Japan Country Facts

We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in your country of choice and employment contracts.

Global Expansion Made Easy for You

Expanding into Japan generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.

Japan Visas, Work Permits and Migration

Companies targeting Japan for international expansion face unraveling the complexities of work permit, visa, and immigration laws if they intend to move existing staff into this powerful Pacific Rim and Asian economy, the third strongest in the world.

Organizing documentation and dealing with high-level bureaucracy, coupled with migrating staff across the world, would require a designated in-house department. Few companies have the time, the resources or want to invest in such an operation, particularly facing the many-layered procedures needed to obtain Japanese work permits and visas.

Bradford Jacobs does have the resources to sidestep all these issues. As an international payroll provider, we ensure all your employees comply with work permit and visa regulations with our Employer of Record (EOR) platforms.

What Types of Work Visas, and Permits for Japan are there?

Japan applies both restrictions and exemptions regarding visas and work permits, with more than 30 visas to choose from, allowing different activities from family-related to work-related.

  • Temporary Visitor or Short-Term Stay Visa is for foreigners visiting family, for tourism or short business trips. There are exemptions for specific nationals; for example, British citizens can stay visa-free for up to six months on an extendable 90-day visa whereas Australians can only stay visa-free for three months. Everyone must have a valid passport with blank pages for any entry/exit stamps, plus proof of a return or onward ticket

Note: Japan is expected to introduce an Electronic Visa System in 2021

  • Work Visa or Long-Term Stay Visa has 16 sub-categories: for example, for education, training, nursing, medical services etc.

Generally, workers need a job offer to apply for the work visa from their country of residence through an embassy or consulate. The employer/sponsor then applies for a Certificate of Eligibility (COE) at the local immigration office where the applicant will live in Japan. This confirms the employee’s reason for entering Japan, e.g., to work or teach and is required for the work visa.

  • Highly Skilled Foreign Professional Visa (HSFP) is for highly talented foreign employees with specific skills and qualifications on a points-based system (70 points to qualify).  A job offer is required plus all regular visa documentation including a COE. This visa can be for five years and has preferential benefits:
  • Specific Skills Visas 1 and 2 fill gaps for specific industries. 1-SSV1 must have a level of Japanese and pass technical exams, e.g., hotels, shipbuilding, nursing care etc. Visa for one year – renewable up to five years; families are not permitted. However, employees can upgrade to 2-SSV2 when achieving further qualifications or increasing skill levels which allows indefinite stays plus family will be permitted
  • General Visa for students, occupational training, dependents, and cultural activities
  • Working Holiday Visa for some nationalities between 18-30 years old with a valid passport to work and support themselves during an extended holiday (with some exceptions)

Japan Tax Laws

With over 20 years’ experience in the front line of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our ‘know-how’ is vital for foreign companies expanding into Japan.

Dealing with employment, tax, and payroll from overseas is always a tricky process and poses complications that demand expert guidance, especially so when establishing an international presence in Japan. For example, tax rates are applied at national, prefecture and municipal levels, involving up to 10 payments a year. Remitting late or incorrect returns for payroll and social security result in severe fines and other sanctions.

Overview of Taxes in Japan

Tax Type: Percentages

Individual Income Tax
Up to JPY 1.95million (US$17,830): 5%
Further bands of: 10%, 20%, 23%, 33% and 40%
Over JPY 40million (US$365,690): 45%
Non-resident locally earned income: 20.42%

Social Security Taxes
The employers’ contribution: 18.3%

Capped to a maximum JPY 620,000 (US$5,670) and JPY 1.5million (US$13,713) accounting for a standard rate bonus. Employees also contribute 18.3% from their salary.

Value Added Tax: 10%

Corporate Income Taxes
Japanese companies taxed on global income up to JPY 8 million (US$73,140) and: 15%
Above that: 23.2%
Also applies to companies with share capital exceeding JPY 100 million (US$908,000).

Local corporate: 10.3%.

Inhabitants’ Tax and Enterprise Tax at prefecture and municipal levels

Withholding Tax

Non-resident individuals and corporations are liable for 20% tax on dividends, interest, and royalties with 15% applying to bank deposits and other financial interactions.

Other Taxes

Exit Tax applies to individuals with assets of more than JPY 100 million (US$ 908,000) and those who have lived in Japan for more than five years in the previous 10 before departure. Individuals are also liable for Inhabitants’ Tax, usually at a flat rate of 10% applied at prefecture and municipal levels.

Japan Individual Tax – Single, Married

Taxation in Japan depends on residency, with individuals considered tax residents if they have lived in Japan for more than one year. A non-permanent resident is a non-Japanese citizen who has lived and worked there between one and five years in a 10-year period. They pay tax on locally earned income and foreign-earned income remitted into Japan.

A permanent resident is a Japanese individual or someone who has lived and worked in Japan for more than five years in a 10-year period and they pay tax on their Japanese and worldwide earnings.

