Foreign direct investment (FDI) in Japan is accelerating at a pace the country has not seen in decades. FDI stock reached a record JPY 53.3 trillion (approximately USD 337 billion) at the end of 2024, greenfield investment rose 15% in a single year and the government has set a bold target of JPY 120 trillion (approximately USD 759 billion) by 2030. Global companies—drawn by Japan's political stability, strong rule of law and its role as a secure base in an uncertain Pacific region—are moving in. And with that investment come mobile people. With mobile people come tax consequences.
A manager transferred to Japan with gross-up benefits can easily fall in the 55% tax bracket. An expatriate who remains beyond five years becomes a permanent resident for tax purposes. Salary, bonuses, stock options and even income earned outside Japan can fall within the Japanese tax net. The 2026 tax reforms tightened the screws further by strengthening the minimum tax rules and expanding reporting obligations for high income individuals, a category that covers most senior expatriate executives.
Employers now face heightened compliance exposure. The 2026 immigration reforms explicitly made past unpaid taxes and health insurance premiums a negative factor in residency screening, even if those liabilities were eventually settled. For multinationals managing expatriate assignments across Japan, these are not minor administrative details. They are real business risks.
This is where Japan’s central economic tension becomes clear. The country needs foreign investment. Its workforce is shrinking, its economy has endured decades of stagnation and global capital is flowing toward Japan largely because China appears riskier than before. Every major FDI project brings skilled workers, management expertise and demand for professional services. Yet the government's response to rising foreign residency has been to make immigration more expensive, more bureaucratic and more difficult to navigate. Residence fees have increased by up to 30 times their previous levels. Permanent residency requirements have tightened. A new electronic travel screening system is on the way.
The contradiction is solvable, but only if Japan’s government, industry leaders and people are honest about what FDI actually entails. Investment does not arrive as capital alone. It arrives as people: engineers, executives, finance teams and lawyers who reside in Japan, pay taxes in Japan and contribute to local communities. Treating these skilled individuals as administrative burdens rather than strategic assets undermines the very economic growth Japan is trying to attract.
Japan now stands at a rare moment. Its security environment, institutional stability and reformed corporate culture are drawing global attention at exactly the right time. But its tax and immigration policies are not yet aligned with its investment ambitions. The message to foreign business remains mixed: we want your capital, but we are scrutinising your people closely.
Ken Guilfoyle
BDO in Japan
A manager transferred to Japan with gross-up benefits can easily fall in the 55% tax bracket. An expatriate who remains beyond five years becomes a permanent resident for tax purposes. Salary, bonuses, stock options and even income earned outside Japan can fall within the Japanese tax net. The 2026 tax reforms tightened the screws further by strengthening the minimum tax rules and expanding reporting obligations for high income individuals, a category that covers most senior expatriate executives.
Employers now face heightened compliance exposure. The 2026 immigration reforms explicitly made past unpaid taxes and health insurance premiums a negative factor in residency screening, even if those liabilities were eventually settled. For multinationals managing expatriate assignments across Japan, these are not minor administrative details. They are real business risks.
This is where Japan’s central economic tension becomes clear. The country needs foreign investment. Its workforce is shrinking, its economy has endured decades of stagnation and global capital is flowing toward Japan largely because China appears riskier than before. Every major FDI project brings skilled workers, management expertise and demand for professional services. Yet the government's response to rising foreign residency has been to make immigration more expensive, more bureaucratic and more difficult to navigate. Residence fees have increased by up to 30 times their previous levels. Permanent residency requirements have tightened. A new electronic travel screening system is on the way.
The contradiction is solvable, but only if Japan’s government, industry leaders and people are honest about what FDI actually entails. Investment does not arrive as capital alone. It arrives as people: engineers, executives, finance teams and lawyers who reside in Japan, pay taxes in Japan and contribute to local communities. Treating these skilled individuals as administrative burdens rather than strategic assets undermines the very economic growth Japan is trying to attract.
Japan now stands at a rare moment. Its security environment, institutional stability and reformed corporate culture are drawing global attention at exactly the right time. But its tax and immigration policies are not yet aligned with its investment ambitions. The message to foreign business remains mixed: we want your capital, but we are scrutinising your people closely.
Ken Guilfoyle
BDO in Japan