Japan — Hiring & Payroll Setup

When a foreign corporation hires or deploys personnel in Japan, the threshold question for tax and entity-registration purposes is whether the activity creates a permanent establishment (PE) — a taxable presence triggering corporate income tax, local corporate inhabitant tax, and enterprise tax obligations in Japan. A foreign corporation with a PE in Japan is liable for Japanese corporate taxes only on income attributable to that PE; without a PE, the foreign corporation is generally subject only to withholding tax on certain enumerated Japan-source income (dividends, interest, royalties). The PE determination therefore dictates whether the employer must register a branch, file Japanese corporate tax returns, and comply with local transfer-pricing and reporting rules.

PE categories under Japanese law

Japan's domestic tax law groups foreign corporations into categories based on the nature of their taxable presence. Permanent establishments (PEs) are defined as locations, sites, or agents of the foreign corporation falling under the following categories:

1. Fixed place of business — Foreign corporations having a certain fixed place of business such as a branch, sub-branch, business establishment, office, or factory in Japan. Fixed places used solely for preparatory or ancillary functions (such as storage, display, or delivery of goods) are excluded from the PE definition.

1. Construction, installation, assembly PE — Construction, installation, assembly projects, or supervisory services related thereto, lasting more than one year. Projects of one year or less do not constitute a PE under this category.

1. Agent PE — The foreign corporation operates through agents in Japan who meet one of the following tests:

• Agents having and frequently exercising authority to conclude business agreements on behalf of the foreign corporation; • Agents storing assets on behalf of the foreign corporation in volume or quantity corresponding to ordinary customer requirements and delivering those assets on customer request; or • Agents who regularly carry out an important portion of the work required for order acquisition, consultation, or other contract-related activities solely or primarily on behalf of the foreign corporation.

An independent agent (such as a broker acting in the ordinary course of business for multiple unrelated principals) is excluded from the agent-PE category.

Mandatory tax notification

When a foreign corporation establishes a Japanese branch or other fixed place of business (category 1 above), it must submit a tax notification to the competent district tax office within a prescribed period after establishment. Tax notification is also required when a foreign corporation generates income subject to corporate tax in Japan without establishing a registered branch — for example, through an agent PE or a construction project exceeding one year. The notification does not create the PE; the PE arises from the underlying facts. Failure to notify can result in retroactive assessment, penalties, and interest.

Treaty overlay

Where Japan has concluded a tax treaty with the foreign corporation's country of residence, the treaty definition of PE prevails to the extent it is more favorable to the taxpayer. Japan's treaties generally follow the OECD Model Tax Convention framework (Article 5), which may narrow or modify the domestic-law PE definition. Employers should confirm whether an applicable treaty provides relief — for instance, through higher time thresholds for construction PE, narrower agent-PE tests, or specific carve-outs for preparatory and auxiliary activities.

Remote work and home-office risk

A foreign corporation permitting an employee to work remotely from Japan on a sustained basis may create a fixed-place PE if the Japan location is at the disposal of the enterprise and the employee performs core (rather than preparatory or auxiliary) business functions. Relevant factors include whether the Japan-based employee has authority to conclude contracts, whether the employee performs commercially decisive activities (such as negotiating terms or finalizing pricing), and the permanence and regularity of the arrangement. The analysis is fact-specific. Many Japan tax treaties include service-PE provisions or time-based thresholds that can modify or clarify the domestic-law result.

Practical implication for cross-border hiring

If a PE is created, the foreign corporation must:

• Register with the National Tax Agency and submit tax notifications;
• File Japanese corporate tax returns on income attributed to the PE (on an arm's-length, separate-enterprise basis);
• Register for and pay corporate inhabitant tax and enterprise tax at the prefectural and municipal levels; and
• Maintain Japanese-language books and records.

Many foreign employers facing PE exposure elect to incorporate a Japanese subsidiary (Kabushiki Kaisha or Gōdō Kaisha) or engage an employer-of-record (EOR) service licensed in Japan, which employs the individual on its own payroll and invoices the foreign principal for services, thereby avoiding direct PE risk for the foreign entity.

Source: JETRO, Overview of corporate income taxes (Section 3.3)

When an employer hires an employee in Japan, immediate enrollment into the Employees' Pension Insurance (EPI, kōsei nenkin hoken, 厚生年金保険) and Employees' Health Insurance (EHI, kenkō hoken, 健康保険) is mandatory for eligible workers. Both are core components of Japan's shakai hoken (社会保険, social insurance) system, providing retirement and health coverage.

Coverage and Recent Legal Changes

• Corporations and Major Incorporated Entities: Must enroll all eligible employees, irrespective of size. Unincorporated businesses in most sectors are required to enroll employees if they employ five or more regular workers.
• Full-Time Employees: Must be enrolled in both EPI and EHI without exception.
• Part-Time and Short-Hour Workers: Recent statutory amendments (Act No. 52 of 2024) materially expand mandatory coverage for short-hour/part-time employees at large and then smaller workplaces:

• Until September 2026: Coverage applies to part-time workers at workplaces with 101+ employees who (1) work 20+ hours/week, (2) expect at least two months' employment, (3) earn ¥88,000+ per month (the "1.06 million yen wall"), (4) are not daytime students.
• From October 2026: Major expansion applies: the employer-size threshold drops to 51+ employees. The monthly wage/"¥88,000" requirement is abolished. Remaining criteria: ≥20 weekly hours, ≥2 months expected duration, not a daytime student, at a covered workplace (51+ employees or smaller by opt-in agreement).
• Phase-out schedule: The mandatory coverage threshold continues to drop:
• 36+ employees (Oct 2027),
• 21+ employees (Oct 2029),
• 11+ employees (Oct 2032), and
• all workplaces regardless of size (Oct 2035), subject to certain sector exemptions by statute.