Income tax withheld by employers is remitted to the National Tax Agency (Kokuzei-cho, NTA) and the relevant social insurance systems (Shakai Hoken), covering health insurance, employee pensions, unemployment insurance and accident compensation.

Resident individuals’ taxable income

From – in JPY (US$) – Not Over: Tax on Excess
0 – 1.95million (US$17,830): 5%
1.95million (US$17,830) – 3.3million (US$30,170): 10%
3.3million (US$30,170) – 6.9million (US$63,540): 20%
6.9million (US$63,540) – 9.0million (US$82,280): 23%
9million (US$82,280) – 18million (US$164,560): 33%
18million (US$164,560) – 40million (US$365,690): 40%
40million (US$365,690) and above: 45%

Taxable income includes salaries and income from interest, dividends and rentals, retirement income, capital gains, business income and any miscellaneous reimbursements. There are no joint returns for married couples and all tax returns are filed individually.

The tax year is January 1 to December 31 for residents and returns must be filed by March 15 of the following year or by mid-April if being paid by bank transfer.

Non-residents’ Japanese-earned income is taxed at a flat rate of 20.42%, without deductions being allowed, and individuals will be liable for Inhabitants’ Tax once they register as a resident.

Japan Entity Set Up

Establishing a subsidiary overseas is a potentially costly and time-consuming venture without any guarantee of success. Japan is no exception to these issues. Incoming companies would typically choose to set up a Limited Liability Company (LLC) known as a Godo Kaisha or a joint stock company (Kabushiki Kaisha, KK). After the initial step of registering a unique company name with the Ministry of Justice’s Legal Affairs Office there follows a daunting succession of registration procedures for onboarding and putting staff on the payroll.

Expanding overseas is a major step. If the move fails, companies face the extra expenditure and stress of closing the business, selling property, and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while moving into a new territory, maybe thousands of miles overseas.

Once the subsidiary is legally established, other crucial factors must be dealt with. Tax processing, filing accounts, legal compliance, workforce management, payroll and recruitment add up to a hefty workload.

How to set up a Japan Subsidiary

Any entity established in Japan is governed by the Companies Act and supplementary corporate governance laws. The most popular form for a subsidiary is a Limited Liability Company (LLC) known as a Godo Kaisha (GK) or a joint stock company (Kabushiki Kaisha, KK), which are modelled on western limited liability companies.

Requirements for a subsidiary include:

  • A Japanese resident, foreign or local, is appointed incorporator and must register a seal (Inkan) with the Trade Register to be used on official company documents, attach his own seal and apply for the Representative Seal ID card.
  • Articles of Incorporation are notarized in Japanese, which include full details of the company’s registered address and any shareholders.
  • The unique company name must be submitted to the Trade Register; can be in English but must include the Japanese characters for Godo Kaisha or Kabushiki Kaisha.
  • Paid-up capital is deposited in incorporator’s bank account.
  • All certified documents are submitted to the Legal Affairs Office of the Ministry of Justice.
  • The appointed incorporator transfers responsibilities to the company’s executive director or manager, who take possession of the Certificate of Incorporation and Representative Seal from the Legal Affairs Office.

Once ‘up and running’ other procedures include:

  • Remitting withheld taxes to the National Tax Agency (Kokuzei-cho, NTA).
  • Remitting social insurance deductions to the relevant social insurance systems (Shakai Hoken).
  • Withholding national income tax monthly.
  • Providing employees with an annual certificate of deductions (Gensen) in December each year.
  • Reconciling national and local taxes to assess for refunds or extra payments.

Benefits of setting up a Subsidiary in Japan

Foreign companies attracted by operating in Japan’s economy – the third largest in the world – will be entering a demanding marketplace. Therefore, setting up a subsidiary is the preferred route for exploring the opportunities of this exciting market.

The parent company has the advantage of investigating the potential of the Japanese market without committing to major capital investment. There is also the potential to move further afield into the Pacific Rim and Far East markets.

A subsidiary in Japan is incorporated either as a joint stock company (Kabushiki Kaisha, KK) or more typically as a limited liability entity Godo Kaisha (GK). These are separate legal entities from foreign parent companies.

Further benefits from taking this route include:

  • The subsidiary is a separate legal entity to the parent company
  • The subsidiary has the flexibility to operate under its own business name and pursue independent business activities once it has obtained any necessary licenses
  • The subsidiary will boost the international profile of the parent company
  • The subsidiary has the same legal standing as local companies and can be eligible for government tax incentives and benefits

The parent company is not liable for the obligations and debts of the subsidiary.

Japanese Market

Japan is the world’s third largest economy and has thrived on being a world leader in innovation and high-tech built on a tradition of hard work. Japan has a Gross Domestic Product of 5.38 trillion US dollars, while the population of 126 million creates a massive consumer market.

