Secondments to Japan: Employment, Tax, and HR Risk Checklist

Sending an employee from headquarters to a Japan entity is routinely treated as an HR logistics exercise. The employee is placed under a secondment arrangement, a new work assignment is agreed, and the deployment begins. What many HQ teams do not fully appreciate is that Japan’s legal environment — employment law, tax law, social insurance, and visa regulations — applies to the arrangement based on what is actually happening, not what the secondment agreement says is happening. The gap between the two can create exposure that persists long after the employee returns home.

Three areas account for most of the risk: the question of who is the legal employer under Japanese law, the tax treatment of how the employee’s salary is funded and paid, and the visa category used for the deployment. Each of these is an area where HQ assumptions do not match Japan’s legal reality — and where the paperwork trail the company leaves behind is often the first thing examined if an issue surfaces.

Why Sending an Employee to Japan Is More Legally Complex Than It Looks

In most foreign companies’ home jurisdictions, an intra-company secondment is a relatively contained arrangement. The employee moves temporarily, the home employment contract continues, and the host entity provides direction over day-to-day work. The legal complexity is manageable. Japan adds layers that are not present in many other markets.

The first layer is employment law. Japan’s Labor Standards Act, social insurance regime, and work rules framework apply based on the economic and functional reality of the employment relationship — not the label on the secondment agreement. An employee who is working in Japan, receiving direction from the Japan entity, and performing work that benefits the Japan entity is likely to be treated as an employee of the Japan entity for most practical purposes, regardless of whether the formal employment contract is with HQ.

The second layer is tax. How the employee’s salary is paid and who bears the cost has direct implications for whether HQ creates a permanent establishment (PE) in Japan — a status that would expose HQ to Japanese corporate taxation on attributable profits. This is not a theoretical risk; the National Tax Agency has scrutinised cross-border salary arrangements in intra-company transfers, and the pattern that triggers PE risk is one that many companies default to without understanding the consequence.

The third layer is visa. Japan’s immigration categories are specific about what type of activity each category permits. Using the wrong category — or failing to update the visa when the secondee’s role changes — creates immigration compliance risk that can affect both the individual and the company.

Who Is the Employer? How Japanese Labor Law Treats Seconded Workers

The most common secondment structure used for Japan deployments is the zaiseki shūkō — the “in-employment secondment.” The employee retains their employment contract with HQ while working under the direction of the Japan entity. On paper, HQ remains the employer. Under Japanese labor law, the picture is more complicated.

Japanese courts and labour authorities assess the employer-employee relationship by looking at economic and functional reality, not contractual form. The key question is who exercises shikijimentō — the power to direct and supervise the employee’s work. Where the Japan entity controls day-to-day work assignments, sets performance objectives, manages working hours, and handles disciplinary matters, that entity is likely to be treated as the functional employer for Labor Standards Act purposes, regardless of what the secondment agreement says about HQ being the employer of record.

The practical consequences of the Japan entity being treated as the functional employer include:

• The Japan entity’s work rules apply. The shūgyō kisoku — the company’s internal work rules — regulate working conditions for all workers under the entity’s direction. A secondee working under the Japan entity’s direction is subject to those rules, regardless of their home employment terms.
• Japan’s dismissal protections extend to the secondee. If the Japan entity terminates the secondment — or if the arrangement functions as a dismissal of the secondee’s effective employment — Japan’s extremely restrictive dismissal framework may apply. The company cannot simply recall the employee and treat that as a clean end to Japan employment obligations.
• Liability sits with the Japan entity. Unpaid wages, overtime violations, and work environment obligations run against the entity exercising direction — which, in a functioning secondment, is the Japan entity. The fact that the formal contract is with HQ does not insulate the Japan entity from these obligations.

The full picture of legal requirements that apply when a foreign company hires or deploys employees in Japan — including work rules, employment contract requirements, and the broader regulatory framework — is covered in Hiring Employees in Japan: Legal Considerations for Foreign Companies.

Social Insurance and Working Hour Rules: What Automatically Applies

Social insurance

A secondee working in Japan for the Japan entity is generally required to enroll in Japan’s social insurance system — health insurance (kenkō hoken) and employees’ pension (kōsei nenkin) — if they meet the standard employment criteria. Enrollment is triggered by the employment relationship with the Japan entity, not by the secondee’s home-country status. This applies regardless of whether the secondee remains enrolled in their home-country social insurance scheme; Japan does not automatically exempt secondees on the basis of home-country coverage. The exception is where Japan has a social security totalization agreement with the secondee’s home country, which can allow exemption from Japanese enrollment for a defined period.

Whether a totalization agreement applies, the duration of any available exemption period, and the procedures for claiming exemption depend on the secondee’s home country and the specific terms of any applicable agreement. Current treaty status should be confirmed before structuring the social insurance arrangements.