Key Compliance Steps

• Apply for EPI/EHI enrollment within five days of hire for each eligible worker via the Japan Pension Service (JPS).
• New entities or worksites must file workplace establishment notices and secure a workplace code prior to initial registrations.
• Foreign employees must be enrolled unless legally exempted by a bilateral social security agreement and properly certified.

Penalties and Enforcement Employers failing to promptly enroll eligible workers face retroactive assessments, penalties, and possible administrative actions.

Other Mandatory Insurance EPI and EHI are separate from labor insurance (Employment Insurance, Workers' Accident Compensation Insurance)—see dedicated section for these regimes.

Authoritative Guidance and Sources

• Japan Pension Service, summary (EN): Enrollment in Employees' Pension Insurance and Employees' Health Insurance
• Ministry of Health, Labour and Welfare: Mandatory Insurance Expansion and Phase-Out Schedule for Short-Hour Workers (Japanese)
• Ministry of Health, Labour and Welfare: Expansion of Application by Company Size (Japanese)

When an employer hires an employee in Japan, Article 15(1) of the Labor Standards Act (LSA) requires the employer to explicitly notify the worker of wages, working hours, and other working conditions at contract commencement. While Japanese law does not mandate a formal signed contract, the employer must deliver a written notice with specific statutory content before the employee begins work. Failure to provide the Article 15 notice exposes the employer to administrative sanctions by the Labour Standards Inspection Office and, if actual conditions diverge from what was disclosed, permits immediate contract cancellation and claims for relocation expenses by the employee.

Statutory items required in writing

Article 5 of the Ordinance for Enforcement of the Labor Standards Act (MHLW Ordinance No. 23 of 1947) enumerates must-disclose-in-writing items:

1. Period of the labor contract (is it indefinite or fixed-term, and length for fixed-term);
2. Workplace and contents of work;
3. Working hours: start/end time, overtime, rest periods, days off, changes in shifts;
4. Wages: calculation, payment, pay dates, increases (excluding retirement and extraordinary allowances);
5. Termination conditions: resignation, retirement, dismissal, and other causes for ending the contract.

Physical paper notice is default; electronic delivery (email, PDF) is permitted only on the worker’s request and must allow for printing (clarified April 1, 2024 amendment).

Fixed-term contract addenda

For fixed-term contracts (有期労働契約, yūki rōdō keiyaku), disclose, in writing:

• Standards for renewal (e.g., “automatic,” “may occur,” or criteria);
• Any renewal cap (total contract period/number of renewals allowed).

Amendments effective April 1, 2024: All contracts (indefinite and fixed-term) must now disclose in writing the scope of changes in workplace and duties to which the worker may be reassigned in future. This brings upfront clarity to Japan’s system of employer-initiated transfers. For fixed-term contracts, if the contract qualifies for the five-year conversion right under the Labor Contracts Act, notification must also cover: (1) the right and process for indefinite-term conversion, and (2) the working conditions post-conversion. Any introduction or reduction in renewal limitations post-hire must also be pre-disclosed.

Further requirement effective October 1, 2026: For part-time and fixed-term workers, the notice must newly state that the worker may request an explanation of any differences in working conditions or treatment compared to regular (full-time indefinite) employees, and that the employer is legally required to respond to such a request. Employers should review and update templates to include this statement for affected categories before the effective date.

Worker protection on mismatch/remedies

Article 15(2) of the LSA provides that if disclosed conditions prove false or are not honored, the worker may immediately cancel the contract and—if they moved home for work—have return travel paid by the employer (within 14 days).

Compliance across employer categories

LSA Article 15 applies to all workers covered by the Act—Japanese/foreign nationals, seconded staff, officers/managers—there are no categorical exemptions. Many employers use the standard Ministry of Health, Labour and Welfare model Notice of Employment (労働条件通知書, rōdō jōken tsūchisho). This form is updated with each statutory change and available in English for foreign workers (customization for company policies allowed, so long as all statutory elements are present). While a signed contract (雇用契約書, koyō keiyakusho) is not required, it remains best practice.

Enforcement

Administration may issue corrective orders for violations. Repeated or willful violations can trigger criminal prosecution (LSA Article 120(1): up to ¥300,000 fine; Article 121: extends to responsible officers). Employers failing to correct after a formal recommendation (勧告, kankoku) may be publicly named. See also the evolving MHLW guidance on model notices and upcoming changes.