Strategically, its location in East Asia and the northwestern Pacific Ocean puts it in a prime position among Pacific Rim nations, in comparatively proximity to China, South Korea and Thailand with sea routes south to Australia and eastwards to the west coast of the USA.

But Japan is a challenging market for foreign corporations, not least due to the lengthy and complex procedures for registering a legal entity and multi-layered tax regime.

All of this – and more – makes Japan a challenging target for foreign companies planning a global expansion by establishing a legal entity subsidiary. Attempting to recruit staff in-country from thousands of miles away is hazardous; migrating staff from the home country brings into play masses of red tape surrounding work permits and work visas. New arrivals will have to adjust to a unique culture and workplace attitudes.

Starting a business in Japan

Incoming companies typically choose to set up a limited liability company (LLC) known as a Godo Kaisha, GK, or a joint stock company (Kabushiki Kaisha, KK). After the initial step of registering a unique company name with the Ministry of Justice’s Legal Affairs Office there follows a daunting succession of registration procedures for onboarding and putting staff on the payroll.

  • A Japanese resident, foreign or local, is appointed incorporator and must register a seal (Inkan) with the Trade Register for use on official company documents, attach his own seal and apply for the Representative Seal ID card.
  • Articles of Incorporation are notarized in Japanese, which include full details of the company’s registered address any shareholders (in the case of a KK) or ‘members’ for a GK.
  • The verified unique company name must be submitted to the Trade Register; it can be in English but must include the Japanese characters for Godo Kaisha or Kabushiki Kaisha.
  • Paid-up capital is deposited in incorporator’s bank account.
  • All certified documents are submitted to the Legal Affairs Office of the Ministry of Justice.
  • The appointed incorporator transfers responsibilities to the company’s executive director or manager, who takes possession of the Certificate of Incorporation and Representative Seal from the Legal Affairs Office.

Once the company is cleared to operate, other procedures include:

  • Remitting withheld taxes to the National Tax Agency (Kokuzei-cho, NTA).
  • Remitting social insurance deductions to the relevant social insurance systems (Shakai Hoken).
  • Filing returns for the tax year, which runs from January 1 till December 31.
  • Withholding national income tax monthly. Provisional payments may be necessary in July and November if an individual’s previous year’s tax liability exceeded JPY 150,000 (US$1,360).
  • If tax is not withheld, registered tax residents must pay instalments in June, August, October, and January of the following year.
  • Providing employees with an annual certificate of deductions (Gensen) in December each year.
  • Reconciling national and local taxes to assess for refunds or extra payments.

Expanding Business into Japan

Foreign companies expanding into Japan are entering one of the world’s powerhouse economies, but one where the unique business and social cultures creates other issues.

Japan is the world’s third largest economy with nominal Gross Domestic Product (GDP) of 5.38 trillion US dollars in 2021 and growth expected to accelerate during the latter stages of the year. Its geographic location in the northwestern Pacific Ocean makes it a major force among Pacific Rim nations, close to the markets of China, South Korea, and Taiwan, with sea routes to Australia and west coast USA.

The heavyweight contributors to Japan’s exports are motor vehicles, consumer electronics and computers, iron, and steel, with other key industries based on petrochemicals, pharmaceutics, shipbuilding, aerospace, banking and insurance, retail, and textiles.

This makes Japan a tempting target for foreign investment, but incoming companies must toe the line in terms of compliance with employment laws that provide unbreakable protections for the workforce. There are other questions too: where will you find distributors, manufacturers, and offices? Before you make your move – speak to Bradford Jacobs.

Japan Business Facts

  • Capital city – Tokyo
  • Population – 126 million
  • States – Eight states. Hokkaido, Tohoku, Kanto, Chubu, Kinki/Kansai, Chugoku, Shikoku, Kyushu (incl. Okinawa), divided into 47 prefectures (subdivisions)
  • Official Language – Japanese
  • Economy and world ranking – World’s third largest economy; GDP US$5.38 trillion
  • Leading sectors – Service industry, banking, retail, insurance, transportation, consumer goods, electronics, manufacturing, mining, IT, transport
  • Main exports – Cars and vehicle parts, integrated circuits, precision machinery, cargo, and passenger ships
  • Main imports – Crude petroleum and gas, coal briquettes, integrated circuits, and broadcasting equipment
  • Main trading partners – USA, China, South Korea, Australia, Taiwan, Thailand
  • Government – Constitutional monarchy and parliamentary government
  • Currency – JPY Japanese Yen

Advantages and Challenges of the Japanese Market

Advantages of expanding into the Japanese economy include:

