Introduction
For companies hiring mid-career employees, tax procedures at the time of hiring are not limited to payroll calculations. Especially for employees who join partway through the year, it is necessary to properly verify their previous salary, withholding tax amounts, dependent status, and resident tax.
Additionally, when foreign companies hire foreign employees, it may be necessary to confirm not only the usual mid-career hiring processes but also the determination of "resident/non-resident" status under Japanese income tax law, salaries corresponding to overseas work periods, and compensation or stock options provided by overseas parent companies.
This article explains the key tax points that Japanese corporations should confirm when hiring mid-career employees, based on the system as of 2026.
1. Year-end adjustment for mid-career hires and previous salary
Even for employees who join partway through the year, if they work until the end of the year, a year-end adjustment can be made at the company they joined, provided certain conditions are met.
The important thing is that there are cases where mid-career hires subject to year-end adjustments may have their previous job's salary included in the year-end adjustment.
According to the National Tax Agency, if a person who started working mid-year has received salary payments from another company before employment and submitted the "Dependent Deduction Application Form for Salary Earners (Change)" at their previous job, the year-end adjustment will generally include the salary from the previous job.
Therefore, the company needs to have mid-career hires submit their previous job's "Withholding Tax Statement for Salary Income" to confirm their previous salary income, withholding tax amount, social insurance premiums, etc.
If confirmation cannot be made using the previous job's withholding tax statement, the company cannot perform the year-end adjustment including the previous job's salary. In this case, the employee will need to settle their income tax through a final tax return.
In addition, if there are multiple previous jobs, it is important to confirm the withholding tax statements for the salaries received during the year.
2. Submission of the "Dependent Deduction Application Form" and Withholding Tax
When considering mid-career hires for payroll calculations, it is necessary to check the submission status of the "Dependent Deduction Application Form for Salary Earners (Change)."
This application form is not only submitted by employees with dependents. Employees without dependents are also generally required to submit it.
Additionally, if receiving salary payments from two or more places, the dependent deduction application form should be submitted to the payer of the "main salary".
Whether this application form has been submitted to the company affects the calculation method for the withholding tax amount from monthly salaries. If the application form is not submitted, the withholding tax amount for salaries will generally be subject to the "B column" of the tax table.
Therefore, for mid-career hires, it is important not only to collect the necessary tax documents at the time of joining but also to check the submission status of the dependent deduction application form before starting payroll calculations.
3. If the previous job's withholding tax statement cannot be confirmed
There are cases where mid-career hires say, "The withholding tax statement from my previous job has not yet arrived."
In this case, it is not appropriate for the company to conduct a year-end adjustment including the previous job's salary based solely on the salary amount heard from the employee.
The National Tax Agency states that if the previous job's salary and withholding tax amount cannot be confirmed through the withholding tax statement, the year-end adjustment including the previous job's salary cannot be performed.
Therefore, it is practically important to have the previous job's withholding tax statement submitted by the time of the year-end adjustment.
It is necessary to consider having the employee settle through a final tax return if the previous job's salary cannot be confirmed before completing the year-end adjustment.
4. Be aware of cases where year-end adjustments cannot be made
Just because someone is a mid-career hire does not mean that the company can necessarily perform a year-end adjustment.
For example, individuals whose salary income exceeds 20 million yen for the year are generally excluded from year-end adjustments.
Additionally, for those who resign mid-year and have not re-employed afterward, the company where they resigned will generally not perform a year-end adjustment. However, there are exceptions in certain cases, such as death-related resignations.
Therefore, for mid-career hires, it is necessary to individually confirm whether the employee qualifies for year-end adjustments, rather than assuming "mid-career hire = must include previous job's salary in year-end adjustment."
5. Be aware of special collection of resident tax
When hiring mid-career employees, it is necessary to check not only income tax but also resident tax.
Resident tax is generally levied based on the income of the previous year, so it is not possible to determine the amount of resident tax solely by looking at the salary amount for the year of job change.
