Year-End Adjustment in Japan: What HQ and the Vendor Must Provide

Year-end adjustment (年末調整, nenmatsu chosei) is the Japan entity's annual recalculation of each employee's income tax, settled in the last payroll of the year. For a foreign-owned subsidiary, it works only if three things reach the Japan payroll by early December: employee declarations and certificates, a full year of pay data from the global payroll vendor, and a list of anything HQ paid or delivered outside the Japan payroll, such as parent-company equity. Employees who earn over JPY 20 million, most mid-year leavers and non-residents are outside the adjustment under the Income Tax Act, and that has consequences HQ needs to plan for. This runbook covers October to January, with a RACI and a request letter HQ can send to employees.

What year-end adjustment is, and why it lands on the Japan entity

Year-end adjustment is a legal duty of the employer, not a service the employee opts into. Under Article 190 of the Income Tax Act (所得税法第190条), a payer that receives an employee's dependants declaration must, at the last salary payment of the year, recompute that employee's tax for the year. Excess withholding is refunded through payroll, and any shortfall is collected from that payment and paid to the state by the 10th of the following month.

Monthly withholding in Japan is an estimate. It uses the dependants declared at the time and does not reflect life or earthquake insurance, a housing loan, the spouse's final income for the year, or dependant changes the employee has not yet reported. The adjustment corrects all of that once, so most employees never file a tax return. That is the opposite of what many HQ teams expect: in the US and many other countries the employee reconciles their own tax. In Japan, if the Japan entity does not run the adjustment, its employees are left with a wrong annual tax figure and a filing they did not plan for. Our Japan payroll calendar for foreign-owned subsidiaries shows where the adjustment sits among the other annual payroll and filing deadlines.

The withholding duty itself attaches to whoever pays salary in Japan (国内において), under Article 183 of the Income Tax Act. That is why the Japan entity, not the global vendor and not HQ, is the party that signs off the result. The adjusted tax for December is remitted by January 10, or by January 20 for an employer that regularly has fewer than 10 employees and has applied to the tax office for the semi-annual payment rule, with weekend and holiday deadlines moving to the next business day, according to the NTA guidance on withholding payment deadlines (No. 2505). Our pillar on withholding tax (gensen choshu) in Japan covers the monthly withholding that the adjustment corrects. Our guide to Japan payroll compliance covers social insurance and the year-end adjustment basics; this post is the HQ-side runbook.

Who is adjusted, and who files their own return

An employee is adjusted only if they submitted the dependants declaration (扶養控除等（異動）申告書, fuyo kojo-to ido shinkokusho) to the Japan entity and their salary for the year is JPY 20 million or less, according to the NTA guidance on who is subject to year-end adjustment (No. 2665). Everyone else falls into one of the groups below. HQ should know in October which employees sit in which group, because the excluded groups need a different message.

Employee group	Adjusted by the Japan entity?	What happens instead
Full-year employees, and joiners still employed at year-end, who filed the dependants declaration	Yes, in the December payroll	Nothing further for most; a return is still needed for items outside payroll
Salary for the year over JPY 20 million (often the country manager or a senior secondee)	No	The employee files a final return (NTA No. 2665); the entity still issues a withholding slip
Mid-year joiners whose prior-employer pay cannot be confirmed	No	The employee settles the year in a final return
Mid-year leavers	No, with exceptions	Adjusted at departure only if they become non-resident (for example, an overseas transfer), leave after receiving December pay, leave because of death or serious disability, or are part-timers paid JPY 1.36 million or less in the year with no other employer
Non-residents	No	Article 190 applies to residents only
Employees who did not submit the dependants declaration (for example, where the Japan entity is a second employer)	No	Tax stays at the higher 乙 (otsu) column rate; the employee may need to file a return

The NTA list of salaried employees who must file a return (No. 1900) adds the cases that catch adjusted employees too: other income over JPY 200,000, salary from two or more employers above the stated limits, and salary from a payer with no withholding obligation. For a foreign-owned subsidiary, the last category is where equity and HQ-paid amounts usually belong.

The October to January runbook

The December payroll cut-off decides everything else. Many groups fix the December pay calendar early to fit the group close, so the adjustment must be computed before the vendor's last input date, not after it. Work back from that date.

When	Action	Lead owner
Early October	Agree the December payroll input cut-off with the vendor; list employees by group (adjusted, over the NTA's JPY 20 million limit, leavers, non-residents); confirm who holds the employee forms and My Number details	HQ payroll with AQ
Mid-October	Send the request letter to employees with the forms and a return date; ask HQ teams for equity events and payments made outside the Japan payroll	Japan entity; HQ
Late October to mid-November	Employees gather insurance premium and housing loan certificates; follow up on overseas dependant documents	Employees; Japan entity chases
Mid-November	Forms and certificates returned; prior-employer withholding slips collected for joiners	Japan entity
Late November	Vendor exports January to November pay data and the expected December pay and bonus; review declarations against certificates	Vendor; AQ
Early December	Compute the adjustment; send refund or shortfall per employee to the vendor before the cut-off	AQ computes; vendor loads
December payday	Refunds paid or shortfalls collected in the last payroll of the year	Vendor; Japan entity pays
By January 10 (or January 20 for an employer that regularly has fewer than 10 employees and has applied for the semi-annual rule)	Remit December withholding, net of the adjustment	Japan entity
Before the first payday of the new year	Collect the next year's dependants declaration from each employee	Japan entity
January 31	Withholding slips to employees and the annual statutory reports	AQ prepares; Japan entity files

The January 31 filings, including the gensen choshu hyo, are their own workstream, but they reuse the adjustment results, so a late adjustment pushes January as well.

