Hiring an International Contractor in Japan: A Guide for International Employers

Hiring independent contractors in Japan will give your company access to a new pool of talent and local networks.  Whether you are hiring skilled IT workers, sales agents or other remote workers, it will be necessary to understand the Japanese laws regulating contracting, work permits, taxation and worker status.

There can be some real advantages to hiring a contractor in Japan, especially locals who understand the language and culture and can help to introduce you to the marketplace.  Likewise, expats with experience in Japan can be an asset if you are just entering the country, or exploring new opportunities.

How do you Engage a Contractor in Japan?

If you are planning on hiring a contractor in Japan the first thing to know is that the contractor relationship is not as common as in other countries, and there are several requirements to confirm the contractor’s status.  This is especially important if you are hiring a Japanese local who may not want the burden of self-employment, and could ask you to pay their social security or withhold taxes.

There are two types of contractors in Japan.  “Haken” workers are those dispatched by agencies, and the company and worker are required to pay into the health care and pension system.  Haken workers are more like employees, while “ukeoi” workers are true independent contractors, with no contributions required.

Classifying Employees and Contractors in Japan

As in most countries, Japan has classification rules for both foreign and local workers, so it is necessary to structure your contracts to meet the criteria. In general, it should not appear that you exercise control over your contractor’s work methods, and that they are set up as a true self-employed entity.  Ask that they send regular invoices for their services, and make sure to have a valid B2B contract in place.

This may be easier to establish with expats than locals, since Japan has a greater interest in protecting the rights of Japanese workers who are actually being treated as employees.  The risk for your company is that you could face reclassification of your contractor, and have to face paying social security and setting up a local payroll for your new ‘employee’.

What are the Tax Filing Requirements for a Contractor in Japan?

If your company has no business operations or presence in Japan, then hiring a contractor will not require filing taxes.  However, your contractor will need to file and pay taxes on any income earned in Japan.  If they stay longer than one year, then they are deemed a tax resident, and pay tax on global income for that year.

Once again, they should be filing as self-employed, or through an umbrella company that handles tax withholding for them.

Obtaining Immigration and Work Permits for Contractors in Japan

For your expat contractors in Japan, you will need a Japanese entity to sponsor their work permit.  The easiest way to do that is through a Japanese umbrella company that can act as sponsor for the contractor.  If your contractor has worked with other companies previously, they will need a new work permit even if they have been in the country for some time.