Somewhere in a budget spreadsheet, “cost of doing business in Japan” gets reduced to one line: the incorporation fee a judicial scrivener quoted you, plus a contingency. That line is real, and it is also the smallest number on the page. JETRO — Japan’s own trade and investment promotion agency — publishes a full model-case cost estimate for setting up in Japan, and inside it sits a single line item, “hiring local personnel,” that costs more than incorporating the company that hires them.
That is not a rhetorical flourish. It is what JETRO’s own published numbers say when you put the entity cost and the hiring cost side by side, which the model case does not do for you — the two figures sit in different rows of the same table, and nobody adds them up in the direction that matters for a hiring decision.
This article does that addition, using only JETRO’s published figures and the arithmetic that connects them. It does not repeat the entity-formation breakdown we have already published in detail — that comparison lives in our article on choosing between a representative office, branch and subsidiary — and it does not re-derive Japan’s social insurance premium rates, which we cover separately. What it does is put the one-time entity cost and the recurring headcount cost on the same page, sourced to the same JETRO model case, so the comparison that actually drives the decision is visible.
The figures below are JETRO’s own model-case estimates, published in USD at a stated exchange rate, for a specific staffing assumption in Tokyo. They are a model, not a quotation for your company. Treat this as preparation for a conversation with a Japanese judicial scrivener, tax accountant and certified social insurance and labour consultant (sharoushi) — BLP supports hiring, and is not a law firm, a tax practice or a recruiting agency.
What this article covers
- What JETRO’s own model case says it costs to establish a branch or a subsidiary in Tokyo, in total
- Why the entity cost is one-time and the hiring cost is not, and what that does to a multi-year total
- The recruiting fee JETRO’s model case actually charges — 35% of expected first-year salary for a single manager hire — and what it is not (a legal cap, a market average)
- What the Employment Security Act does and does not say about how that fee is set
- A worked example that adds the one-time and recurring numbers together over three years
- Where contracting instead of hiring changes which of these costs you owe at all
Key facts at a glance
| Item (JETRO model case, Tokyo) | Figure | Timing |
|---|---|---|
| Company establishment & related filings — branch | $4,429 | One-time |
| Company establishment & related filings — subsidiary | $6,156 | One-time |
| Hiring local personnel (recruiting fee, manager class, non-manufacturing) | $14,605 — equivalent to 35% of expected first-year salary | One-time, per hire |
| Employer’s share of labor and social insurance premiums | About 15% of total annual wages | Recurring, every year |
| Total model-case cost — branch (excludes paid-in capital; branches have none) | About $70,000–$101,000 | Mostly one-time |
| Total model-case cost — subsidiary (includes required paid-in capital of $188,454) | About $264,000–$289,000 | Mostly one-time |
The one-time bill: what JETRO says incorporation actually costs
JETRO’s cost model gives two figures for company establishment and related filings, covering both actual expenses and the fees of professional proxies: about $4,429 for a branch and about $6,156 for a subsidiary, against timelines of roughly two months and two to three months. Those are the same figures — converted into yen at JETRO’s stated exchange rate — that we cite in detail, alongside the rest of the branch-versus-subsidiary comparison, in our article on representative offices, branches and subsidiaries. We are not repeating that breakdown here; the entity-formation cost and what each form is permitted to do belong to that article.
What matters for this article is the shape of the number, not its full breakdown: it is a fee you pay once, to register something. A subsidiary also requires paid-in capital of $188,454 in JETRO’s model — capital the company holds rather than money it spends, and a separate question from the filing fee. A branch has no such requirement; there is no capital line in its total. Set the capital question aside and the registration fee itself, for either form, is a bounded, one-time number with a published range. It is the number every comparison of Japan’s entry costs already leads with. It is also, as the next section shows, not the number that ends up mattering most.
The recurring bill: the employer’s social insurance share
JETRO’s Q&A answers the cost question companies actually ask once someone is on the payroll: “How much do companies have to pay in labor and social insurance premiums in relation to employment?” Its answer is a single figure — “the insurance premium rate borne by companies is about 15% of total annual wages.” That figure covers workers’ accident compensation insurance, employment insurance, health and nursing care insurance, employees’ pension insurance and the child and child-rearing contribution together, and it is what JETRO gives as the employer’s number to plan against. The rates behind that 15% — what health insurance alone costs, what pension insurance alone costs, and how each is split between employer and employee — are set out in our article on disguised employment in Japan, including what happens to that number when a contract engagement is recharacterised as employment after the fact. We use the one figure that matters here and send the breakdown there rather than restating it.
