How to set up as an independent contractor in Japan

If you’re looking to make a living on your own terms, then Japan — with its strong business culture and unique way of life — is an ideal location to go it alone.

Whether you’re looking to set up shop amongst the sprawling, neon lights of Tokyo, the tranquil cherry blossoms of Kyoto, or the thriving nightlife of Osaka, Japan is a perfect spot to merge work and lifestyle.

Before you can fully embark on your self-employment journey, though, you’ll need to know how to:

• Register your business in Japan

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of. So pour yourself another sake, and let’s begin.

First, it’s important to clarify how Japan defines independent contractors.

What is an independent contractor according to Japanese law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

In Japan, there is no specific law (or section of the Japanese Civil Code) that clarifies the difference between independent contractors and employees. The exact relationship is generally determined by the worker and the hiring party in the working agreement. However, as in most countries, you are generally considered to be a contractor if you:

• Determine your own work schedule and working hours

• Perform work for other companies

• Set your own rates and scope of work

• Provide your own tools or equipment

• Are not integrated into the company and its operations (i.e. you don’t have an internal email address)

• Are able to delegate or subcontract work

• Work without direction or supervision

When you work with clients, it’s important to be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes. 

Business registration in Japan

Before you can begin working as an independent contractor in Japan, you’ll first need to choose a formal structure for your business.

The most popular model for sole owners is a sole proprietorship (kojin jigyo), as it’s quick and easy to set up and maintain. In this structure, you have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities. Your tax obligations are also far less complex.

If you want more legal protection, you anticipate generating a large amount of revenue, or you’re working with additional partners (natural or legal), you can also incorporate a formal company, or enter into a partnership. If you’re unsure which structure is most suitable for your business, it’s a good idea to speak with a registered solicitor or accountant.

If you do opt for the sole proprietor model, you don’t need to take any formal legal steps; simply notify your local tax office through the Notification of Commencement of Business (Kojin Jigyo no Kaihaigyo Todokedesho) form. Note that you must submit this form within two months of starting your business.

If your business activity is regulated (i.e. you practice a protected profession such as medicine or law, or you’re handling food), you’ll also need to acquire the relevant business permits or licenses from your local authority. 

How do I get paid as an independent contractor in Japan?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides Japan, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Japanese yen — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in Japan

As an independent contractor, you’re responsible for filing and paying your own taxes.

The good news is that, as a sole proprietor, you pay personal income tax on your business profits (using your personal tax number). This means that you do not have to fill out a separate tax return, or pay additional corporate taxes.

Like most countries, Japan has a progressive income tax rate. Depending on how much you earn, you can expect to pay between 5% and 45% of your income. You must file your tax return by March 15 each year, and pay quarterly installments throughout the year.

Note that if your annual business income exceeds ¥2.9 million (around $21,500), you will also need to pay an additional enterprise tax of between 3% and 5%, depending on your business activity.

You are also “expected” to make health insurance and pension contributions to the NHI and NPI schemes. When calculating these contributions, multiple factors are taken into account, such as your level of income, your age, and where in Japan you live. 

On the flipside, you can claim tax deductions on some business expenses, such as travel and entertainment. However, you will have to prove that these expenses were necessary.

VAT information for independent contractors in Japan

Japan operates a consumption tax (CT) system in place of VAT. If your business income exceeds ¥10 million (around $75,000) over two calendar years, you must register for — and charge your clients — CT.

The standard CT rate in Japan is 10%.

Liability considerations for independent contractors in Japan

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Japanese and international clients.

Accounting requirements for independent contractors in Japan

As a sole proprietor, you do not need to publish financial statements or accounts. However, you should still keep organized, accurate records of all your income and expenditure (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool, or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Japan

As we’ve mentioned, independent contractors are classified differently to employees in Japan. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

This is a helpful guide for companies hiring international contractors, but not all advice will apply in all countries. For specific information about hiring contractors in Japan, contact Remote or view our page on hiring in Japan.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in Japan?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Japanese law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Japanese yen (or other currencies), without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Japanese laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Japan

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for Japanese and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.