Source: Labor Standards Act, Article 15 (English translation) Source: Ordinance for Enforcement of the Labor Standards Act, Article 5 (English translation) Source: Ministry of Health, Labour and Welfare, Explanations of Labor-Related Laws (April 1, 2024) Source: MHLW guidance on labor contracts and key statutory notice requirements (current, Japanese)

Employers hiring in Japan must register and enroll all employees in the two central statutory labor insurance schemes: Employment Insurance (EI, koyō hoken, 雇用保険) and Workers’ Accident Compensation Insurance (rosai hoken, 労災保険). These programs are governed by the Employment Insurance Act (Act No. 116 of 1974) and the Industrial Accident Compensation Insurance Act (Act No. 50 of 1947). They are distinct from, and in addition to, social insurance (Employees’ Pension and Health Insurance).

Compulsory coverage and thresholds

• Workers’ Accident Compensation Insurance: Coverage is mandatory for all businesses employing workers, regardless of legal form, size, or headcount (Industrial Accident Compensation Insurance Act, Art. 3). Every worker, including part-time, fixed-term, and temporary hires, must be enrolled from the first day of work.
• Employment Insurance: Coverage is generally required for employees (except some students and certain short-term/seasonal workers) who are scheduled to work at least 20 hours per week and are expected to be employed for more than 31 days (Employment Insurance Act, Art. 6, 13; see also MHLW Handbook, Section 1).

Initial registration and ongoing notifications

1. Establishing coverage: When a business first becomes an employer in Japan (e.g., hiring the initial worker), it must file the "Notification of Labor Insurance Relationship Establishment" (労働保険関係成立届) with the district Labour Standards Inspection Office (for rosai) within 10 days of becoming a covered business or hiring the first employee (Industrial Accident Compensation Insurance Act, Art. 7(1)).
2. Employee registration: For EI, the employer must submit an "Employment Insurance Insured Person Qualification Acquisition Notification" (雇用保険被保険者資格取得届) to the local Public Employment Security Office (Hello Work) within 10 days of hiring an eligible employee (Employment Insurance Act, Art. 7, 9).

Premiums and payment obligation

• Premiums for Workers’ Accident Compensation Insurance are paid entirely by the employer (Industrial Accident Compensation Insurance Act, Art. 8), with the precise rate set annually by the Ministry of Health, Labour and Welfare (MHLW) according to industry classification.
• Employment Insurance premiums are split between employer and employee (Employment Insurance Act, Art. 62), with the employer responsible for withholding and remitting both shares monthly.

Penalties for noncompliance Failure to register or pay premiums can trigger retroactive assessments and sanctions. For example, failure to file the labor insurance coverage notice (rosai) within the deadline may result in additional charges and criminal penalties under Article 52–2 of the Industrial Accident Compensation Insurance Act. Similarly, the Employment Insurance Act establishes penalties for delinquent filings and non-payment (see Art. 83–87). Penalties can include both fines and, in severe cases, imprisonment.

Foreign employers and EOR carve-out Foreign corporations directly hiring in Japan are subject to the same labor insurance registration duties unless the employee is hired via an employer-of-record (EOR) service licensed and registered to operate as the employer for insurance purposes under Japanese law (MHLW Handbook, Section 8).

Step sequence for newly entering Japan:

1. Register labor insurance relationship with the Labour Standards Inspection Office within 10 days of the first hire.
2. File EI insured person notification for each eligible employee with Hello Work within 10 days of hire.
3. Calculate, withhold (for EI), and remit premiums per MHLW’s prescribed rates and deadlines.

Source: Employment Insurance Act (English translation) Source: Industrial Accident Compensation Insurance Act (English translation) Source: MHLW, Labor Insurance FAQ (English landing page for scheme overview, 2024)

Every employer in Japan—including domestic companies, branches of foreign corporations, and certain other entities—must register as a "withholding agent" (gensen chōshū-nin, 源泉徴収人) with the National Tax Agency (NTA) when establishing an office or location that pays salaries to employees. This is a statutory requirement under the Income Tax Act Articles 183–185, obligating the employer to withhold income tax from wages and remit it to the tax authorities.

Who is required to register?

• Any entity or individual that pays salaries, bonuses, or similar compensation to employees in Japan (including foreign company branches) must act as a withholding agent.
• The obligation applies regardless of entity form: Kabushiki Kaisha (KK), Gōdō Kaisha (GK), branch/representative office of a foreign company, joint venture, etc.

Notification form and statutory deadline

• The employer must submit the "Notification of the Establishment of a Salary-Paying Office" (給与支払事務所等の開設届出書, kyūyo shiharai jimusho-tō no kaisetsu todokedesho) to the local tax office (zeimusho) with jurisdiction over the business location or payroll office.
• This notification must be filed within one month from the date of establishing the salary-paying office or commencing wage payments. (Income Tax Act Enforcement Order, Art. 231-1; see NTA Guide, p. 4)
• Upon submission, the tax office registers the employer for withholding obligations and issues a notification receipt. This process is distinct from corporate registration or enrollment in social/labor insurance.

Subsequent obligations

• After registration, employers must withhold income tax at source on each payment of wages and remit payments to the NTA on a regular schedule (monthly or semi-annual, depending on the number of employees and other criteria).
• Employers must also issue a year-end Withholding Tax Statement (gensen chōshūhyō) to employees and submit required annual returns to the NTA (see NTA Guide, sec. 4).

Foreign company and EOR arrangements

• If employees are engaged via a licensed Japanese Employer of Record (EOR), the EOR acts as withholding agent and files the required notifications.
• Foreign companies hiring directly (via a Japanese branch or subsidiary) are responsible for filing the notification and complying with all withholding requirements directly.

