Withholding and Year-End Adjustment for Foreign Staff: 2026 Changes

Foreign employees who are residents of Japan are treated the same as Japanese employees: income tax is withheld from each month’s salary using the withholding tax tables, and the full year is settled through the year-end adjustment (年末調整). Non-residents are not covered by the year-end adjustment, and 20.42% is withheld from salary attributable to work performed in Japan. Claiming the dependant deduction for family living overseas requires documents on family relationship and remittance documents.

Withholding for foreign employees depends on resident or non-resident status

How tax is withheld (源泉徴収) from salary is determined not by nationality or status of residence but by whether the employee is a resident or a non-resident under the Income Tax Act. A resident is a person who has a domicile in Japan, or who has had a residence in Japan continuously for one year or more up to the present. An employee who comes to Japan on a work visa and plans to work there for a year or more is usually a resident from the date of arrival.

For how residence status for tax purposes is determined, see Determining tax residence in Japan.

Monthly withholding process

A company that pays directors’ remuneration or salaries is a withholding agent. After incorporation, it files a notification of establishment of a salary payment office with the tax office and handles monthly payroll tasks as follows.

1. On joining, collect the Application for (Change in) Exemption for Dependents of Employment Income Earner (扶養控除等（異動）申告書)
2. If the form is submitted, calculate tax using Column Kō; if not, use Column Otsu
3. Deduct income tax and the special income tax for reconstruction when paying salary
4. Pay the tax to the tax office by the 10th of the month following payment

Employees who have not submitted the application for exemption for dependents are taxed under Column Otsu, which yields higher withholding, and are not covered by the year-end adjustment. It is important to explain the purpose of the form and how to fill it in to foreign employees when they join. If the company regularly pays fewer than 10 employees, a special payment schedule allows the tax to be paid twice a year. Filing deadlines are summarized in Filings and deadlines after incorporation.

Who is and is not covered by the year-end adjustment

The year-end adjustment settles the difference between the tax withheld from salary during the year and the correct tax for the full year. In principle, it is carried out when the last salary of the year is paid.

Tax settled in the year-end adjustment is in principle paid by January 10 of the following year, or by January 20 under the special payment schedule. By January 31 of the following year, the company also issues withholding slips and submits salary payment reports to municipalities.

Preparation and timeline for the year-end adjustment

Although the year-end adjustment is calculated in December, preparation starts in the autumn. Explaining the purpose of each form to foreign employees in advance helps collection go smoothly.

If an employee hired mid-year had a previous employer, obtain the withholding slip from that employer and include the previous salary in the calculation. If the previous employer was an overseas company and the employee was a non-resident during that time, that salary is not included in the year-end adjustment.

Dependant deduction for family living overseas: required documents

The most time-consuming item to verify in a foreign employee’s year-end adjustment is the dependant deduction for family members living outside Japan (relatives residing overseas). To claim the deduction, the following documents must be submitted.

• Documents on family relationship: documents showing the family relationship, such as the equivalent of a family register or a birth certificate. Submitted with the application for exemption for dependents.
• Remittance documents: documents showing that living expenses or other money was sent during the year. Submitted at the time of the year-end adjustment.

Documents in a foreign language also require a Japanese translation. Where there are three or more remittances in a year, the employee can prepare a statement and submit the documents for the first and last remittances only, omitting the rest.

Eligibility of relatives aged 30 to 69 is limited

From 2023 (Reiwa 5), relatives residing overseas who are aged 30 or older but under 70 are in principle no longer eligible for the dependant deduction. There are three exceptions.

If total remittances at year-end fall short of ¥380,000, the dependant deduction for that relative cannot be claimed. If the documents are not ready in time for the year-end adjustment, the calculation is made excluding that relative, and the employee later claims the deduction in a final tax return.

Employees who arrive in or leave Japan mid-year

Arriving and becoming a resident

For an employee who transfers from overseas and becomes a resident, tax is withheld using the withholding tax tables from the salary paid after arrival. Collect the application for exemption for dependents on joining and, if the employee has family overseas, start preparing the documents on family relationship at this point. As remittance records will be needed at year-end, agree with the employee on how money will be sent and how receipts will be kept.

Leaving and becoming a non-resident

For an employee who leaves Japan on reassignment or resignation and becomes a non-resident, the year-end adjustment is made on the salary paid up to the time of departure. Of the salary paid after departure, the portion attributable to work in Japan is treated as a payment to a non-resident and subject to 20.42% withholding.

Employees who leave the company must be given a withholding slip within one month of their last day. As they may need it for procedures in their home country, prepare it so that it can be handed over before departure.

Individual inhabitant tax is levied by the municipality of the address as of January 1 on the previous year’s income. Before departure, confirm with the employee how the remaining inhabitant tax will be paid and whether to appoint a tax agent.

Treaty exemptions (short-term visitors and others)

Employees seconded to Japan for a short period by an overseas company may be exempt from Japanese income tax under the short-term visitor exemption in a tax treaty. Requirements vary by treaty, and to claim the exemption, an Application Form for Income Tax Convention (租税条約に関する届出書) must be submitted to the tax office via the payer. For the China treaty, see Key points of the Japan–China tax treaty.

Changes to the 2026 (Reiwa 8) year-end adjustment

The FY2026 tax reform introduced the following amendments. They take effect in principle on December 1, 2026 and apply to income tax for 2026 and later years.

• An increase in the basic deduction for income tax (up to ¥1.04 million, depending on income)
• An increase in the minimum employment income deduction (from ¥650,000 to ¥740,000 for 2026 and 2027)
• A review of the income requirements for dependants and similar relatives

Monthly withholding through November continues to use the pre-amendment tax tables. The amended deductions are settled in a single step in the December 2026 year-end adjustment. As the income thresholds for dependants also change, recheck who qualifies, including relatives residing overseas, before the year-end adjustment.

How TIMOA can help

In withholding and year-end adjustments for foreign employees, errors tend to arise in three areas: determining residence, documents for family overseas, and mid-year departures. It is important to collect forms on joining and to start preparing remittance records early.

Working with partner certified tax accountants (税理士) and labor and social security attorneys (社会保険労務士), TIMOA helps set up payroll and withholding, handles year-end adjustments and explains the documents to foreign employees (in Chinese and English). For details of our services, see the Accounting, Tax & HR page.