Japan Legislation
Japan is home to some of the world’s largest multinational companies including some of the most globally recognisable names like Sony, Softbank and Toyota. Being the world’s third largest economy with one of best educated and innovative populations, Japan continues to be an excellent place for business! The nation has also implemented various measures to attract foreign companies, creating a better business environment. To help business leaders navigate the tricky local rules and regulations, Links has created a legislation page to cover the main employment laws and practices of Japan.
Please note that all the information listed below is to be used as a general guideline. For more detailed accounts of laws and regulations, please visit official governmental websites.
Company Setup
There are 3 types of business forms for foreign companies in Japan: subsidiary, branch, and representative office.
Subsidiary companies can be broken down to 2 options, a KK (kabushiki-kaisha) or GK (godo-kaisha), standing for joint-stock corporation and limited liability company consecutively. Each type of business has different setup and registration requirements.
Newly established subsidiary companies and foreign corporations establishing new branch offices in Japan must submit the application for approval no later than the day prior to either the day following three months since and including the date of the establishment of the corporation/branch or the last day of the corporation’s/branch’s initial taxable year after establishment, whichever comes first.
Company bank accounts can be set up once the legal entity has been incorporated – as documents such as the company registration certificate and local company seal are required.
Benefits of Registering a Company in Japan
Developed Infrastructure
Japan was the first country to industrialise and develop into an economic powerhouse in Asia. The world-class infrastructure and strong logistics foundation provide all the necessary framework for businesses. With all major cities linked by a web of high-speed railway and the country boasting one of the world’s best telecommunications network, Japan offers one to the best environments.
Asia’s Rise
The development of Asia in recent years has shifted to attention for investment east. As countries in close proximity has developed and start to become increasingly bigger players on the world stage, Japan will benefit from its position.
Excellent Workforce
Around 50% of the population has a tertiary degree in Japan, making it one of the best educated countries in the world. The population is also known for being industrious and innovative, creating an exceptional talent pool.
Read More: Top 5 Reasons to do Business in Japan
Considerations when Starting a Company in Japan
Once the first employee has been onboarded to the local entity, a registration application must be submitted to enrol the company and employee into social & labour insurance. Social insurance is comprised of health, pension, nursing, and child care insurance. Labour insurance is comprised of employment insurance and workers’ accident insurance. Both employee and employer are responsible for payment of these insurances.
Labour Law in Japan
Employees’ Compensation
Employees must be paid at least once a month on a designated pay date.
Work Permits
For foreigners to work in Japan, they must be holding a valid work visa. Working visas are usually categorised into a defined professional field i.e. engineer, instructor, researcher, etc. A COE (Certificate of Eligibility) obtained prior to arriving in Japan, in addition to a company job offer are important factors for the visa application process.
In addition to the general working visa category, the Japanese government has also introduced a “Specified Skills Visa” to encourage foreigners to fill in gaps for labour sectors. Some industries which fall under this category are: agriculture, shipbuilding, construction, etc.
Minimum Wages
¥901 JPY per hour (National Average) – Varies Dependent on Prefecture.
Maximum Working Hours
The statutory working hours is usually from 9am-6pm, with 1-hour break in between. Simply speaking, 8 hours a day and 40 hours a week. However, some companies also provide a benefit of shorter or flexible working hours.
Paid Annual Leave
An employer shall grant annual paid leave to workers who have served continuously for 6 months or more whenever they want. The minimum number of days of annual paid leave granted and the wage due to workers who have reported for work at least 80 % attendance of total working days in their continuous service are as follows:
Unused paid leaves can be carried over to the next year, and will expire if not taken by 2-year mark.
Termination
Both employee and employer have the power to terminate the employment contract. Employees are generally allowed to terminate the contract after giving a two-weeks’ notice. Due to the short time frame, employee and employer may be able to negotiate a longer notice period depending on the circumstances.
However, employers must give at least 30-days’ notice upon termination and can only be done after satisfying several criteria. The burden of proof is on the employer in case of a dispute. In addition, as it is exceedingly difficult to judge the validity of dismissal in concrete cases, it is recommended that employers first obtain the advice of a specialist in labour law (such as an attorney or labour and social security attorney).
Severance Payment & Long Service Payment
Employees are applicable for severance pay depending on company policy. This is calculated separate from regular payroll due to lower tax rates and removal of social/labour insurance deductions as a benefit to the employee.
Employees
Benefits In Kind
Employers are not obligated to provide employees with additional medical insurance and additional housing fund. It’s a choice for companies to provide these as benefits to their employees.
Share Options
Some companies may provide Shares to employees as additional benefits.