Consequences of non-registration

• Employers failing to register or to fulfill withholding duties may be subject to back-tax assessments and penalties under the Income Tax Act. The NTA is empowered to seek unpaid taxes, but the precise penalty rates and any criminal provisions are subject to additional provisions not detailed in the cited NTA guide.

Effective registration timing

• The deadline is confirmed as "within one month" of office establishment or first salary payment, but whether payroll must stop until registration is complete is not explicitly stated in the English NTA guidance.
• Unable to confirm as of 2026-06-15 if Japanese law absolutely prohibits wage payments before formal registration; practitioners should aim to complete the notification in advance of the first payroll cycle.

Source: NTA, Guide to Procedures for Paying Salaries (in English), p. 4 Source: Income Tax Act, Articles 183–185 (Japaneselawtranslation)

Employers in Japan are legally required to notify their local Hello Work (Public Employment Security Office) whenever they hire or terminate a foreign national employee (excluding special permanent residents and those with “diplomatic” or “official” residence status). This notification—required under Article 28 of the Act on Comprehensive Promotion of Labour Measures—is distinct from mandatory labor insurance or tax registration and is a foundational step in the employment and offboarding process for non-Japanese staff.

Legal basis and notification obligation Article 28 establishes that all employers, including foreign companies with direct hires in Japan, must submit a “Notification of Employment Status of Foreign Nationals” (外国人雇用状況の届出, gaikokujin koyō jōkyō no todokede) both when hiring and when terminating foreign employees. The requirement applies regardless of company size or industry; only special permanent residents, “diplomatic,” and “official” status holders are excluded from this obligation.

Correct notification deadlines (MHLW guidance as of June 2024)

• For foreign employees covered by Japanese Employment Insurance (EI), the deadlines mirror EI reporting:
• Hiring: Notification must be submitted by the 10th day of the month following the month of hire.
• Termination (separation): Notification must be filed within 10 days after separation.
• For foreign workers NOT covered by Employment Insurance (e.g., short-hour workers, certain status categories), the notification must be filed by the end of the month following hiring or separation.
• Employers hiring or terminating multiple foreign nationals may file collective notifications.
• Employers must verify the employee’s residence card and include key details such as status of residence, period of stay, and nationality.
• Notification should be made at the Hello Work office with jurisdiction over the work site. The method (e.g., e-Gov submission) may differ based on whether the person is employment-insured.

Penalties for noncompliance Failure to notify as required is a criminal offense, punishable by a fine of up to ¥300,000 under Article 119 of the Act. This is in addition to any other sanctions for labor or tax compliance violations.

Cross-border and EOR applicability The obligation applies to all statutory employers, whether Japanese-incorporated or foreign-registered entities; for employer-of-record (EOR) arrangements, the EOR is the responsible party.

Material update (June 2024): Previous guidance and some English-language sources described a uniform "within 10 days" deadline, but official MHLW guidance now clearly distinguishes deadlines by employment insurance status: EI-insured workers (by 10th of following month/within 10 days of separation), non-EI-insured workers (by end of following month). This clarification is reflected in the current section.

Source: MHLW, Hello Work Notification System for Employment of Foreign Nationals (updated 2024) Source: Act on Comprehensive Promotion of Labour Measures, Article 28 (English translation)

Under Japanese law, registering a company seal (jitsuin, 実印) and obtaining a seal certificate (inkan shomeisho, 印鑑証明書) with the local Legal Affairs Bureau (Homukyoku) is a foundational step for newly established companies or foreign entities opening a Japanese branch or subsidiary. The registered seal is used to certify the company’s intent in commercial registration and other statutory filings, with further uses established by banking practice and government procedure.

Statutory procedure for registering a company seal (jitsuin):

1. Seal preparation: After incorporation or branch registration, the company must create a physical seal reflecting the company's registered legal name. (MOJ procedure page)
2. Registration at the Homukyoku: The seal is registered with the competent Legal Affairs Bureau, which records the seal impression for official use. This procedure is governed by the Commercial Registration Act, Article 20. (Commercial Registration Act Art. 20; MOJ procedure page)
3. Obtaining a seal certificate: Once the seal is registered, the company can request an inkan shomeisho, an official certificate attesting to the authenticity of documents stamped with the registered seal. The MOJ Q&A page describes how to request and obtain this certificate. (MOJ Q&A page)

Role in payroll, banking, and statutory filings:

• Most Japanese banks require an inkan shomeisho to open a corporate account, a de facto prerequisite for running payroll; this is established by standard bank practice and administrative procedure, not by the Commercial Registration Act itself.
• Some government filings (commercial registration, legal representative notification, certain tax filings) require documents to bear the registered seal. MOJ guidance is categorical only for registration filings; for payroll/tax, practice varies by agency and local procedure. (MOJ Q&A page)
• Labor and employment contracts do not have a universal statutory seal requirement, but the jitsuin is expected on many official documents.