The number that makes 15% different from the incorporation fee is not its size. It is that it does not stop. The incorporation fee is paid once, at setup. The 15% is paid every year the person is on the payroll, on that year’s wages. A cost that repeats annually and a cost that is paid once are not the same kind of number, even when the first year’s total happens to look similar, and JETRO’s own two figures — an incorporation fee in the low thousands of dollars, and an insurance share of roughly 15% of wages, repeating — sit far enough apart that the shape shows up within a few years of hiring even a single person. The next section adds a third figure, also from JETRO, that changes the comparison before the first year of payroll is even out.
What the recruiting fee actually is — and is not
Buried in the same cost model as the incorporation fee is a line called “hiring local personnel.” JETRO prices it at $14,605, and describes it precisely: “equivalent to 35% of expected first year salary (manager class in the non-manufacturing sector).” That single line item, for hiring one manager, costs more than incorporating either a branch ($4,429) or a subsidiary ($6,156) in the same model. Divide $14,605 by 35% and JETRO’s own model implies an assumed first-year salary of about $41,700 — not a separate number we are introducing, just JETRO’s stated fee and JETRO’s stated percentage run in the direction that gives the salary they imply.
It is worth being precise about what this figure is not, because the precision is where the published English guidance actually stops. It is not a legal cap on recruiting fees. Japan’s Employment Security Act, in Article 32-3, prohibits a licensed fee-charging employment placement business from collecting a fee except in two cases: a fee of a type and amount set by Ministry of Health, Labour and Welfare ordinance, considering the expenses ordinarily necessary for employment placement, or a fee collected on a schedule of fees the agency has notified to the Minister in advance. The Act itself states a framework, not a percentage — the actual figures live in a ministry ordinance and in each agency’s own notified fee schedule, neither of which is published in the English-language sources we could locate for this article. JETRO’s Q&A, separately, notes that private employment agencies in Japan include “executive search agencies and talent registration agencies that operate on a success-fee basis” — confirming that success-fee recruiting exists as a model, without stating what a typical success fee is.
So the honest description is this: JETRO’s 35% is one figure, from one model case, for one category of hire — a manager-class role in the non-manufacturing sector, in Tokyo, in the year the model was published. It is the only recruiting-fee percentage we found stated in English-language primary sources, and it happens to be plausible against what is publicly known about executive search pricing generally. It is not a statutory ceiling, and nothing in the Employment Security Act or JETRO’s guidance says every agency, every role or every industry prices at 35%. A commonly repeated figure of “30 to 35%” appears across recruiting-industry commentary; we have not found that range stated in a Japanese government English-language source, and we are not printing it as fact on this page for that reason. What you can rely on is JETRO’s own worked number for the role it modelled, and the fact that a fee proportional to salary — whatever the exact percentage turns out to be for your hire — is a one-time cost, in addition to, not instead of, the 15% that starts the moment that person is enrolled.
Adding it up: what one hire costs over three years
Put JETRO’s own figures on the same timeline and the comparison that matters becomes visible. Take the branch, since it has no paid-in capital requirement to complicate the total, and take the single manager hire from JETRO’s model case, at the implied first-year salary of about $41,700.
| Year | Entity cost (one-time) | Recruiting fee (one-time) | Employer’s insurance share (≈15% of wages, recurring) | Running total |
|---|---|---|---|---|
| Year 1 | $4,429 | $14,605 | ≈$6,255 | ≈$25,289 |
| Year 2 | — | — | ≈$6,255 | ≈$31,544 |
| Year 3 | — | — | ≈$6,255 | ≈$37,799 |
Two things fall out of that table that a one-line incorporation-fee budget does not show. First, the recruiting fee alone — a single, one-time payment for hiring one manager — is already more than three times the cost of establishing the branch that employs them. Second, by the end of year three, the recurring insurance share alone (about $18,765) is more than four times the incorporation fee, and the combined hiring cost (recruiting fee plus three years of insurance, about $33,370) is roughly 7.5 times what it cost to set the branch up in the first place. Extend the timeline, or hire a second person, and the ratio keeps moving the same direction, because the entity cost stops growing after year one and the headcount cost does not.
