Japan Economy Overview

Currency

¥ Japanese Yen (JPY)

Working hours

40 – 44 hours/week

Public/bank holidays

16 public holidays

Capital

Tokyo

Languages

Japanese

Population

123.3 million

Minimum hourly salary

¥1,113

Tax year

1st Jan – 31st Dec

Date format

MM/DD/YYYY

Misclassification penalties

The criminal penalties include fines of up to ¥300,000 and/or imprisonment of up to six months. Social security penalties of up to ¥500,000 and/or imprisonment of up to six months. Additionally, employers are liable for penalty taxes of up to 10%, including additional interests.

Fun fact

Renowned for their reliability, Japanese trains boast an average delay of just 18 seconds.

Japan’s large and affluent domestic market and strategic East Asia location give investors access to over 3.3 billion consumers in the broader Asia-Pacific region. The country is known for its unique products and services as a global leader in innovation, R&D, technology, and manufacturing. 

Overview of the Japan Economy

Japan’s highly developed and advanced economy is the 4th largest in the world after the USA, China, and Germany as the country is: 

  • One of the world’s largest manufacturers of automobiles and a key manufacturer of consumer electronics, semiconductors, and many other types of high-tech products.
  • Home to some of the world’s largest corporations – especially financial services firms and trading or export-focused firms.
  • Home to 21 World Heritage Sites and one of the world’s most popular tourist destinations.
  • Increasingly attractive to wealthy Chinese and Hong Kong real estate investors, while other international investors are helping to revive the local stock market – one of the world’s largest financial markets. 

Although Japan is an aging society facing demographic and economic problems, these challenges present opportunities for businesses to provide unique products and services as the average Japanese remains relatively affluent.   

Taxes

Employer Tax: 16.62% – 26.74%

Health Insurance

4.935% (varies by prefecture, with higher rates for 40-64 year olds)

Pension

9.15% (maximum wages up to JPY 620,000)

Unemployment Insurance

0.6%

Nursing Care Insurance

0.8%

Employee Tax: 15.54%

Health Insurance

4.935% (varies by prefecture, with higher rates for 40-64 year olds)

Pension

9.15% 

Unemployment Insurance

0.6%

Nursing Care Insurance

0.8%

Gross Income (¥)

Up to 1,950,000

1,950,000 – 3,300,000

3,300,000 – 6,950,000

6,950,000 – 9,000,000

9,000,000 – 18,000,000

18,000,000 – 40,000,000

More than 40,000,000

Tax Rate

5%

10%

20%

23%

33%

40%

45%

Business Regulation in Japan

Japan has a civil law legal system with six legal codes that were greatly influenced by Germany and (to a lesser extent) by France but adapted to Japanese circumstances.

In addition to the six codes, individual statutes cover more specific matters (such as labor and employment law). However, if provisions of both the Civil Code and Commercial Code apply to a situation, the latter will take priority.

For businesses, the Commercial Code of Japan (or Shoho) is a comprehensive legal framework that regulates commercial transactions and activities in Japan. Based mainly on the Commercial Code of Germany, it has undergone several revisions and amendments since its 1899 adoption.

Labor Regulation in Japan

Japan’s labor law is primarily governed by the Japanese Civil Code, the Labor Standards Act of 1947, and the “Work Style Reform Law” passed in 2018. Key labor law provisions include:

  • Minimum wages vary by prefecture and industry and are adjusted annually by Minimum Wage Councils at both the national and prefectural levels.
  • Any work beyond eight hours a day and 40 hours a week requires overtime pay, while overtime is capped at 45 hours per month and 360 hours per year under normal circumstances.
  • Rest periods of at least 45 minutes are required for workdays exceeding six hours.
  • Part-time employees are entitled to the same treatment in terms of wages and other benefits as full-time regular employees.
  • Employees working 20 hours or more per week are entitled to Shakai Hoken (Social Insurance covering health insurance, pensions, and unemployment insurance) paid by both employees and employers.
  • Annual paid leave starts from ten days after six months of employment and up to 20 days after 6.5 years.
  • Employers must demonstrate “just cause” for termination and provide at least 30 days of advance notice or pay a salary instead of giving notice.
  • Trade union rights are protected, and collective bargaining is a key aspect of Japanese labor relations.

Some sectors have unique rules under employment law that businesses must be aware of. For example, employees in banking managerial roles might not be entitled to overtime pay under the “White Collar Exemption” clause.   

In addition, a business employing ten or more employees must establish “Work Rules” outlining working conditions (such as working hours, salaries, holidays, and other key employment aspects) and submit them to the local Labor Standards Inspection Office. Failure to do so or not following a specific process can lead to penalties. 

Benefits of Doing Business in Japan

As one of the most politically stable countries in the world with excellent infrastructure, Japan is one of the safest and easiest countries to travel and work in. Japan’s location also makes it ideal for conducting business with the rest of the Asia-Pacific region as flights to surrounding cities are short, affordable, and often available several times a day – allowing for business trips around working hours. 

Full-time Japanese workers are known for their exceptionally strong work ethic, typically work longer hours than their counterparts in the USA or Europe, and are expected to socialize with their co-workers after a working day. 

Japanese are also known to value cooperation and loyalty more than competitiveness or aggression and strive for consistent improvement – meaning Japan is an excellent testing ground for developing new products or improving existing ones. 

