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Payroll & Tax in Japan

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Japan payroll & taxation

There are specific rules for payroll and taxation in Japan, and must be followed precisely at both the national and local levels.  The primary concerns for a foreign company that needs to comply with tax laws in Japan are: individual income tax (for employees in Japan), public welfare pension costs, health insurance, payroll tax, sales tax, business tax and permanent establishment concerns.

Your Payroll Options in Japan

Remote Payroll

A remote payroll in Japan is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Japan.   One option for a non-resident company to payroll its employees (local and foreign) in Japan is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Japan under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Japan may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a Japanese payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Japanese employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Japan to a GEO, like Shield GEO. This is possible for both foreign workers and Japanese nationals. This is the easiest, fastest and safest way to payroll staff in Japan.

Shield GEO manages all aspects of payroll for workers in Japan, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Japan

Information Explanation
Currency ?

Japanese Yen - ¥

Corporate Income Tax Rate

25.5%

Sales Tax

8%

Withholding Tax

Dividends: 20%

Interest: 15-20%

Royalties: 20%

Rents (from real properties): 20%

Other Tax

Local inhabitant tax is made up of prefectural tax (4%) and municipal tax (6%).

Tax Figures

Information Explanation
Corporate Income Tax ?

25.5%

Income Tax Rate ?
Grossed income Tax Rate (%)
1 - 1,950,000 ¥ 5%
1,950,001 - 3,300,000 ¥ 10%
3,300,001 - 6,950,000 ¥ 20% of base exceeding 3,300,000
6,950,001 - 9,000,000 ¥ 23% of base exceeding 6,950,000
9,000,001 - 18,000,000 ¥ 33% of base exceeding 9,000,000
18,000,001 - 40,000,000 ¥ 40% of base exceeding 18,000,000
Over 40,000,000 ¥ 45% of base exceeding 40,000,000
Sales Tax ?

8%

Withholding Tax ?

Dividends: 20%

Interest: 15-20%

Royalties: 20%

Rents (from real properties): 20%

Employee Social Security (EE SS)

Half of the pension insurance premium of 17.828% must be paid by the employee.

Employer Social Security (ER SS)

Social insurance  premiums are deducted from a salaried worker’s monthly salary. A pension insurance premium for salaried workers is  imposed at 17.828%, half of which must be paid by the employer. Employer covered worker’s accident compensation insurance varies between 0.3% to 10.3% depending  on a company’s industry.

Japan

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