When You Hire, You Hold Tax in Trust

By MISAWA Masaki, Certified Tax Accountant (Zeirishi, Reg. No. 157367) — formerly of Japan’s tax authorities · Published July 12, 2026 · Reviewed July 17, 2026

When you hire your first member of staff, or ask a freelance designer to do a job, a new obligation can arise for you as a business operator: the withholding obligation. When paying salaries or certain fees and remuneration, you must deduct the recipient’s income tax as prescribed by law and pay it to the government on the recipient’s behalf.

One premise before anything else: withholding is required only of a withholding agent (gensen chōshū gimusha) — broadly, a company, or an individual who pays salaries. An individual who pays no salaries at all is generally not a withholding agent, and does not withhold from fees.

Which payments are covered?

Many countries deduct tax from salaries at source. What is distinctive about Japan is that, in addition to salaries, certain fees and remuneration paid to individuals are also covered. Design fees, manuscript fees, translation and interpreting fees, and fees paid to licensed tax accountants and lawyers are typical examples. If you or your company is a withholding agent, you need to check before paying whether it is in fact right to pay the invoiced amount in full. (Payments to non-residents follow a separate regime — see our note: Paying Someone in Your Home Country.)

Worked example: fees to a designer

A worked example (assumptions: you commission a logo from an individual designer for a fee of ¥100,000; consumption tax is ignored). The withholding tax is ¥100,000 × 10.21% = ¥10,210. You pay the designer the net amount of ¥89,790, and pay the ¥10,210 to the tax office, in principle by the 10th of the following month. Even if you mistakenly pay the designer the full ¥100,000, your obligation to pay the ¥10,210 does not disappear. If you cannot recover it from the recipient afterwards, you end up paying it out of your own pocket.

Withholding on salaries

Withholding on salaries is calculated differently from withholding on fees. When hiring, you obtain from the employee a “Declaration of Exemption for Dependents” (fuyō kōjo tō shinkokusho) and determine the monthly deduction by applying the salary amount and the number of dependents to the National Tax Agency’s withholding tax tables. Without the declaration, you must calculate using the higher-rate bracket (the “otsu” column), so make sure to collect it as part of the onboarding paperwork. At year end, the employer also carries out the year-end adjustment, the procedure that settles the year’s over- or under-withholding.

Deadlines and the semi-annual exception

The payment deadline is, in principle, the 10th of the month following payment. Small businesses that pay salaries to fewer than 10 people at all times may, upon application, pay the withheld tax on salaries and tax accountants’ fees in two batches a year, in January and July (no deadline is set for the application; in principle it applies from payments made in the month after the month in which it is filed). The difference in administrative burden is significant, so filing this application when you begin employing staff is the practical course.

If payment is late, additional tax for non-payment and delinquent tax can be added. These can be imposed even where there was no bad intent, so managing the deadlines is important.

Where the withheld tax ends up

Note that withheld tax is ultimately settled as a prepayment of the recipient’s own income tax — through the year-end adjustment in the case of salaries, or through the recipient’s final tax return in the case of fees. It is not a tax collected twice. When you start hiring or outsourcing, check first — alongside your payroll arrangements — whether the payment is one that is subject to withholding.