For example, if an employee who worked at another company the previous year changes jobs midway through the year, there may be a need for procedures to continue special collection of resident tax at the new company.
Therefore, at the time of joining, it is important to confirm how the employee is currently paying resident tax and to carry out necessary procedures with the previous employer or municipality as needed.
In addition, the taxing authority for resident tax is municipalities, and since the procedures and standards differ from those for income tax, payroll personnel need to manage income tax and resident tax separately.
6. Determining Resident/Non-Resident Status When Hiring Foreigners
When foreign companies or Japanese corporations hire foreigners, special attention should be paid to the determination of "resident/non-resident" status under income tax law.
Under Japanese income tax law, a resident is defined as an individual who has a "domicile" in Japan or an individual who has a "place of residence" in Japan for more than one year continuously.
The term "domicile" here is not simply judged by the presence or absence of a resident registration or nationality, but is determined by comprehensively assessing objective facts such as where the person's "main place of living" is, their residence, occupation, assets, and family living situation.
Therefore, it cannot be simply determined that "a foreigner is a non-resident" or "a person who just entered Japan is a non-resident."
For foreign employees hired mid-career, it is important to confirm their living situation in Japan at the time of joining, their planned stay, and their living relationships with overseas, to appropriately determine their resident/non-resident status under income tax law.
7. Withholding Tax When Hiring Non-Residents
If a foreign employee qualifies as a non-resident under Japanese income tax law, the tax relationship for their salary differs from that of resident employees.
For non-residents, the portion of salary corresponding to work performed in Japan, such as domestic source income, is subject to Japanese taxation.
According to the National Tax Agency, when paying salaries that correspond to domestic source income to non-residents, withholding tax at a rate of 20.42% may be required as a general rule.
However, exemptions or reductions in income tax may be recognized under tax treaties.
When applying a tax treaty, it is necessary to confirm the requirements of the treaty and submit necessary documents such as the "Notification of Tax Treaty" by the appropriate deadline.
Therefore, when accepting foreign employees from overseas into a Japanese corporation, it is important to confirm the classification of resident/non-resident and the applicability of tax treaties before starting payroll calculations.
8. When Salaries/Compensation Are Paid by Overseas Parent Companies
In foreign-affiliated companies, there are cases where part of the salary for employees hired by the Japanese corporation is paid by the overseas parent company.
For example, there are cases where a basic salary is paid by the Japanese corporation, and bonuses or stock compensation are paid by the overseas parent company.
In such cases, it cannot be determined that the income is unrelated to Japanese salary income simply because the Japanese corporation is not making direct payments.
It is necessary to examine the actual place of work, employment contracts, salary burden relationships, payment entities, and the content of compensation to determine whether the income is based on work performed in Japan.
In particular, for salaries borne by the overseas parent company, if the Japanese corporation is bearing the cost or if the compensation includes amounts corresponding to work performed in Japan, careful consideration of withholding tax and salary taxation is required.
In the mid-career recruitment of foreign-affiliated companies, it is important to confirm not only the source of salary payment but also from the perspective of "who is hiring, who is bearing the costs, in which country the work is being done, and which period of work corresponds to that compensation."
9. Taxation for those with overseas work experience and those transferring from abroad
For employees transferring from overseas to a Japanese corporation, it is necessary to confirm the classification of residents and non-residents under Japanese income tax law, rather than determining tax relations solely based on the date of entry into Japan.
In particular, when overseas work and Japanese work are mixed within the same fiscal year, it is necessary to organize which parts of the salary are subject to Japanese taxation.
Additionally, for salaries received from overseas companies before foreign employees transfer to a Japanese corporation, it cannot simply be determined that "since it is salary received in that year, it should be included in the Japanese year-end adjustment."
The inclusion of previous employment salary in the year-end adjustment is determined based on the treatment as salary under Japanese income tax law, the submission status of the dependent deduction declaration from the previous job, and confirmation through the withholding tax statement.