Other practical and legal considerations:

• If the seal is lost or altered, a notification and new registration must be filed at the Homukyoku. (MOJ procedure/Q&A pages)
• The cited sources are silent on whether digital or electronic signatures universally substitute for a seal and certificate in all agency or payroll acts. Electronic acceptance is developing but not yet established for all filings—cannot confirm universal equivalence as of 2024-06-18.
• Where a foreign employer registers directly in Japan, a registered director acts as the representative for seal registration. MOJ sources do not specify that the director must appear in person at the Homukyoku.
• Employer of Record (EOR) practices: The sources do not address this directly—statutory seal registration is required only where the entity itself becomes the registered employer.

Source: Commercial Registration Act, Article 20 (Japaneselawtranslation) Source: Ministry of Justice, Commercial and Corporate Registration Procedures (in Japanese) Source: Ministry of Justice Q&A, Corporate Seal Registration Certificate (in Japanese)

To pay wages, withhold income tax, and operate local payroll, an employer in Japan requires a corporate bank account (legal entity account) at a Japanese financial institution. While there is no single statute prescribing the full procedure, the core requirements arise from (a) anti-money-laundering law (Act on Prevention of Transfer of Criminal Proceeds, Act No. 22 of 2007), (b) standard commercial bank risk policies, and (c) the need to fulfill payroll obligations under the Labor Standards Act (Article 24, not reproduced here).

Required documents: legal and practical layers

• The Act on Prevention of Transfer of Criminal Proceeds and FSA regulations require all banks to carry out strict identity and business verification when opening legal entity accounts. The authoritative sources require:
• Certificate of Registered Matters (登記簿謄本, tokibo tōhon) issued by the local Legal Affairs Bureau within 3 months,
• Official company seal (実印, jitsuin) and seal registration certificate (印鑑証明書, inkan shomeisho), and
• Personal ID (e.g., passport, residence card) of the legal representative or director.
• Standard bank policy—based on interpretation of the statute and FSA compliance guidance—also requires:
• Articles of Incorporation or statutes (定款, teikan),
• Some form of evidence of real business activity in Japan (lease, customer contract, invoice, or other proof), and
• Account opening application forms (in Japanese; some banks require an in-person visit by a representative or director, though a minority allow certain proxies).
• Specific requirements (such as acceptance of proxies or remote opening) may vary by bank and are not prescribed in law.

Labor law linkage: operational necessity not statutory mandate The Labor Standards Act (Art. 24) generally requires wages to be paid in cash, but permits payment "by deposit in a bank account designated by the worker" with worker consent. In practice, most payrolls use bank transfer—but the law does not require an account per se. However, payroll and withholding obligations (including for income tax) are almost impossible to discharge without a Japanese corporate account. Thus, account opening is an operational necessity, not a named legal requirement.

Timing and barriers for foreign/cross-border employers No statute sets a fixed deadline for account opening. For newly established companies (including foreign-owned entities and branches), scrutiny is heightened due to anti-money-laundering enforcement. Most banks require a demonstrable Japanese business presence. Delays are common—processing times can range from a few days to several weeks. Application rejection for insufficient business activity or for non-resident applicants remains a risk.

Practical implications

• The absence of a functioning local payroll account may prevent the lawful commencement of wage payments and compliance with tax obligations.
• Many foreign employers rely on employer-of-record (EOR) providers or pre-existing corporate accounts to bridge this gap while setting up a new entity's banking facilities.
• Requirements and risk attitudes may shift over time and are subject to the bank's discretion.

Source: Act on Prevention of Transfer of Criminal Proceeds, Act No. 22 of 2007 (English translation) Source: Ministry of Justice, Bank account opening (Legal Affairs Bureau, Japanese)

Under the Act on the Use of Numbers to Identify a Specific Individual in Administrative Procedures (My Number Act, Act No. 27 of 2013), every Japanese employer must collect, verify, use, and securely handle each employee’s 12-digit My Number (Social Security and Tax Number) at the time of hiring. This statutory process is mandatory for onboarding any individual—Japanese or foreign—who will be paid employment income in Japan.

1. Scope of obligation and statutory basis Article 16 of the My Number Act compels employers to collect the My Number from all employees and use it for legally specified filings: tax withholding (gensen chōshū), health insurance, pension insurance, employment insurance, and other social/labor insurance notices. This covers both Japanese nationals and resident foreign employees. The statute does not provide an exemption based on duration or contract type, but is silent on non-resident, non-payroll contractors. For all employees for whom the employer files payroll or insurance reports, My Number collection is required. Source: My Number Act Art. 16, 19

2. Verification and recording procedure Employers must verify both the 12-digit My Number and the individual’s identity using approved documentation per Article 16 and related MHLW regulations: a My Number card or notification plus official personal ID (such as driver’s license or residence card) showing name and date of birth. The company must keep a record of this verification but the Act itself does not prescribe the precise format (retention of a written log or electronic file is sufficient). Source: My Number Act Art. 16, 19

3. Use limitations and data security Collected My Numbers may only be used for the limited statutory purposes—tax, social insurance, and employment filings under Japanese law. Employers are obliged under Article 20 and Chapter 5 to implement strict safeguards against unauthorized disclosure or use, based on the nature of the data. Both the Act (Art. 35–37) and J-LIS agency guidance require employers to destroy the number (e.g., delete, shred records) without delay after it is no longer needed for legal filings. Appointing a privacy manager and instituting secure storage protocols is common practice but not named in statute—J-LIS guidance establishes these as compliance recommendations. Source: My Number Act Art. 20, 35–37

4. Penalties for breach Intentional disclosure or misuse of a My Number by employers, officers, or employees can result in criminal penalties, including up to four years’ imprisonment or a fine of up to ¥2,000,000 (see Art. 67–71). Employers are also subject to administrative orders and possible civil damages for security lapses, even if no breach is intentional.