  • Economy: Third largest in the world behind the US and China
  • Consumerism: Population of 126 million and consumers with disposable income and a liking for premium products, especially Western goods
  • Trading outlook: Keen to establish long-term international business partnerships
  • International business: Japan External Trade Organization (JETRO) aims to promote international trade and partnerships
  • Logistics:  Modern infrastructure of road and rail, fronted by 20 ports and five international airports for ease of exports and imports and potential for further expansion
  • Workforce:  Highly educated, motivated, loyal workforce with strong work ethic
  • Location:  Ideally placed for companies planning further expansion into the Pacific Rim region and Asia, with shipping routes to the US west coast and Australasia
  • Ease of doing business: The World Bank ranked Japan 29th out of 190 nations in 2020

Challenges of the Japanese market include:

  • Red tape: Multi-layered bureaucracy involving government and other authorities to set up business and establish payroll, where successive steps must be followed in the correct order
  • Demanding: Meeting high expectations of Japanese market
  • Business culture: Integrating into a strictly hierarchical work culture where formality, respect and etiquette play major roles
  • Taxation: Complicated Corporate Tax, ranked 123rd out of 190 nations by the World Bank
  • Transportation: Moving goods in-country has to negotiate topography that includes nearly 7,000 islands
  • Permits: Construction permits, up to six months, and registering properties are lengthy processes wrapped in red tape

Limited Company / Subsidiary or Branch in Japan?

International organizations planning expansion into Japan by setting up their own company, typically choose a limited liability company subsidiary, a Godo Kaisha (GK), with the other option being a branch office (Shiten).

Subsidiaries are a separate legal entity from foreign parent companies, which are generally free from responsibility for any debts or liabilities of the subsidiaries. Subsidiaries can have a totally different name from the parent company, pursue different business activities and form their own contracts. Subsidiaries are treated as resident for tax purposes but can benefit from double tax treaties. The parent company has the advantage of exploring the potential of the Japanese market without committing to major capital investment. There is also the potential to move further afield into the Pacific Rim and Far East markets.

Branch offices are an extension of the parent company and are generally of benefit only if the parent company needs an officially registered entity for opening bank accounts, for example. The branch will have to declare and pay corporation taxes.

Japan Contracts

International companies hiring employees for their international expansion into Japan face extensive tax, employment, and social insurance regulations. Failure to comply, risks fines and sanctions and, in the case of Japan’s employee privacy laws, even imprisonment. The employer-employee relationship is governed by the Labor Standards Law (LSL) and its Enforcement Ordinance, the Labor Standards Inspection Office (LSIO) with guidelines from the Ministry of Health, Labor and Welfare (MHLW).

These laws add up to an extremely protective environment for employees and employers will have to avoid many pitfalls in the ‘hiring and firing’ process … especially when it comes to firing.

In drawing up their agreement, parties cannot ‘opt out’ of statutory or mandatory requirements of the law and some specific requirements should be considered.

  • It is not a legal requirement for employees to have a formal written contract, but employers must provide a written agreement detailing essential factors of the working relationship.
  • The agreement must include salary and payment schedule, working hours and vacation entitlement, termination and disciplinary procedures, grounds for dismissal.
  • The contract does not have to be in Japanese, but in the case of translations only the Japanese version may be legally valid.
  • Employee contracts are usually Permanent / Regular (Sei-sha-in) or Fixed-Term / Contract (Keiyaku-sha-in).
  • Employees continuously employed by the same employer on fixed-term contracts for more than five years are able to switch to a permanent contract under the ‘conversion rule’.
  • Where a company employs more than 10, workplace rules must be filed with the LSIO

Employment Contracts in Japan

The main types of contracts in Japan include:

  • Permanent or Regular Employee Contracts (Sei-sha-in): These are preferred by employees, but harder to terminate for employers.
  • Fixed-Term or Project-based Employee Contracts (Keiyaku-sha-in): Such contracts are for specific projects or periods, and easier for employers to terminate arrangements simply by not renewing. Employees are generally entitled to same benefits as permanent employees. A fixed-term contract should not exceed three years unless it is tied to completing a specific project. An exception includes where an employee possesses ‘highly specialized skills’ or is over 60 years old, in which case the contract can be for five years.
    Employees continuously employed by the same employer on fixed-term contracts for more than five years are able to switch to a permanent contract under the ‘conversion rule’.
  • Probationary or Trial Periods: The trial period is usually between three and six months and cannot exceed one year. The trial can be put in place before the potential employee is officially engaged but must be used to assess suitability for intended role. Employers may find it hard to justify termination at the end of the trial period as the individual will be treated under the same laws for dismissal as a full-time employee under the Labor Standards Law.
  • Temporary Staff Contracts or Agreements (Haken-shain): These apply to individuals hired out to companies by agencies and can apply to those having one or two jobs with different companies, or a person employed full-time with a company. In this case contracts are usually for three or six months and can be renewed by the company/agency up to a maximum of three years. After this the company must decide whether or not to offer their own contract to the employee.
  • Youth Employment: The Labor Standards Law bans employment of under-15s unless involved in film, theatre, or artistic performances. Under-18s may work out of school hours only in light labor roles that do not involve hazardous surroundings or working underground.
  • Collective and Trade Union Agreements: The norm in Japan is for collective agreements to be negotiated at company level and not nationwide or across different sectors or industries. An exception is the ‘spring wage offensive’ (Shunto), which aims to secure national and industry minimum wage agreements. Labor unions liaise on their joint demands before negotiations begin with employers.

