The rapid adoption of remote work during the COVID-19 pandemic has led to an increase in people in Japan working for overseas companies. This arrangement poses unique legal and tax challenges that necessitate careful consideration.
This article aims to clarify the legal requirements, including residence status, visas, and social insurance, as well as tax obligations for individuals in Japan working remotely for foreign companies. Additionally, we introduce the Employer of Record (EOR) service as a solution to these challenges.
Remote Work Scenarios from Japan
There has been a recent surge in the style of working remotely for overseas companies while living in Japan. This includes primarily two cases:
- Japanese working for overseas companies remote from Japan: Enabled by remote work technology, this option is attractive due to potentially higher salaries and the opportunity for skill development through international collaboration.
- Foreigners working in Japan for overseas companies: This arrangement helps foreigners maintain connections with their home countries while adapting to Japanese culture and facilitates collaboration with local businesses.
Residence status and visas when working remotely for an overseas company from Japan
When working remotely for an overseas company from Japan, Japanese nationals usually do not need to acquire a residence status, but foreigners fundamentally need to obtain one. The specific requirements and procedures vary by individual case, so it is important to check the details in advance and take the appropriate steps.
Japanese nationals: do not need to acquire residence status since residence status is required for foreigners to engage in certain activities in Japan.
Foreign nationals: Must usually secure appropriate residence status, often involving the "Intra-company Transferee" visa, which requires proof of prior overseas employment such as "having worked continuously at the headquarters or a branch outside Japan for one year or more before the transfer" and "needing to engage in work requiring specialized knowledge."
Although support from the overseas company is possible, the individual often needs to handle the procedures, so caution is advised. However, cases such as short-term stays (90 days or less) where remote work is done only during a visit to Japan may not require a residence status.
When working remotely for an overseas company from Japan, it is important to pay attention to the application of labor contracts (Labor Standards Act, etc.).
In Japan, both Japanese and foreigners are subject to the Japanese Labor Standards Act when working. This also applies to working remotely for an overseas company from Japan. Labor-related laws, such as the Minimum Wage Act and the Occupational Safety and Health Act, apply to foreigners as well, and discrimination based on nationality is prohibited.
While remote employers are obliged to comply with the Japanese Labor Standards Act, it can be difficult to ensure and enforce this compliance with overseas employers in practice, often leading to weaker protection for remote workers. To avoid disadvantage as a worker, it is important to have thorough discussions and agreements with the employer.
Social insurance when working remotely for an overseas company from Japan
Social insurance when working remotely for an overseas company from Japan is complicated and varies case by case, as Japanese legal frameworks have yet to catch up. Consulting a specialist is recommended. Here, we provide explanations based on basic scenarios.
Japanese nationals generally join the National Health Insurance & Pension
When Japanese nationals work remotely for an overseas company while living in Japan, they cannot join social insurance because there is no applicable workplace in the country. Therefore, they need to join the National Health Insurance for health coverage and the National Pension for pension benefits.
However, when considering benefits like sickness allowance or future pension amounts, being covered under social insurance (health insurance and employees' pension) is more advantageous than the National Health Insurance and National Pension.
Using EOR (Employer of Record) can allow overseas employers to effectively provide social insurance benefits to their employees, so it's worth suggesting its use to the employer.
Social insurance for foreigners varies case by case
Social insurance for foreigners is more complicated than for Japanese nationals. Generally, they would join the health insurance and pension systems of the overseas company's home country, but if they have a branch or base in Japan, or work in Japan for more than five years, joining the Japanese health insurance and pension system becomes necessary. This may lead to cases where they need to join both their home country's and Japan's systems. For countries that have a "Social Security Agreement" with Japan, adjustments can be made by following the necessary procedures, so check for yourself or consult a specialist.
Income tax when working remotely for an overseas company from Japan
The handling of income tax differs between "residents" and "non-residents." A "resident" is an individual who has a "residence" in Japan or has been living in Japan for one year or more continuously.
- Residence: The base of an individual's life (determined by objective facts)
- Dwelling Place: Not the base of an individual's life but a place where the person actually resides
Also, to prevent double taxation with countries that have a "Tax Treaty" with Japan, methods to determine whether an individual or corporation is a resident of either country are established.
Residents need to file a tax return
Residents working remotely for an overseas company from Japan are subject to Japanese income tax on salaries or remunerations paid by the overseas company. Since these payments are not subject to withholding tax when transferred from the overseas company, individuals must file a tax return themselves. This applies to both employment and contract agreements.
When filing a tax return, the total income received in Japan and overseas must be declared as "global income," meaning both incomes are subject to taxation.
Furthermore, when receiving payments from the overseas company, foreign income tax may be withheld based on local laws. In this case, a foreign tax credit can be claimed in the tax return, allowing the deduction of foreign taxes paid from the Japanese income tax due, a measure to avoid double taxation.
Non-residents are only taxed on income from Japan (considering the 183-day rule for short-term residents' exemption)
Non-residents working remotely for an overseas company in Japan are taxed on income from activities in Japan. However, income from activities outside Japan is subject to foreign income tax.
To prevent double taxation, the exemption for short-term residents (183-day rule) is considered. Under this system, if a non-resident stays in Japan for less than 183 days, they are exempt from Japanese income tax on salaries earned in Japan.
Thus, non-residents working remotely for an overseas company from Japan need to consider income from both domestic and foreign sources separately. Utilizing the short-term resident exemption can prevent double taxation, making proper declaration and procedures important.
(Source: National Tax Agency)
Solution of Overseas Remote Work with Japan-specific EOR Services
Working remotely for an overseas company while living in Japan presents various legal and tax challenges and risks. In recent years, EOR (Employer of Record) has emerged as a solution amidst the increase in overseas remote work. However, EOR services are often provided by foreign companies, and may not fully address Japan's unique rules.
No boundaries offers EOR services specialized for Japan, ensuring peace of mind for users. The company's strength lies in its service design by international business consultants and Japanese lawyers. Professionals with expertise in Japanese law and taxation support clients.
For those wishing to work remotely for overseas companies while living in Japan, or companies looking to hire such individuals, please contact No boundaries for more information.
Kiyotsugu Manabe (No boundaries Ltd. CEO / Specially Appointed Associate Professor at Kyoto University's office of Society Academia Collaboration for Innovation)
Kiyotsugu Manabe brings a wealth of expertise in international development and management, backed by a robust academic foundation with a Master's degree from the Johns Hopkins University School of Advanced International Studies (SAIS) and the Graduate School of Frontier Sciences at the University of Tokyo, where he specialized in International Cooperation. His professional journey is marked by significant roles at leading international organizations, including the World Bank, JICA, and McKinsey & Company, where he has offered strategic consulting services to governments and multinational corporations across the globe. Manabe's extensive field experience spans a diverse array of countries, including the USA, Vietnam, Thailand, Bangladesh, Iraq, Jordan, South Africa, and Kenya, underscoring his deep understanding of global development challenges and solutions.