5. Onboarding implications for cross-border employers Foreign employers or newly registered Japanese entities must collect and verify a My Number from every new hire (including foreign staff who have received their residence card and local registration), verify identity documents, and strictly limit access to authorized personnel. Most practitioners follow J-LIS guidance by appointing a privacy lead and adopting written protocols, but these are agency practice standards rather than statutory requirements.

Source: My Number Act (English translation) Source: Japan Agency for Local Authority Information Systems (J-LIS), My Number Guidance (in Japanese)

Wage payment method, interval, and deduction rules under Japanese law (Labor Standards Act Article 24)

Under Article 24 of the Labor Standards Act (LSA), Japanese employers are required to observe strict statutory protocols for the payment of wages:

• Form of Payment: Wages must, in principle, be paid in full directly to the worker in legal tender (currency). Payment by bank transfer is permitted only with the worker’s consent. As of 2023, Ministerial Ordinance authorizes payment to certain registered cashless payment accounts (such as prepaid card accounts) if the worker consents, but primary MHLW guidance has not yet published a full English summary of this mechanism. Employers cannot require electronic payment—if the worker requests payment in cash, the employer must comply. Unable to confirm as of 2026-06-16 the full scope of statutory rules on cashless payment account eligibility from English-language sources.

• Interval and Date: Wages must be paid at least once a month and on a definite, specified date. This includes base pay and overtime, but not bonuses or other infrequently paid allowances (LSA Art. 24(2)).

• Direct Payment: Payment must be made directly to the employee and not to family or other intermediaries.

• Restrictions on Deductions: Only deductions specified by statute (such as taxes and insurance premiums) or by collective agreement with a majority union or worker representative are permitted (LSA Art. 24(1), Enforcement Regulation Art. 7). Arbitrary or unauthorized deductions are prohibited.

• Wage Ledgers: Employers are required to prepare and maintain wage ledgers (chingin daichō) under Article 108 of the LSA, recording pay details for each worker.

• Penalties: Willful violation of wage payment rules can lead to administrative orders and criminal penalties (imprisonment up to 6 months, fine up to ¥300,000; LSA Art. 119).

• Insolvency and Wage Guarantee: The priority of workers’ wage claims in employer insolvency (e.g., bankruptcy) and the government’s Wage Payment Guarantee System are established in separate statutes and regulations. Unable to confirm as of 2026-06-16 the full statutory basis for wage claim priority and guarantee system in current English-language sources.

For any non-standard arrangements or newly authorized payment modes (such as cashless platforms), consult the latest Ministerial Ordinances and MHLW guidance. Employers should obtain explicit written consent from employees for non-cash payments and ensure all wage payments and deductions are clearly documented.

Source: Labor Standards Act, Article 24 (English translation) Source: MHLW Wage Payment Guidance (in Japanese) Source: Labor Standards Act, Article 108 (English translation)

Japanese employers may set a probationary period (shiyo kikan, 試用期間) at the start of employment, but both law and administrative guidance set critical procedural and substantive boundaries. The Labor Standards Act (LSA) does not fix a statutory maximum for probation, but Article 15 requires any probationary status and its terms to be made explicit and in writing at the time of hire (see /guides/japan/hiring-and-payroll-setup/written-employment-contract-requirements). The LSA also mandates that all employees on probation are regular employees fully protected by Japanese labor law from their first day, except for a specific entitlement to easier termination in the first two weeks under Article 21, which limits employer liability for sudden dismissal within 14 days to accrued wages and return travel (if applicable).

Duration and reasonableness standard:

• The LSA itself does not set a maximum period. However, Ministry of Health, Labour and Welfare (MHLW) guidance and consistent judicial practice treat 3 months as standard and up to 6 months as permissible if justified by business need, technical complexity, or the nature of the role. Probationary periods longer than 6 months are viewed with skepticism by labor authorities and courts, and one-year periods must be specifically justified if challenged. These standards derive from ministry publications and case law, not the wording of the act itself. Employers should disclose the period and evaluation criteria clearly in the written notice (Article 15 notice) and employment contract, and avoid ambiguous clauses.

Dismissal during probation:

• Article 16 of the LSA prohibits dismissal (including at the end of probation) unless there are "objective and reasonable grounds and the dismissal is deemed appropriate in general societal terms." Dismissal during probation is only modestly easier than post-probation, especially after the initial 14 days, and summary termination is rarely upheld without clear performance or conduct evidence. Article 21 of the LSA provides that, during the first 14 days of employment, the employer may terminate a contract with less legal risk, but after this period, full dismissal protections apply.

Practical recommendations:

• Most employers in Japan use a 3-month probation. Extension up to six months should be individually justified and documented, with the total period and conversion process made explicit.
• Ensure that the Article 15 notice or employment contract delivered at hire sets out the probation length and any extension criteria. Courts disfavor open-ended or discretionary probation clauses not explained at the outset.