The Labor Union Act bars employers from refusing to take part in collective negotiations, although the process is not formally regulated.

Employee Benefits

Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Japan might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Japan including local benefits.

When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few.

What are Employee Benefits in Japan?

Japan’s compensation laws offer strong protection to employees. They are governed by the Labor Standards Law (LSL) and the Enforcement Ordinance, the Ministry of Health, Labor and Welfare (MHLW) and the Labor Standards Inspection Office (LSIO). Other statutes protecting employees’ rights include the Labor Union Act, Labor Contracts Law and the Industrial Health and Safety Act.

The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Specific regulations apply to minimum wages, working hours, benefits, vacations and termination and severance payments, with the risk of fines and sanctions for non-compliance.

It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect contract negotiations.

What Compensation Laws exist in Japan?

In Japan an extensive framework of employment laws and regulations guarantee employees enjoy protection in various areas. Legislation covers such as minimum wages, social insurance, redundancy, termination, and severance, working hours, vacation leave, maternity, and paternity issues and more. Statutory and mandatory minimums cannot be undercut by collective or trade union agreements that are concluded with employer organizations, although they can improve entitlements for employees.

Drawing up contracts is tricky enough, but in Japan it is vital to fulfil responsibilities to your employees over benefits, compensation, and minimum requirements. Do not take the risk of ignoring them. Compensation and benefits include:

  • Social Insurance:  Social security contributions are jointly made by employers and employees at a capped rate of around 31-32% during 2021. The Japanese Government also contributes to the social security system, with about 34% going to healthcare plus unemployment, pensions, nursing care and accidents.
  • National Minimum Wage: The minimum wage for 2020/21 is JPY 156,173 (US$1,460) per month and with 12 payments a year equaling JPY 1.87 million (US$17,097) annually – an increase on 2019 of 2.3%. However, rates differ between the 47 prefectures, also within industries due to collective agreements but the higher rate is paid regardless of age, sex, or citizenship. In July 2021 the government proposed to increase the hourly minimum wage by a record JPY 28 (US$0.25) to JPY 930 (US$8.40). Regional differences will still apply, although the government is determined that the absolute hourly minimum should be JPY 800 (US$7.27) per hour.
  • Working Hours and Breaks:  The Labor Standards Law (LSL) states employees can work a maximum of eight hours a day or 40 a week. Under labor agreements, flexible hours can be approved without extra hours being counted as overtime; also, they can establish when a workday starts and finishes. The law allows for one rest day per week or four over four weeks. Employees are allowed a 45-minute break if they work between six and eight hours in a day and one hour’s rest for more than eight hours worked.
  • Holiday / Vacation Leave:  Mandatory minimum paid vacations for full-time employees vary between 10 and 20 days depending on length of service. Employees are entitled to 10 days holidays when they have worked six months, a minimum of 30 hours per week with at least 80% attendance rising to 20 days after six and a half years.
  • Maternity / Paternity Leave: The allowance for maternity leave is six weeks pre-natal (98 days or 14 weeks for multiple births) and eight weeks post-natal. Social insurance covers maternity allowance at 66% of salary, with provision for an extra week in case of late delivery. In June 2021 the government brought in a more flexible law to come into force in October 2022. This provides a total of four weeks, which can be split into two periods, within eight weeks of the birth. The Child Leave Plan covers up to 80% of salary. Previously, fathers were allowed one year’s paternity leave with two-thirds on full pay but only 3% took up the option.
  • Redundancy, Termination and Severance:  Employment can only be terminated for ‘just cause’ under the Employment Contracts Law. Employers must give 30 days’ notice to terminate a fixed-term contract if it has been renewed three times or the employee has worked for at least one year. Severance pay is not a legal requirement and is usually covered contractually.
  • Overtime: This applies to hours worked over eight a day or 40 a week or if employees work holidays unless they are working flexible hours under a labor agreement.  The Basic Overtime Rule stipulates overtime cannot exceed 45 hours monthly or 360 hours annually. The Extended Limit Rule gives flexibility under special circumstances (e.g., to cover a busy period) but hours still must not exceed 100 per month and average 80 hours over six months). Additional pay above the normal hourly rate is 25% extra during daytime or night work; 35% for weekends and holidays. Working overtime at night and on a holiday brings a 60% increase on normal hourly rate.

Social Security in Japan

Social security contributions are jointly made by employers and employees at a capped rate of around 31-32% during 2021.

The Japanese Government also contribute to the social security system, with about 34% going to healthcare plus unemployment, pensions, nursing care and accidents.