None of this says the entity cost is unimportant, or that it can be skipped. It says something narrower and more useful for a budget conversation: if the incorporation line is the only number in the room when a hiring decision gets made, the room is looking at the smaller of the two numbers JETRO itself publishes.
Where a contract engagement changes which of these costs you owe
Both figures in the table above — the recruiting fee and the recurring 15% — attach specifically to employment. A recruiting agency’s success fee is charged for placing an employee; JETRO’s 15% is the employer’s share of insurance premiums that apply, as detailed in the sources behind our article on disguised employment, to people enrolled as employees. Engage someone in Japan under a genuine business-to-business services contract — gyomu itaku — rather than hiring them as an employee, and neither of those two cost lines is the one you are paying. What replaces them is the contractor’s fee, negotiated directly, and the compliance obligations that come with being the party placing the order rather than the employer — set out in our article on hiring freelancers in Japan under a gyomu itaku contract.
This is not a costless substitution, and it is not a loophole. The saving exists only where the underlying relationship is genuinely a contract for services and not employment wearing a different label — direction over hours, attendance and method is what turns a contract into a misclassified employment relationship, with the retroactive insurance and tax exposure that follows once it is reclassified. Whether a specific role can legitimately be structured as a contract is a question about the work itself, not about which arrangement is cheaper on paper, and it belongs with a Japanese employment lawyer or sharoushi before the engagement starts, not after.
Questions to ask before you commit
Worth putting to a judicial scrivener, a recruiting agency and a sharoushi before a budget is finalised:
- What does the recruiting agency we intend to use actually charge, on its own notified fee schedule, for the specific role we are hiring — not JETRO’s manager-class model case?
- Is our multi-year hiring budget built on the one-time incorporation fee, or does it carry the recurring 15% forward for every year we expect the role to exist?
- For the specific work we need done, does it have to be an employment relationship, or could it legitimately be structured as a services contract?
- If we are comparing a branch and a subsidiary on cost, are we comparing the incorporation fee alone, or the incorporation fee plus the paid-in capital a subsidiary requires?
- What does our specific role’s salary do to the 15% insurance figure in absolute dollars, not just as a percentage?
Frequently asked questions
What is the actual cost of doing business in Japan?
JETRO’s own model case, for a Tokyo operation with a foreign managing director and one Japanese manager, totals about $70,000–$101,000 for a branch and about $264,000–$289,000 for a subsidiary (the subsidiary figure includes $188,454 in required paid-in capital, which is held capital rather than a spent cost). Those totals fold together incorporation, visas, office setup, housing and one hire’s recruiting fee. What they do not show on their own is that the incorporation portion is one-time while the hiring portion — the recruiting fee and, once the person is employed, the roughly 15% employer insurance share — is not.
How much does it cost to set up a company in Japan?
For the incorporation and related filings alone, JETRO’s model case gives about $4,429 for a branch and about $6,156 for a subsidiary, over timelines of roughly two months and two to three months. A subsidiary additionally requires paid-in capital, which JETRO’s model sets at $188,454 in its worked example — capital the company holds, not a fee it pays away. The full breakdown of what each entity form is and is not permitted to do is covered in our article on representative offices, branches and subsidiaries.
Is the 35% recruiting fee a legal requirement or a cap?
Neither. It is JETRO’s own published figure for one model case — a manager-class hire in the non-manufacturing sector. The Employment Security Act’s Article 32-3 sets a framework (fees must follow a Ministry of Health, Labour and Welfare ordinance or a fee schedule the agency has notified to the Minister in advance), not a percentage stated in the Act itself, and we did not find the ministry ordinance or fee schedules published in English. Treat 35% as JETRO’s real, sourced example for one category of hire, not as either a statutory ceiling or a guaranteed market rate for every role.
How much is the employer’s social insurance cost in Japan?