Probationary arrangements in Japan are not at-will, and the two-week grace period applies only to damages, not to the core requirements of fairness and notice. The LSA and MHLW both expect written transparency and clear evaluation processes as a condition for applying any probation period.

Source: Labor Standards Act, Articles 15, 16, 21 (English translation) Source: MHLW Probationary Employment FAQ (Japanese)

Employers in Japan who maintain coverage under the Labor Insurance system (rōdō hoken, 労働保険)—which combines Workers’ Accident Compensation Insurance (rosai hoken) and Employment Insurance (koyō hoken)—must complete an annual renewal process known as "nendo kōshin" (年度更新) between June 1 and July 10 each year. This annual update is mandatory for all covered employers, regardless of company size or whether the employer is a Japanese or foreign-owned entity that directly hires in Japan. The process is separate from the initial labor insurance relationship registration and is subject to enforcement under national statute.

Annual renewal process and statutory basis

• The annual renewal obligation derives from the Industrial Accident Compensation Insurance Act (Act No. 50 of 1947) and the Employment Insurance Act (Act No. 116 of 1974), as implemented by the Ministry of Health, Labour and Welfare (MHLW). The specific procedural steps and deadlines are set out in MHLW guidance.

Main requirements

1. Wage reporting: Employers must declare (a) the total amount of all wages paid to covered workers for the fiscal year just ended (April 1–March 31), and (b) the estimated total wages for the current fiscal year (April 1–March 31). "Wages" are broadly defined by the MHLW as all payments to employees (including bonuses and various allowances), not just base salary. The required forms may include Annual Labor Insurance Renewal Declaration and detailed wage breakdowns, but the MHLW summary guidance does not enumerate every form.
2. Premium adjustment: Labor insurance premiums are recalculated based on actual wage payments for the prior year and estimated wages for the new year. Any difference between provisional and final premiums must be settled: underpayments are paid, and overpayments are credited toward current-year obligations. Premium rates vary by employer industry/classification as published annually by the MHLW, and the location for these tables is referenced in MHLW guidance.
3. Method: Submission can be made in person, by post, or electronically (via e-Gov). The MHLW summary does not detail electronic-filing eligibility or process for foreign entities; unable to confirm as of 2026-06-16 whether there are differences in filing process or documentation required by industry or geography from the cited page.
4. Deadline: The submission window is strictly June 1–July 10 each year, regardless of regional jurisdiction.

Enforcement, audit, and penalties

• The MHLW page confirms that non-compliance or late filing may lead to administrative penalties, but it does not enumerate types of penalties or confirm specific statutory articles for criminal sanctions or audit authority. Unable to confirm as of 2026-06-16 additional audit procedure or penalty schedules from this landing page; refer to underlying statutes for penalty substances.

Foreign and cross-border employer note

• Employers using a Japanese Employer of Record (EOR) or staffing agency are not responsible for the annual labor insurance renewal; the statutory employer (the EOR) completes the process. The MHLW page does not expressly detail cross-border situations, but as a matter of statutory coverage, Japanese branches or registered subsidiaries of foreign employers are subject to the same annual obligations as domestic employers.

Source: Ministry of Health, Labour and Welfare — Annual Renewal of Labor Insurance (MHLW)

Before any employer in Japan can complete downstream hiring, payroll, or insurance registrations, the company (or branch) must notify both national and local tax authorities of its legal establishment. This foundational step applies to all Japanese-incorporated entities (Kabushiki Kaisha, Gōdō Kaisha, others) and to foreign corporations registering as a branch. It is required by the Corporation Tax Act and relevant local taxation statutes and triggers assignment of the company’s unique Corporate Number (法人番号, houjin bangou), a government-issued identifier for all statutory filings in Japan.

National tax office notification

• Every newly formed corporation or branch must submit the "Notification of Incorporation/Establishment of a Corporation" (法人設立届出書, houjin setsuritsu todokede-sho) to the local National Tax Agency (NTA, zeimusho) office within two months of establishment (Corporation Tax Act, Art. 74; Enforcement Order, Art. 53). Supporting documents typically required by the NTA include: (1) Certificate of Registered Matters (登記簿謄本, tokibo tōhon), (2) Articles of Incorporation (定款, teikan), and—if a branch of a foreign company—a certified copy of the foreign parent’s commercial register or equivalent. (See the referenced NTA page for the latest supporting document list.)
• Failure to file does not invalidate the entity but may delay or block downstream statutory registrations (social insurance, payroll tax, invoice-issuing qualification). Late filing can incur tax enforcement actions and complicate later compliance.

Corporate Number (houjin bangou) system

• After the company is formally registered at the Legal Affairs Bureau (which completes the legal establishment), the authorities assign a unique 13-digit Corporate Number, published by the National Tax Agency (My Number Act, Art. 30). This number is mandatory for all social/labor insurance registrations, payroll tax filings, banking, and e-invoicing, and must be used consistently on all employer filings. No subsequent employment registration (social insurance, payroll withholding) is possible until after corporate number issuance.
• The number is searchable publicly on the NTA’s Corporate Number Publication Site and remains unchanged for the life of the entity or branch unless deregistered.

Prefectural/local tax office notification

• In addition to NTA filing, the employer must separately notify the relevant prefectural and municipal tax offices of incorporation or establishment; forms, supporting documents, and deadlines vary by region but generally mirror the two-month prompt-filing rule. Employers should verify specific local requirements as they periodically update.

