This article is written by a Japanese local.
When a foreign employee starts working in Japan and receives their first “payslip,” HR departments almost inevitably receive inquiries that border on complaints. They express frustration, such as, “This is much less than my contracted salary,” or “Why is the company deducting insurance premiums and taxes without my permission?”
In many countries, salaries are paid in gross amounts, with employees responsible for paying taxes later. Consequently, Japan’s system of “salary withholding (Gensen Choshu)” often appears to them as unfair exploitation. If this frustration is left unaddressed, it leads to distrust toward the company. HR managers must logically explain the mechanisms of “Income Tax” and “Resident Tax” and clarify that these deductions are legal obligations, not company-led deductions.
1. The Critical Difference Between “Income Tax” and “Resident Tax”
[Summary] Income Tax is levied on current income in real-time, while Resident Tax is calculated based on the “previous year’s income” and starts in June of the following year.
Taxes deducted from a Japanese salary consist primarily of two types: “Income Tax” and “Resident Tax.”
- Income Tax: Collected by the state in real-time based on the current month’s salary. It is adjusted monthly, so there are no drastic fluctuations.
- Resident Tax: A local tax paid to the municipality of residence. Its most notable feature is that it is calculated based on “income from January to December of the previous year” and is paid over one year starting from the following June.
In other words, since foreign employees who have just arrived in Japan have zero (or extremely low) income from the previous year, their Resident Tax for their first year in Japan is “0 JPY.” This is the primary reason for the “reduction in take-home pay in the second year.” Starting from June of the second year, the Resident Tax calculated based on the previous year’s income begins to be deducted, resulting in a sudden shock to employees who did not anticipate this change in their take-home pay.
2. Pre-emptive Announcement Procedure to Avoid the “Second-Year Trap”
[Summary] During the onboarding orientation, explicitly state in writing that “Resident Tax is billed with a one-year delay” to visualize future cash flow.
The only rational solution to prevent this dissatisfaction is for HR managers to objectively show the “timeline of future Resident Tax collection” at the stage of the initial onboarding (or the first spring of the first year).
Clearly present the following schedule on a calendar to the employee:
・Year 1: Resident Tax is 0 JPY. The take-home pay feels slightly higher, but this is not an “advance payment.”
・June of Year 2: Deduction of Resident Tax begins. The take-home pay will decrease by approximately 5–10%.
By communicating this, employees will recognize the decrease in their second year not as a “salary cut,” but as the “start of planned tax payments,” allowing them to manage their standard of living accordingly.
3. The Fatal Risk of “Visa Renewal Rejection” Due to Unpaid Resident Tax
[Summary] If employees choose self-reporting (ordinary collection) and fail to pay, visa renewal becomes extremely difficult. Salary deduction is the ultimate defense.
Rather than “Special Collection (deduction from salary)” by the company, if an employee chooses “Ordinary Collection,” where they pay using payment slips sent by the municipality, the risk of “delinquency (non-payment)” skyrockets due to language barriers or failing to update their address at the municipal office.
As mentioned, non-payment of Resident Tax is the primary indicator used by the Immigration Services Agency to judge a person as “neglecting public obligations.” If there is a record of non-payment on their tax certificate during visa renewal, even if they are working legally, their renewal will be “denied,” leading to risks of forced deportation. HR managers must emphasize that having the company perform “Special Collection (deduction)” is the safest automated defense system to protect the employee’s residence status.
4. Practical Q&A (Troubleshooting HR Should Guide)
[Summary] Answers questions on explaining the difference between gross and net income, and how to handle Resident Tax upon resignation.
Q. How should I explain the gap between “Gross Salary” and “Net Income”?
A. Explain that all the items under “Deductions” are costs for securing their future safety. Specifically, categorize them into “Social Insurance (company matches your payment),” “Income/Resident Tax (price of public services),” and “Employment Insurance (preparation for unemployment).” In particular, help them recognize that Resident Tax is “maintenance fee for the infrastructure they enjoy in Japan,” which will lead to long-term satisfaction.
Q. Resident Tax is deducted from June, but what happens if they resign next year?
A. In Japan, it is legally stipulated (Local Tax Act) that if an employee resigns during the fiscal year, the remaining Resident Tax must be “collected in a lump sum.” The remaining amount must be deducted from the salary of the final month of employment. This is also a rule to prevent troubles where large amounts of tax are deducted after the employee has left the company. By informing employees in advance that “the final month’s deduction will be larger,” you can guide them to a trouble-free, amicable departure.
Conclusion: Visualize the “Structural Delay” of Taxes to Eliminate Anxiety
Japan’s tax collection system is unique in that taxes “arrive with a time lag” after entry. If this time lag is left ignored, employees will mistakenly perceive the future reduction in take-home pay as “corporate betrayal.” HR managers must visualize this two-year timeline from immediately after entry, supporting employees so they “do not create their own liabilities.”