Employer Statutory Costs in Japan

Contributing towards employees’ social security benefits are among statutory employer costs in Japan. Monthly percentage deductions from employees’ salaries, for 2021, are:

Insurance Type | Contribution | Monthly maximum JPY (US$)

Health Insurance
On salaries | 4.935% | 68,597 (US$630)
Over 40 years old | 5.83% | 81,037 (US$743)
On bonuses | 4.935% | 282,776 (US$2,595) per year
Over 40 years old | 5.83% | 334,059 (US$3,065) per year
Welfare Pension Insurance
On salaries | 9.15% | 56,730 (US$520)
On bonuses |9.15% | 137,250 (US$1,259)

The above is matched by the employee’s deductions. Other employer contributions, as of April 2020, can total between 1.1% and 12%.

Consumption Tax:

Japanese companies are taxed on their worldwide income at varying Corporate Tax rates. The first
JPY 8million (US$73,140) per year is taxed at 15% and above JPY 8million at 23.2%; this rate also applies to companies with paid share capital over JPY 100 million (US$ 910,540). Local corporate tax is also paid at 10.3%, plus Inhabitants’ Tax and Enterprise Tax at prefecture and municipal level taking the total to over 36% for companies earning over JPY 8million (based in Tokyo).

Minimum Wage

Employers must also meet the statutory cost of paying their employees the national minimum wage. This is set at JPY 156,173 (US$1,427) monthly, although the rate varies between the 47 prefectures and tends to be higher in urban areas compared with rural regions.

Japan Top Talent

Finding, recruiting, and onboarding top talent in any overseas territory creates many issues for companies planning international expansion. Japan’s geographical location and unique work culture pose more questions than most. This certainly applies to Japan where the Labor Standards Law (LSL) stipulates statutory employment guarantees that you will have to consider when recruiting staff.

This underlines why Bradford Jacobs’ global experience in recruiting the best candidates for your company is indispensable for taking the smartest route into the Japanese market. Our expertise in international recruitment is indispensable for expansion into Japan’s economy – the third largest in the world.

Bradford Jacobs’ benchmark platforms as a Professional Employer Organisation (PEO) have worldwide reach and include a total understanding of the challenging complexities of the Japanese economy and employment market. You can trust Bradford Jacobs to put the brightest talent in place for your company.

The Recruitment Process in Japan

The first stage of making your company operational in Japan is recruiting the staff. It is vital to know where to locate the best talent who will be a perfect fit for your company’s plans.

Referrals play a major role in corporate recruitment in Japan, alongside the traditional route of sourcing top level university graduates for specific roles. Selection criteria to find the right people for the role is critical as Japanese employment laws are heavily weighted toward employees, making termination a prolonged and potentially hazardous process.

Japan has an ageing population, so a steadily growing economy and increased job opportunities must be balanced against a numerically static workforce. Competition is fierce to source the highest-level candidates.

Company loyalty figures strongly among Japanese and it is still not unusual for an employee to expect lifelong employment with one organization. Migrating expats into Japan offers one route around these cultural hurdles, but that leads to the complexities of work permits and visas.

You will have a lot of questions, and the answers do not come easily. Once the right employees are found, employers must follow strict registration procedures for their new staff. These include:

  • Registering with the National Tax Agency (Kokuzei-cho, NTA) and the relevant social insurance systems (Shakai Hoken) to remit withheld taxes
  • Registering employees with the Labor Standards Inspection Office
  • Remitting withheld taxes to the National Tax Agency (Kokuzei-cho, NTA)
  • Remitting social insurance deductions to the relevant social insurance systems (Shakai Hoken)
  • Filing returns for the tax year, which runs from January 1 till December 31
  • Local employers withhold national income tax on a monthly basis. Provisional payments may be necessary in July and November if the previous year’s tax liability exceeded JPY 150,000 (US$1,360). If tax is not withheld, registered tax residents must pay instalments in June, August, October, and January of the following year
  • Providing employees with an annual certificate of deductions (Gensen) in December each year
  • Reconciling national and local taxes to assess for refunds or extra payments
  • Applying for employees’ special expatriation status (if applicable)
  • Calculating employees’ monthly salary and sending their pay slips
  • Researching for any available tax incentives
  • Submitting employees’ or employers’ wage tax returns and social insurance forms
  • Creating and submitting your company’s annual accounts and year-end statements
  • Creating payment schedules for wage tax, national insurance, and net wages
  • Ensuring accurate personal income tax returns are filed for you and your employees

The recruitment process is time-consuming and requires dedication – a difficult task when faced with a host of other complicated issues involved in international expansion. By engaging Bradford Jacobs as your Employer of Record (EOR) we will provide all the answers. We will convert your expansion blueprint for Japan into an action planwith a few simple steps, including:

  • Bradford Jacobs locates the ideal employees for your company, then steps in as EOR to ensure they comply with Japanese employment contracts law, payroll, HR, visa requirements and permits (if required)
  • We manage all work-related registration formalities and on-going employment issues while you have daily control of your employees

The employees complete their time sheets, and any expenses claims, and we invoice you, the client. Once paid, we deduct all contributions to the relevant Japan authorities and transfer the balance into the employees’ accounts

Legal Checks on Employees in Japan

There is no codified law governing checks on prospective employees, but individual legislation does apply limits, such as in the Act on the Protection of Personal Information (APPI) and the Labor Standards Law (LSL). The depth of checks depends on the role, and employers may use an agency to conduct searches.