Timing and downstream compliance

• These notification and registration steps are a strict precondition for all other employer registrations (labor/social insurance, payroll tax, bank account opening). EOR providers handle this for client employers, but any entity hiring directly in Japan must complete the houjin-todokede process before onboarding any employee.

Source: National Tax Agency, Notification of Incorporation/Establishment of a Corporation Source: Corporation Tax Act, Article 74 (English translation) Source: My Number Act, Article 30 (English translation)

When a new employer—whether a Japanese subsidiary, branch of a foreign corporation, or independent business—begins operations in Japan, notification to the relevant local municipal office (city hall/shiyakusho or ward office/ku-yakusho) of the establishment of a business office is a statutory prerequisite for payroll and tax compliance. Under Article 32(11) of the Local Tax Law (Chihō Zeihō, Act No. 226 of 1950), businesses must report the commencement (and closure or transfer) of operations to each municipality where they establish an office. This municipal notification is distinct from the Legal Affairs Bureau's corporate registration and National Tax Agency (NTA) filings—local notification is specifically for enterprise/inhabitant tax administration, and is independently required for employers operating in any city or ward in Japan.

Statutory framework and scope

• Local Tax Law Article 32(11) obligates any person or entity establishing a business office within a municipality to notify the local government. Local procedures and attachments may differ, but failure to file can result in local penalty assessments (with surcharge authority deriving from the Law but the amount set by municipal rule).
• The standard deadline for submitting the “Notification of Establishment of Office/Business” (事業所等の設立届) is within 15 days of business commencement in cities like Tokyo, though employers should check with their specific municipality.

Practical procedure and required documents

• The employer generally completes the local Notification form (downloadable from the city or ward’s tax website) and provides: (a) Certificate of Registered Matters (登記簿謄本), (b) Articles of Incorporation, and (c) a copy of the national tax notification or other supporting documents, as specified by the local office.
• Filing may be possible in person, by mail, or electronically (varies by jurisdiction); Tokyo and some large cities publish bilingual forms and permit mail/online submission. The attachments needed, permitted forms of submission, and acceptance of proxies or EOR filings can vary. Employers should confirm requirements for the specific city/ward of registration.

Compliance implications for employers

• The notification is required for Japanese legal entities, foreign company branches, and for any entity hiring staff with a real business presence in the city (including those using shared or virtual offices, per Tokyo guidance).
• Direct local hires require proof of local notification. If an Employer of Record (EOR) acts as statutory employer, the EOR files—the requirement is procedural practice (not expressly stated in the statute), and substantiating documentation may be customary for bank accounts, employment services, and local certificates, though not specified in Article 32(11).

Penalties and notes on local variation

• The Local Tax Law authorizes penalties for noncompliance, but the precise surcharge mechanism and amounts are set by local rule, not the national statute. Municipalities issue warnings or apply surcharges for late or non-filing; for procedural certainty, always consult city/ward office guidance.

Source: Local Tax Law, Article 32(11) (English translation)

When an employer in Japan establishes a new business location where workers will be employed, the employer must notify the local Labour Standards Inspection Office (Rōdō Kijun Kantokusho, 労働基準監督署). This obligation is imposed by Article 104 of the Labor Standards Act (LSA) and is further specified by Article 57 of the Ordinance for Enforcement of the LSA. The notification covers the establishment, transfer, or dissolution of a business location in which employees are engaged. This requirement is distinct from payroll tax, social insurance, or corporate registration processes, and is essential for demonstrating compliance with labor-protection statutes from commencement of operations.

Legal basis and scope LSA Article 104 obligates any person establishing, transferring, or dissolving a business location to "notify the competent government agency... without delay, specifying certain matters provided by Ordinance of the Ministry of Health, Labour and Welfare." Article 57 of the relevant Ordinance lists the required contents of the notification: the name and address of the employer, name and nature of the business, location, date of establishment (or transfer/dissolution), and, in cases of transfer, the name and address of the new business operator. The statutes do not specify particular forms in the English translations, nor do they prescribe electronic or paper format, supporting documentation, or language-of-filing rules—these are determined by administrative procedure, and may evolve over time.

Timing Under the law, notification must be made "without delay" after establishment, transfer, or dissolution of the business location. The cited sources do not provide further details on deadlines or practical processing time, and do not expressly link this filing to the timing of employee onboarding. Unable to confirm as of 2026-06-18 whether there is a statutory requirement for notification before first hire, but the reporting obligation covers the location once workers are engaged.

Consequences for noncompliance Failure to file this notification may result in a fine of up to ¥300,000 under Article 120 of the LSA. The law is silent on ancillary administrative guidance or audit consequences—employers should treat the notification as a core step in Japanese labor compliance, but additional procedure or enforcement details are not supplied in the relevant statutes.

Cross-border employer note The LSA and its Ordinance do not address Employer of Record (EOR) or PEO arrangements. Where an EOR acts as statutory employer, practical compliance with location notifications may be handled by the EOR. Official English-language sources do not provide further detail on this point.

Source: Labor Standards Act, Article 104 (English translation) Source: Ordinance for Enforcement of the Labor Standards Act, Article 57 (English translation)