Do I Need a Local Entity to Hire in Japan?

In Japan, a "local entity" typically refers to a recognized business presence that allows you to act as an employer, such as a subsidiary or branch office. This setup is essential for managing payroll, tax obligations, and employment protections in compliance with Japanese law.

Without a local entity, you generally cannot register as an employer, handle mandatory social security processes, or issue compliant employment contracts. An alternative is to use an Employer of Record (EOR), which can help you hire employees without the need for a local entity.

What is Required to Employ Someone in Japan?

• Local employing entity required to directly employ? Yes (a local entity is needed for direct employment)
• Payroll registration required? Yes (you must register with the National Tax Agency)
• Withholding/tax remittance required? Yes (employers must withhold income tax and social insurance premiums)
• Social contributions required? Yes (employers are responsible for social insurance contributions)
• Local employment agreement required? Yes (written contracts are mandatory under Japanese law)
• Mandatory benefits to budget? Yes (includes health insurance, pension, and paid leave)
• Works council/collective agreements considerations? Usually (many sectors have collective agreements that may apply)

Best Options If You're Hiring in Japan

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but you should proceed with caution. Hiring contractors in Japan can be a viable option, but misclassification risks are significant if the contractor's work resembles that of an employee.

While contractors don’t require a local entity, Japan has strict labor laws that protect workers. If the contractor is integrated into your business or works under your direction, you might face legal challenges. Here are some key considerations:

• Ensure the contractor operates independently and isn't dependent on your business for work.
• Limit control over their work hours and methods to avoid misclassification.
• Be cautious if the contractor performs core business functions, as this increases the risk of reclassification.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 2–4 months to set up an entity in Japan, depending on the type of entity and required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated ¥50,000–¥150,000 per month ($350–$1,050)
• Payroll provider: Estimated ¥10,000–¥30,000 per employee per month ($70–$210)
• Employer registrations and recurring compliance: Estimated ¥100,000–¥300,000 per year ($700–$2,100)
• Corporate tax filings and annual reporting: Estimated ¥200,000–¥600,000 per year ($1,400–$4,200)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Japan

Hiring in Japan can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Japan quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.