Working hours

Japan’s working hour limits and overtime rules under the Labor Standards Act apply to any worker under the Japan entity’s direction. The standard legal limit is 8 hours per day and 40 hours per week; work beyond this requires a 36 Agreement (sanroku kyotei — a written agreement between the employer and employee representative) and payment of overtime premiums. The working hour limits that apply under the secondee’s home employment contract do not override the Japanese statutory requirements. A company that deploys a secondee under conditions normal in the home country — extended hours, informal overtime, no 36 Agreement — may find itself in violation of the Labor Standards Act.

Paid leave

Japan’s statutory paid leave entitlement is based on continuous service and attendance rate. A secondee who has been working in Japan for six months or more may acquire a statutory paid leave entitlement — provided the statutory requirements are satisfied, including the required attendance rate during that period — and the Japan entity is required to ensure the secondee takes a minimum of five days of annual paid leave per year where the entitlement applies. The Japan entity cannot rely on the secondee’s home employment contract for compliance with this obligation. The working hour and paid leave framework is set out in detail in Japanese Overtime, Working Hours, and Paid Leave Regulations Explained.

The Tax Risk HQ Often Misses: PE Exposure and Salary Cost Reimbursement

The salary arrangement in a secondment — who pays what, where, and on what basis — has direct tax consequences that HQ teams frequently overlook. The pattern that creates the most risk is the one that feels most natural: HQ continues to pay the secondee’s salary in full from the home country, and the Japan entity pays nothing or makes a partial reimbursement to HQ.

PE risk from salary funding

Under Japan’s domestic tax rules and many applicable tax treaties, a foreign company may be treated as having a “service PE” in Japan if it provides services to a Japanese entity through its own employees on a sustained basis. Where HQ is providing the secondee’s labour and bearing the salary cost, the arrangement can be characterised as HQ providing services to the Japan entity — which may constitute a PE. Once a PE is established, HQ’s profits attributable to the PE’s activities become subject to Japanese corporate tax.

The cost-sharing question

The structure that creates the least PE risk is one where the Japan entity assumes full responsibility for paying the secondee’s Japan-period salary — either by direct payment to the secondee or by full reimbursement of HQ at cost, with no mark-up. A cost-plus arrangement (HQ charges the Japan entity for the secondee’s salary plus a profit margin) can make the PE characterisation more likely, because it looks like HQ is providing a service from which it profits, rather than simply making an employee available. At the other extreme, HQ bearing all costs with no reimbursement is also problematic — both for PE purposes and for transfer pricing reasons, as the Japan entity would be receiving a benefit (the secondee’s services) without paying for it.

Withholding tax on the secondee

The secondee’s tax residency status in Japan is determined under Japan’s domestic tax rules and, where applicable, the relevant tax treaty. Whether and when Japanese tax residency arises — and what income is subject to Japanese tax as a result — depends on the facts and circumstances of the individual case, including the duration of stay, the applicable tax treaty, and the nature of the compensation arrangement.

Separately, most tax treaties with Japan include a short-term resident exemption (commonly linked to a 183-day threshold), but the conditions for that exemption vary by treaty and are not automatically satisfied. The Japan entity’s withholding obligations on Japan-sourced salary should be assessed in light of the specific treaty and the agreed compensation structure.

Whether a service PE arises from a secondment arrangement depends on the specific facts, the applicable tax treaty, and the duration and nature of the secondee’s activities in Japan. The safe structure for salary cost allocation is fact-specific. Tax advice from both Japan and home-country advisors is required before the arrangement is put in place.

Choosing the Right Visa: Where Companies Get It Wrong

The Intra-Company Transferee (kigyo-nai tenkin) visa is the standard category for secondments to Japan. It applies where an employee of a foreign company is being transferred to a Japanese affiliate for a temporary period. The category is designed for operational and specialist roles — not management roles that involve running or directing the Japan entity.

The mistake that creates the most immigration risk in secondment situations is deploying a secondee on an Intra-Company Transferee visa when the role they will actually perform in Japan is a management role — directing the Japan operation, holding a representative director title, or making strategic decisions on behalf of the Japan entity. Those activities require a Business Manager visa. Using the wrong category creates a status violation for the individual, and managing it mid-secondment — requiring the secondee to leave Japan, apply for the correct visa, and re-enter — is disruptive and sometimes damaging to the deployment timeline.

A second error pattern: a secondee who starts under an Intra-Company Transferee visa and whose role gradually expands into management territory as the Japan operation grows. The visa category was accurate at the point of deployment but has become inaccurate over time. Japan’s Immigration Bureau expects the visa category to reflect the actual activities being performed — a visa category that no longer matches the role is a compliance risk at renewal.