Criminal Record Checks: These are neither prohibited nor encouraged by the labor regulations as such information is not publicly available. There must be an irrefutable need to obtain such information for certain occupations and this can be obtained only with the applicant’s permission.

Discrimination:  The LSL prohibits discrimination during recruitment, employment or as grounds for termination based on age, nationality, or ethnicity, religious or political beliefs, age, disability, or social status.

Privacy:  Protection of employee’s data and personal information is governed by the Act on the Protection of Personal Information (APPI). Employers are expected to have privacy protocols in place. Contravening the guidelines risks up to six months’ jail or fines of JPY 300,000 (US$2,720), while misusing information dishonestly or for criminal purposes carries the threat of one year’s imprisonment and up to JPY 500,000 (US$4,540).

Permitted checks include:

  • Verify the legal status of a candidate to work in Japan
  • Enquire about medical history where it is relevant to the position and with the applicant’s permission
  • Verify accuracy of CVs and educational qualifications with the candidate’s permission

Basic Facts on Hiring in Japan

  • Employer’s pre-hire interview questions must come within the guidelines of the Act on the Protection of Personal Information (APPI) and the Labor Standards Law (LSL), at the risk of fines for contravention.
  • Terms and conditions of employment come under the LSL, which governs the employer-employee relationship with foreign staff as well as Japanese employees.
  • Employer-employee relationships in Japan are legally bound by the LSL and its Enforcement Ordinance, the Labor Standards Inspection Office (LSIO) with guidelines from the Ministry of Health, Labor and Welfare (MHLW). Employment practices have also been established by case law.
  • The Employment Contracts Law does not stipulate that a contract must be drawn up in Japanese, but in the case of legal dispute only a Japanese version may be valid.
  • Under LSL regulations an employer does not have to provide a formal written contract but must create a written agreement detailing such as salary and payment schedule, working hours and vacation entitlement, termination and disciplinary procedures, grounds for dismissal.
  • Where a company employs more than 10, workplace rules must be filed with the LSIO.
  • Both employer and employee must be registered with the National Tax Agency (Kokuzei-cho, NTA) and the relevant social insurance systems (Shakai Hoken), covering health insurance, employee pensions, unemployment insurance and accident compensation.

Beyond this, employers must comply with the minimum requirements laid down by the LSL, guaranteeing employees’ rights and entitlements in such as:

  • Employers must comply with minimum wage laws. Japan’s monthly national minimum wage in 2021 is JPY 156,173 (US$1,427) although the minimum rate can vary between the country’s 47 prefectures and tends to be higher in urban areas compared with rural regions.
  • Working hours are eight hours per day for a 40-hour week, but most Japanese work longer, which partly led to new laws on overtime from April 2020.
  • The Basic Overtime rule stipulates overtime cannot exceed 45 hours monthly or 360 hours annually. Under special circumstances, the Extended Limit Rule states that hours must not exceed 100 per month and average 80 hours over six months.
  • Mandatory minimum paid vacations for full-time employees vary between 10 and 20 days depending on length of service. Employees are entitled to 10 days in their first year, provided they have worked at least six months and a minimum of 30 hours per week with at least 80% attendance.
  • The allowance for maternity leave is six weeks pre-natal (98 days or 14 weeks for multiple births) and eight weeks post-natal. Social insurance covers maternity allowance at 66% of salary, with provision for an extra week in case of late delivery
  • Under the Employment Contracts Law there is generally a minimum 30 days’ notice of termination or pay in lieu. Dismissal for serious misconduct does not require notice but needs prior consent from the Labor Standards Inspection Office.
  • There is no statutory entitlement to severance pay which is generally a contractual agreement.

Work Culture

To succeed in business in Japan, it is vital for both employers and employees to have a strong understanding of the business culture. As a global PEO (Professional Employment Organization) it is our goal to be familiar and updated with the business culture in the country we work with and in. By sharing our knowledge about Icelandic work culture, we want to support your global expansion plans. Therefore, we will address all the aspects of the work culture in Japan to start your expansion well-informed.

Companies targeting Japan for their international expansion plans must have total understanding of the country’s unique work culture and business environment. This is a ‘big ask’ for such an intriguing and complex nation. Questions must be tackled before entering this major player on the world’s economic stage.

