Social Insurance in Japan: A Guide for Foreign Business Owners

Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.

I assist foreign business owners who may have difficulty dealing with Japanese accounting and tax procedures. If you find the Japanese tax system challenging, I can help you with your tax filings.

If you start a business in Japan, the social insurance system that applies to you will differ depending on whether you establish a company or operate as a sole proprietor.

Let’s look at the basic differences.

Types of Social Insurance in Japan

Japan has several public insurance systems, including health insurance, pension insurance, workers’ accident compensation insurance, and employment insurance.

Under the public health insurance system, insured people generally pay 30% of eligible medical expenses, although the percentage may differ depending on age and other circumstances.

The public pension system provides benefits mainly for retirement, disability, and death.

Workers’ accident compensation insurance covers work-related injuries and illnesses, while employment insurance provides certain benefits when an eligible person becomes unemployed.

Social Insurance When You Establish a Company

When you establish a company in Japan, such as a Kabushiki Kaisha (KK) or Godo Kaisha (GK), the company is generally required to enroll in Employees’ Health Insurance and Employees’ Pension Insurance.

This generally applies even to a small company with only one representative.

The insurance premiums are generally shared between the company and the insured individual. The actual amount depends on factors such as the individual’s standard monthly remuneration and the applicable insurance rates.

Social Insurance When You Run a Sole Proprietorship

When you operate as a sole proprietor in Japan, you will generally need to consider National Health Insurance and National Pension rather than the Employees’ Health Insurance and Employees’ Pension Insurance that normally apply to company employees.

National Health Insurance premiums vary depending on factors such as income, household circumstances, and the municipality where you live.

National Pension contributions are generally a fixed monthly amount that is revised periodically.

However, the insurance system that applies to you may differ depending on your individual circumstances, including whether you are covered by another public insurance system.

Company or Sole Proprietor: The Systems Are Different

One important point for foreign business owners in Japan is that the social insurance system can differ significantly depending on whether you establish a company or operate as a sole proprietor.

When considering which business structure to choose, taxes are not the only factor. Social insurance costs and procedures should also be taken into account.

The rules may also differ depending on your individual circumstances, so it is important to check which insurance system applies to you.

Koshida Accounting and Tax Office assists foreign business owners in Japan with accounting and tax matters.

If you need help starting a business or understanding the tax implications of choosing between a company and a sole proprietorship in Japan, please feel free to contact us through the inquiry form.