JETRO’s Q&A states it as about 15% of total annual wages, covering workers’ accident compensation insurance, employment insurance, health and nursing care insurance, employees’ pension insurance and the child and child-rearing contribution together. That figure is recurring — it applies every year the person is employed, on that year’s wages — which is different in kind from the one-time incorporation fee it often gets compared against. The rates behind the 15%, broken out by insurance type, are covered in our article on disguised employment in Japan.
Does hiring through a contract instead of employment avoid these costs?
Where the relationship is genuinely a services contract (gyomu itaku) rather than employment, the recruiting-agency success fee and the employer’s insurance share do not apply in the same way, because both attach to employment specifically. That saving is only available where the underlying work is genuinely structured as a contract — direction over hours, attendance and method is what risks the arrangement being reclassified as employment, with the insurance and tax exposure applied retroactively. Whether a specific role can be structured this way is a legal question about the work, not a cost-comparison shortcut.
Why does a branch cost less than a subsidiary in JETRO’s model?
Mostly because a branch has no paid-in capital requirement — JETRO’s subsidiary total includes $188,454 of required capital that the branch total does not carry at all. The incorporation filing fees themselves are close ($4,429 versus $6,156). Capital, liability and governance differences between the two forms are a separate comparison, covered in full in our article on representative offices, branches and subsidiaries.
Are JETRO’s cost figures a quotation?
No. JETRO states these as a model case — a specific staffing assumption (a foreign managing director and a Japanese manager) in a specific city (Tokyo) at a specific exchange rate (1 USD = 159.19 JPY at the time of publication). Actual costs move with the role, the region, the agency and the exchange rate on the day. Use the model to understand the shape of the cost — one-time entity cost, one-time recruiting cost, recurring insurance cost — and get current figures from a judicial scrivener, tax accountant and recruiting agency for your specific hire.
Summary
- JETRO’s own model case, not a competitor’s estimate, prices hiring one manager ($14,605) above incorporating either entity form ($4,429–$6,156) in the same table.
- The recruiting fee is one-time. The employer’s roughly 15% insurance share on wages is not — it repeats every year the person is employed, and JETRO’s Q&A states it directly.
- Run those figures forward three years on a single hire and the hiring-related cost (recruiting fee plus three years of insurance) comes out to roughly 7.5 times the one-time incorporation fee.
- JETRO’s 35% recruiting-fee figure is a real, sourced number for one model case (manager class, non-manufacturing), not a statutory cap. The Employment Security Act delegates the actual fee limits to a ministry ordinance and agency fee schedules that are not published in English.
- A genuine contract engagement removes the recruiting fee and the employer’s insurance share, because both attach to employment — but only where the underlying work is actually structured as a contract, not employment under a different name.
The line item that gets a budget approved is usually the incorporation fee, because it is the number a judicial scrivener can quote in a single email. The number that determines what Japan actually costs over the life of the operation is the one JETRO buries two rows further down the same table — and it is not smaller.
Everything above is a reading of JETRO’s published model case and the Employment Security Act, and none of it substitutes for a quotation against your own role, region and hire. Take the worked figures to a judicial scrivener, a recruiting agency and a sharoushi before a budget is finalised. BLP is a Japanese company that helps overseas businesses get work done in Japan by placing defined tasks with contractors — one way to change which of these cost lines applies, not a substitute for advice on which structure is right for a given role.
Related reading
Three articles that pick up once the cost picture is on the table:
- Paying contractors in Japan: withholding tax, consumption tax and the invoice system — the payment mechanics once you have decided the recruiting fee and insurance share are costs you would rather not carry.
- Firing employees in Japan: what the law actually says about your first hire — the cost that does not show up in any JETRO table: what it takes, and what it can cost, to end an employment relationship that was not right.
- Japan’s Freelance Act: what overseas companies owe a Japanese freelancer — the obligations that come with the contract route, so the cost comparison in this article is not read as a free lunch.
Sources
- JETRO, "Cost Estimation" (model case, Tokyo), Setting Up Business in Japan — https://www.jetro.go.jp/en/invest/setting_up/modelcase/
- JETRO, "Investing in Japan Q&A" — https://www.jetro.go.jp/en/invest/setting_up/qa.html
- Employment Security Act (Act No. 141 of 1947), Article 32-3, Japanese Law Translation — https://www.japaneselawtranslation.go.jp/en/laws/view/10
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