Work Visa Options for Foreign Employees in Japan sets out the full landscape of available visa categories and the eligibility criteria for each, which is a useful reference when assessing the right category for a specific secondee profile.

Why Many Secondment Agreements Fail to Allocate Risk Properly

The secondment agreement is the document that is supposed to govern the deployment — the relationship between HQ, the Japan entity, and the secondee. In practice, many secondment agreements used for Japan deployments are adapted from home-country templates that were not designed with Japanese law in mind. They frequently omit provisions that matter in Japan and include provisions that create risk.

The clauses that Japan-specific secondment agreements need to address explicitly:

• Direction of work. The agreement should specify that the Japan entity is responsible for day-to-day direction of the secondee’s work in Japan. This is important both for practical management purposes and for establishing that the Japan entity, not HQ, is the functional employer for Labour Standards Act purposes.
• Salary and cost allocation. The agreement should set out how the secondee’s total compensation is allocated between HQ and the Japan entity, and on what basis reimbursement is made. The structure should be tax-advised, documented clearly, and consistent with the agreed transfer pricing methodology for the group.
• Japan working conditions. The agreement should confirm that Japan’s working hour limits, overtime requirements, and paid leave obligations apply during the secondment period. This avoids ambiguity about which regime governs — particularly where the home-country employment contract specifies different working conditions.
• Social insurance allocation. The agreement should address whether the secondee enrolls in Japan’s social insurance, whether a totalization agreement applies, and how employer contributions are allocated between HQ and the Japan entity.
• End of secondment and return. The agreement should specify the basis on which the secondment terminates — fixed term, mutual agreement, or recall by HQ — and what happens to the secondee’s Japan-period obligations (outstanding paid leave, accrued retirement allowance where applicable) on termination. Without this, the parties are left to negotiate these points at the end of an arrangement that is already under stress.
• Governing law. The secondment agreement itself can be governed by HQ’s home law. However, Japan’s mandatory employment law provisions — the Labor Standards Act, social insurance obligations, and the dismissal framework — apply regardless of the chosen governing law where the secondee is working in Japan. The governing law clause does not override Japan’s mandatory rules; it only determines which law governs disputes about the contract terms that Japan law does not mandate.

Checklist: What HQ and the Japan Entity Each Need to Prepare

HQ responsibilities before secondment begins

1. Confirm the correct visa category for the secondee’s role in Japan (Intra-Company Transferee vs Business Manager) and initiate the application with sufficient lead time.
2. Obtain home-country and Japan tax advice on the salary structure and cost allocation before the arrangement is finalised. Confirm whether a PE risk arises and how to structure reimbursement to mitigate it.
3. Confirm whether a social security totalization agreement applies and advise the secondee on their home-country and Japan enrollment status.
4. Draft a Japan-specific secondment agreement covering direction of work, salary allocation, Japan working conditions, social insurance, and end-of-secondment terms. Do not rely on a home-country template without Japan-law review.
5. Advise the secondee on their individual income tax obligations in both jurisdictions, including the applicable tax residency rules and treaty positions that determine how their income will be taxed during the secondment period.

Japan entity responsibilities

1. Enroll the secondee in Japan’s social insurance system if required, including health insurance and employees’ pension. Confirm the basis for any totalization agreement exemption and maintain documentation.
2. Execute a 36 Agreement (sanroku kyotei) if the secondee will work overtime. Establish a working hours management process that tracks the secondee’s actual hours and ensures compliance with Japan’s statutory limits.
3. Ensure the secondee is included in the Japan entity’s work rules (shūgyō kisoku) or has separately agreed working conditions consistent with Japan law.
4. Manage paid leave accrual and ensure the secondee takes the minimum statutory leave required under Japanese law.Where the secondee is tax-resident in Japan, withhold and pay Japanese income tax on the Japan-sourced salary component. Ensure the withholding structure is consistent with the compensation allocation agreed in the secondment agreement.

Conclusion

A Japan secondment that is set up without attention to the employment, tax, and visa dimensions is not a neutral starting point — it is a source of accumulated risk. The obligations accrue from the first day of the deployment and do not become visible until something goes wrong: a tax inspection, an employee complaint, a visa renewal, or a dispute at the end of the secondment about unpaid leave and accrued obligations.

The preparation required is not disproportionate to the risk. A Japan-specific secondment agreement, a confirmed salary structure, the right visa, and social insurance and working hours compliance in place from day one covers the main exposures. The companies that face problems are typically those that treated the deployment as a simple HR transfer and only engaged with the legal dimensions of the arrangement when a specific issue forced them to.

Planning a Secondment to Japan?

If you are planning a secondment to Japan and want to ensure the employment structure, tax treatment, and visa arrangement are all correctly set up, our team can help you prepare.

Contact the TSL Partners – International Business Desk