For salaries that include overseas work periods and compensation from overseas corporations, different issues arise compared to domestic salaries, so confirmation based on individual factual circumstances is necessary.
10. In cases of stock options and equity compensation
For mid-career hires at foreign-affiliated companies, there may be cases where RSUs, stock options, and other equity compensation are granted from overseas parent companies.
For such compensation, it is important to organize the grant date, vesting date, stock acquisition date, and sale date, as tax relations may arise at different timings compared to cash salaries.
Moreover, if stock compensation is received directly from the overseas parent company, there may be cases where the Japanese corporation is not aware of it in payroll calculations, so it is advisable to confirm the details of the compensation system upon joining.
In particular, for foreign employees or those transferred or seconded from overseas group companies, it is important to check whether there is any stock compensation corresponding to work in Japan to prevent omissions in salary taxation.
11. Documents the company should confirm during mid-career recruitment
To properly carry out tax procedures for mid-career hires, it is important to organize the necessary information at the time of joining.
Basically, it is necessary to confirm the dependent deduction declaration, the withholding tax statement from the previous job, information regarding dependents, and information related to special collection of resident tax.
For foreign employees, in addition to this, it is advisable to confirm their residency status in Japan, residency status overseas, start date of work in Japan, employment relationship with overseas corporations, and whether there are salaries, bonuses, or equity compensation from the overseas parent company.
Especially in foreign-affiliated companies, the payroll ledger of the Japanese corporation may not capture the employee's total worldwide compensation. Therefore, it is also effective to establish a system to confirm the existence of overseas salaries and equity compensation using tools like the Tax Questionnaire at the time of joining.
12. Key points for tax management in mid-career recruitment
For the taxation of mid-career hires, it is easier to manage by dividing it into three stages: "at the time of joining," "monthly payroll calculations," and "year-end adjustments."
At the time of joining, confirm the dependent deduction declaration, the withholding tax statement from the previous job, resident tax, classification of residents and non-residents, and the existence of overseas salaries and equity compensation.
In monthly payroll calculations, appropriately handle withholding tax amounts, social insurance premiums, resident tax, and so on.
In the year-end adjustment, check whether it is necessary to include previous employment salary, whether confirmation can be made through the previous job's withholding tax statement, and whether various income deduction declarations have been submitted.
Additionally, for foreign employees, attention is also required regarding the issuance of withholding tax certificates for salary income. The National Tax Agency states that foreign employees who are residents with a domestic address or have a residence for more than one year are included in the category of "all recipients" eligible for the issuance of withholding tax certificates.
Conclusion
In the tax processing related to mid-career hiring, it is necessary to confirm multiple points, not just calculating withholding income tax from the salary after joining, but also considering previous job salaries, year-end adjustments, resident tax, determination of residents and non-residents, overseas salaries, stock compensation, and more.
Especially in the hiring of foreign employees or in foreign-affiliated companies, there may be salaries, bonuses, stock compensation from overseas parent companies, and compensation corresponding to overseas work periods involved, which tends to increase the tax-related confirmation items compared to regular domestic companies' mid-career hiring.
To properly handle the tax processing for mid-career hires, it is important to gather the necessary information at the time of hiring and establish a system that can comprehensively confirm payroll calculations, year-end adjustments, resident tax, and international taxation.
At MOCHIZUKI & associates, we provide tax support from an international tax perspective for Japanese corporations employing foreign employees or foreign-affiliated companies, including payroll, withholding income tax, year-end adjustments, tax matters for foreign employees, and compensation relationships with overseas parent companies.
At MOCHIZUKI & associates, we provide flexible support tailored to the circumstances of companies, from accounting and tax support for foreign-affiliated companies and foreign corporations entering Japan to corporate tax and consumption tax filings, international taxation, and tax advice on inter-group transactions, in languages such as Japanese, English, and Chinese. If you require our support, please contact us Here.