New Employees
For each new joiner, the employer is required to do the Social Security Enrolment for the employee, which will be effective on the first day of their joining.
Discrimination Laws
The Employment Security Law prohibits employers from discriminating against person because of:
- Previous Profession
- Membership of a Labour Union
- Race
- Nationality
- Creed
- Sex
- Social Status
- Family Origin
Equal Employment Opportunity Act promotes equal opportunity and treatment between man and women in employment.
Statutory Benefits
Six weeks before giving birth and eight weeks after the birth with pay of 66% regular salary.
Up to 12 months of parental leave taken by either father or mother at 50% of regular salary
Not mandatory, however many companies provide this paid leave as a benefit in addition to annual leaves.
Employees are entitled to up to 5 days of marriage leave.
Full-time employees must be provided with bereavement leave. Length of leave is based on relationship with the deceased (Up to 5 days).
Tax
Financial Filing
Companies must perform year-end tax adjustment for their employees. Any overpaid or underpaid tax will be adjusted within December or January payroll.
Residents that earn more than 20 million JPY must submit their own individual tax returns each year. Tax owed must be paid between February 16 and March 15 of the following year.
Non-residents file and pay taxes following the same regulations as residents.
Factors Affecting Income Tax Calculations:
- Dependent form submission and dependants
- Individual’s status: working student, disabled, widowed
Whether spouse is applicable as tax dependent on not (also determined where employee’s annual income falls)
Income Tax Calculation
Calculation Method
- Use tax matrix chart
- There are 2 main types of tax calculations: kouran and otsuran
- “Kouran” is the normal standard income tax rate
- “Otsuran” is a higher tax rate, for when employees do not submit dependent form or get paid after resignation
Amount to be taxed from monthly wages is: gross income – social & labour insurances
Tax Payment to Authority
Companies must pay withholding income taxes on a monthly basis. Companies with less than 10 employees can file for “Notoku” status, which allows them to pay income taxes in 2 instalments per year.
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Payment
Bank Accounts and Paying Salaries
Employers pay employees via wire transfer to their personal bank accounts.
Bonus Payments
It is not required but usual for companies to pay a 13th and 14th month bonus to employees. This usually occurs once in the winter and once in the summer.
Insurance
Health Insurance
- Eligible up to age 75, for full-time workers or those working ¾ of full-timers
- Cost is split 50-50 between employee and employer
- Coverage for 70% of medical expenses for employee (and any dependants)
- Lump-sum allowances paid for: child birth, burial, daily allowances on sick & maternity leave
Pension Insurance
- Eligible up to age 70, for full-time workers or those working ¾ of full-timers
- Cost is split 50-50 between employee and employer
- Coverage for pension to be received by employee after reaching age of 65. It will also cover if employee is unable to work due to disability, as well as for surviving family if employee deceases. In relation, child upbringing insurance is calculated and contributed by company based on pension insurance.
Nursing Insurance
- Eligible for those aged 40-64, for full-time workers or those working ¾ of full-timers
- Cost is split 50-50 between employee and employer
Unemployment Insurance
- Eligible to workers of all ages, except for full-time students and representative directors
- Applies for those working at least 20 hours per week and expected to be employed for more than 31 days
- Employee contributes 0.3% and employer 0.6%
- Covers allowance for child-care leave when employed, as well as unemployment benefits
Workmen’s Insurance
- Eligible to workers of all ages, except for representative directors
- No employee contribution
- Premium rate is determined on industry of company
- Annual filing and payment of premiums required for all businesses
- Coverage for when an employee gets injured to, from, or during work
- Asbestos victims’ contribution is also included
Local Information
Japan Public Holidays 2021
Employees are entitled to public holidays as follows:
| National Holiday | Date |
|---|---|
| New Year’s Day | January 1 |
| Coming of Age Day | January 11 (Second Monday in January) |
| National Foundation Day | February 11 |
| Emperor’s Birthday | February 23 |
| Vernal Equinox Day | March 20 |
| Shōwa Day | April 29 |
| Constitution Memorial Day | May 3 |
| Greenery Day | May 4 |
| Children’s Day | May 5 |
| Marine Day | July 22 (Date changed for 2021) |
| Sports Day | July 23 (Date changed for 2021) |
| Mountain Day | August 8 (Date changed for 2021) |
| Respect for the Aged Day | September 20 (Third Monday in September) |
| Autumnal Equinox Day | September 23 |
| Culture Day | November 3 |
| Labor Thanksgiving Day | November 23 |
Local Office Working Hours and Time Zone
Standard Time Zone: UTC/GMT +9 Hours