Japan is the world’s third largest economy with nominal Gross Domestic Product (GDP) of 5.38 trillion US dollars in 2021. Its East Asian location in the northwestern Pacific Ocean makes it a prime mover among Pacific Rim nations, close to the markets of China, South Korea, and Taiwan, with sea routes to Australia and west coast USA.

Incoming employees, however, must be prepared to work as hard in adjusting to the business and workplace culture as to their actual role. Company organisation is strictly hierarchical, with each management level knowing its place in the business structure and always deferring to seniority. Patience is key in building trusting relationships.

It’s time to ‘get down to business’ Our guide to work culture and business etiquette in Japan will help you take those important first steps.

  • Punctuality: As in most business environments, being on time is essential. Japanese consider it rude to be late. Plan journey times and allow for the traffic, to be sure you arrive on time for the meeting. Call an hour or so before to confirm you are on the way – you will come across as very efficient.
  • Language: Japanese is the official language of business; be prepared to engage an interpreter if you or your team leader is not fluent.
  • Business Relationships: Politeness, respect and trust will figure prominently in building the relationship. During the initial meeting, ask relevant questions about the company (even though you will have researched it), take notes and show intense interest. The host will appreciate it. If unsure where to place yourself around the table, wait to be shown as this will again show respect.
  • Introductions and Greetings: The first meeting might seem overly formal as your counterpart will not know you. Maintain some distance and greet with a slight bow – Japanese are unlikely to shake hands initially. Similarly, be sure to greet the most senior member of the Japanese team first, with a slight nod of the head, avoiding excessive eye contact. Always wait for your opposite number to offer a hand. Japanese family names are first followed by the given name, e.g., Nakamura Akita, and address counterparts by family name, or Nakamura-san, until offered to use their given name.
  • Business Cards: Exchanging business cards (meishi) establishes all-important status and rank. Offer with two hands and a slight nod and politely look at the name and title on the one you receive. Your card should be in both languages and always offer the Japanese side uppermost.
  • Gift-giving: Offering small gifts is part of the protocol, but it is the ritual that is important, not the gifts value. Once exchanged, gifts are opened in private.
  • Dress Code: Business wear is formal; dark suits, white shirts and ties for men, dark dresses, or suits for women. But avoid black suits and ties and that is strictly funeral attire.
  • Negotiating the Deal: Patience is key in laying the groundwork as your Japanese counterpart may retreat from openly disagreeing with you. Pre-meeting, confirm the agenda and stick to the deadline – you will likely have been allocated a specific time slot.
  • Business Meals: These are often the venues where the ‘real deal’ is on the menu. Etiquette plays its part here too. Do not insert chopsticks into the food between mouthfuls but leave them at the side of the plate. If your glass is empty wait for the host to refill it; if you have had enough, leave a little at the bottom of the glass.

Japan’s Minimum Wage

The minimum wage for 2020/21 is JPY 156,173 (US$1,460) per month and with 12 payments a year equaling JPY 1.87 million (US$17,097) – an increase on 2019 of 2.3%. However, rates differ between the 47 prefectures, also within industries due to collective agreements but the higher one is paid regardless of age, sex, or citizenship. In July 2021 the government proposed to increase the hourly minimum wage by a record JPY 28 (US$0.25) to JPY 930 (US$8.40). Regional differences will still apply, although the government is determined that the absolute hourly minimum should be JPY 800 (US$7.27) per hour.

Probation Periods in Japan

Probationary or trial periods are quite common, but not obligatory, in Japan to allow the employer time to assess the abilities of newly hired staff. Generally, these are between three to six months, although it can be reasonably extended for further evaluation up to a maximum of one year.
At the end of the trial period, the employer must give reasonable cause for not hiring the probationer, especially if there has been an extension.
The individual will be treated by the same laws for dismissal as a full-time employee under the Labor Standards Law.

Working Hours in Japan

The Labor Standards Law (LSL) states employees can work a maximum of eight hours a day or 40 a week. Under labor agreements, flexible hours can be approved without extra hours being counted as overtime; also, they can establish when a workday starts and finishes.

The law allows for one rest day per week or four over four weeks. Employees are allowed a 45-minute break if they work between six and eight hours in a day and one hour’s rest for more than eight hours worked.

Overtime in Japan

Overtime is defined by hours worked over eight a day or 40 a week or if they work holidays unless employees are working flexible hours under a labor agreement.

The Basic Overtime Rule stipulates overtime cannot exceed 45 hours monthly or 360 hours annually. The Extended Limit Rule gives flexibility to the basic rule under special circumstances (e.g., to cover a busy period) but hours still must not exceed 100 per month and average 80 hours over six months.

Additional pay above the normal hourly rate is 25% extra during daytime or night work; 35% for weekends and holidays. Working overtime at night and on a holiday brings a 60% increase on normal hourly rate.

Contact Us

Join Our Newsletter

Stay up to date with latest service offerings while receiving tips and strategies for making your next remote hire.

JOIN US