In addition, Japan’s education levels are the second-highest in the world. The country has the second-highest number of patent applications per one million people as an estimated 10 out of every 1,000 employees is involved in R&D. To encourage more R&D, Japan has some of the strongest intellectual property laws in the world plus municipal governments offer various incentives packages to help foreign companies hire skilled local labor. 

International Expansion into Japan

The following types of Japanese business entities are available: sole proprietorships, joint-stock companies (Kabushiki-Kaisha), limited liability companies (Godo-Kaisha), general partnerships (Gomei Kaisha), limited partnerships (Goshi Kaisha), branches (Shiten), and liaison offices.

However, liaison offices cannot sign contracts, take orders, collect revenue, or issue invoices. They also do not require registration with the Japanese authorities and pay no taxes.

The most common setups for new foreign businesses in Japan are subsidiaries (joint stock companies or limited liability companies) and branches.

Japan Employer of Record (EOR)

An Employer of Record Service in Japan can help employers new to Japan navigate its complex labor laws and unique culture to ensure compliance. A Japan EOR operates much like a Japan PEO, except that the Japan EOR acts as the legal employer, rather than co-employer, of workers, shouldering more of the liabilities. 

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Recruitment Agencies

Recruitment agencies in Japan help businesses expand by connecting them with skilled local talent across various industries.

Remote People provides recruitment solutions that simplify hiring and ensure compliance with Japanese labor laws.

For businesses looking to grow in Japan, Remote People offers the expertise and resources needed to build a local workforce quickly and effectively, making it a practical solution for market expansion.

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Japan Professional Employer Organization (PEO)

Partnering with a professional employer organization (PEO) allows companies to employ local staff in Japan without the need to establish a legal entity. This approach is quicker and less expensive, making it ideal for businesses testing the Japan  market or those with limited operations.

PEOs handle administrative tasks and ensure that companies comply with Japan regulations, reducing the complexity and risk associated with hiring local employees. 

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Subsidiary Incorporation

To open a business entity in Japan: 

  • Articles of Association need to be notarized and filed with the Trade Register
  • A company seal needs to be prepared and registered with the Japanese Trade Register
  • The entity needs to be registered with the tax authorities for taxation and social insurance purposes
  • A corporate bank account needs to be opened, and the share capital deposited
  • Any necessary business licenses or specific authorizations will need to be obtained. 

Subsidiaries in Japan have the same status as Japanese business entities, and the registration requirements are similar for both local and foreign investors. However, foreigners can register limited liability companies without a representative agent having Japanese residency. They also cannot offer shares to the public, while joint-stock companies can.

Depending on the minimum capital invested in the business, a Business Manager visa can be obtained – allowing the holder to have residency rights in Japan. 

Branch Registration

Japan branches have simpler incorporation procedures as they only need a local representative, the parent company’s documents for the registration process, a local place for conducting business, and a Branch Office Registration Certificate from the Legal Affairs Bureau. 

Branches can also open corporate bank accounts, must file annual tax returns within two months of the end of the financial year, and get taxed on any profits derived from Japan.

Business Opportunities in Japan

Japan, as the world’s third-largest economy, presents a wide range of attractive business opportunities across various sectors. The country’s advanced technological infrastructure, highly skilled workforce, and stable political and economic environment make it an appealing destination for investors and entrepreneurs seeking to establish or expand their presence in the Asia-Pacific region.

Business OpportunitiesReasons
Robotics and AutomationJapan is a global leader in robotics and automation technologies, with a strong emphasis on innovation and research. The country’s aging population and labor shortages create a growing demand for advanced robotics solutions in manufacturing, healthcare, and service industries. Opportunities exist in the development and deployment of cutting-edge robotics and automation systems.
Healthcare and Life SciencesJapan’s rapidly aging population and increasing healthcare expenditure present significant opportunities in the healthcare and life sciences sector. The country’s focus on developing innovative medical devices, pharmaceuticals, and regenerative medicine technologies, coupled with a robust intellectual property protection system, makes it an attractive market for businesses in this field.
Renewable EnergyAs Japan aims to reduce its reliance on nuclear power and fossil fuels, the country is actively promoting the adoption of renewable energy sources. Opportunities exist in the development of solar, wind, and hydrogen power projects, as well as in the production of energy-efficient technologies and smart grid solutions. The government’s supportive policies and incentives further enhance the potential of this sector.
E-commerce and Digital ServicesJapan’s highly connected and tech-savvy population presents significant opportunities in the e-commerce and digital services sector. The country’s well-developed internet infrastructure, coupled with a growing demand for online shopping and digital content, creates a favorable environment for businesses offering innovative e-commerce platforms, mobile applications, and digital services.
Tourism and HospitalityJapan’s rich cultural heritage, natural beauty, and renowned hospitality make it a popular tourist destination. The country’s efforts to promote inbound tourism, coupled with the upcoming global events such as the 2025 World Expo in Osaka, present opportunities in the tourism and hospitality sector. Businesses can capitalize on the growing demand for unique travel experiences, luxury accommodations, and cultural attractions.

Japan presents significant potential across various sectors for businesses looking to enter its sophisticated and innovative market. The government has taken steps to encourage foreign investment by streamlining administrative procedures and fostering a business-friendly environment. These efforts enhance the attractiveness of opportunities in industries such as technology, consumer goods, and renewable energy.