RECIPROCITY BETWEEN Japan and the United States. Royce's firm operates legally in Japan by working in conjunction with a licensed Japanese accountant. Royce recommends that CPA firms interested in expanding abroad should first research what professional accounting activities may be possible in the country of interest, and develop a professional relationship with a firm of licensed accountants of that country by proposing a tie-up or joint venture.

GARRY S. ROYCE, CPA, is a practicing accountant in Tokyo. He is a member of the American Institute of CPAs and the International Society of CPAs.

Firm Profile

Name: Royce and Associates

Year opened: 1985

Location: Tokyo, Japan

Total personnel--associates:

4 full-time, 4 part-time

Number of owners: one

Number of U.S. CPAs: 2

Number of licensed tax accountants: 2

Areas of concentration: Japanese corporate tax, expatriate tax, consulting

Percentage of fees from Japanese taxwork: 25%

From U.S. taxwork: 35%

Japanese corporate write-up and payroll services: 15%

Consulting: 15%

Other: 10%

Size of clients: Individual tax clients and corporate clients ranging from 1 to 45 employees

Types of clients: Non-Japanese individuals and foreign-operated companies

Advertising and marketing programs: Direct mail to members of the American and British Chambers of Commerce

Best thing we did in the past five years: Began the Japanese services side of the firm

Worst thing we did in the last five years: Failed to offer Japanese services sooner

The Japanese CPA

The Japanese Institute of Certified Public Accountants (JICPA) was established in 1949. In 1966 the JICPA was reorganized, requiring every CPA in practice to become a member. As of May 31, 1995, there were approximately 10,600 registered CPAs. There are an additional 300 people who have passed just the second level of a three-level examination and are called junior CPAs.

The CPA examination is offered once a year. One can pass the first level merely by being a college graduate. The second level examination is demanding, covering bookkeeping, financial accounting theory, cost accounting, auditing, business administration, economics and the commercial code. All parts of the second level must be passed at one sitting and the pass rate is low.

Junior CPAs acquire the professional skills of a CPA while working as an assistant in a firm. Junior CPAs work for two years as a paid employee, followed by one year of study to prepare for the third and final level of examination.

A person preparing tax returns for a fee must be licensed. Japanese CPAs, and another professional group called licensed tax accountants, are so licensed. There are some 65,000 licensed tax accountants in Japan who have passed a rigorous two-day exam. The exam is offered once a year and consists of five subjects. But unlike with the Japanese CPA exam, people keep those parts passed. Generally speaking, a person studying full-time passes the exam in two to three years while working people can expect to wait five years before passing.

The second way to become a licensed tax accountant is to be employed for a prescribed number of years in certain government tax positions. There is a less-demanding exam these people are required to pass.