What employees must submit

Employees give the Japan entity a set of declarations, plus certificates that prove each deduction they claim. Japanese forms are unfamiliar to most foreign staff, so the request letter should name each form and say who needs it.

The declarations

• Dependants declaration (扶養控除等（異動）申告書). Submitted at the start of the year or on joining; employees update it if a spouse or dependant changed during the year. Without it, the employee is not adjusted at all.
• Combined basic deduction, spouse deduction, specified relative deduction and income adjustment declaration (基礎控除申告書 兼 配偶者控除等申告書 兼 特定親族特別控除申告書 兼 所得金額調整控除申告書). Every employee completes the basic deduction part; the spouse part applies where a spouse's income is within the limits. If you support a child or relative aged 19 to 22 who earned above the dependant limit, complete the specified relative part (特定親族特別控除).
• Insurance premium declaration (保険料控除申告書, hokenryo kojo shinkokusho). For life, earthquake and personal pension premiums, and social insurance the employee paid directly.
• Housing loan declaration (住宅借入金等特別控除申告書). Only for employees in the second or later year of a housing loan credit.
• Next year's dependants declaration. Collected before the first payday of the new year, according to the NTA's 2026 guide to performing year-end adjustment.

Insurance premium certificates

Each premium claimed needs the insurer's certificate (控除証明書, kojo shomeisho), which insurers send to the policyholder, so the request letter should ask employees to keep them. Premiums for national pension or the national pension fund that an employee or a family member in the same household paid directly need a certificate attached to the insurance premium declaration, according to the NTA guidance on the social insurance premium deduction (No. 1130). Premiums paid to a foreign social security scheme under a tax treaty cannot be claimed through year-end adjustment (年末調整で適用することはできません); the employee claims them in a return, or, without one, by sending the notice and the foreign authority's certificate to the tax office by March 15 of the following year, according to the same NTA page. That matters for secondees still contributing at home under a certificate of coverage.

The life insurance deduction is capped at JPY 120,000 in total. From 2026, an employee with a dependant under 23 gets a higher cap of JPY 60,000 on the general life insurance part for new contracts, according to the NTA guidance on the life insurance premium deduction (No. 1140). The form for 2026 reflects this, so last year's template should not be reused.

Housing loan certificates

The housing loan credit is claimed through a tax return in its first year. From the second year, the employee can take it through year-end adjustment by giving the employer the tax office's combined certificate and declaration and the lender's year-end balance certificate (住宅取得資金に係る借入金の年末残高等証明書), according to the NTA guidance on the housing loan credit (No. 1211-1). Borrowers whose lender reports balances directly to the tax office submit fewer documents. An employee who bought a home this year will not be in the adjustment for it; tell them in the request letter so they expect a return in the first year.

Dependants living overseas

A dependant who lives outside Japan can be claimed only with a relationship document (親族関係書類, shinzoku kankei shorui) and a remittance document (送金関係書類, sokin kankei shorui) proving the employee paid for their living or education costs during the year, with a Japanese translation for documents in another language, according to the NTA page on deductions for relatives living overseas.

For relatives aged 30 to 69, the rule is narrower. They qualify only if they left Japan to study (with a student visa document), have a disability, or received JPY 380,000 or more from the employee in the year, according to the NTA filing guidance on overseas dependants. A parent aged 30 to 69 living abroad who receives JPY 300,000 in the year does not qualify; a parent aged 70 or over is not subject to the JPY 380,000 test. The remittance test is applied to actual payments at year-end, so an estimate in the dependants declaration earlier in the year does not settle it. If the remittance documents are not in by the adjustment, the dependant is left out and the employee claims later in a return.

What HQ and the global payroll vendor must provide

The adjustment needs the whole year's taxable pay and tax for each employee. Global payroll vendors running Japan payroll hold most of it, but in a format built for monthly payslips, and they do not hold what HQ paid elsewhere. Ask for these items by name in October.

• From the vendor: per employee and per pay date, January to November, the taxable salary and bonuses, non-taxable items (such as commuting allowance), social insurance deducted, and income tax withheld; the same for the expected December salary and any December bonus (bonus withholding is calculated differently); and the tax column used each month (甲 kou or 乙 otsu).
• From the vendor: a list of joiners, leavers and anyone whose residence status changed during the year, with dates.
• From HQ equity administration: each Japan employee's stock option exercises, RSU vests and share purchase plan discounts in the year, with the date, number of shares and value in yen.
• From HQ payroll and mobility: any pay, allowances or benefits paid outside the Japan payroll, such as a split salary paid abroad, school fees or housing paid by the parent, and tax equalisation payments.
• From employees who joined mid-year: the prior employer's withholding slip (源泉徴収票, gensen choshu hyo). Without it, the Japan entity cannot adjust them, according to the NTA guidance on mid-year joiners (No. 2674).

Why equity income needs its own line

Income from parent-company stock options granted for work is employment income in Japan, according to the NTA guidance on non-qualified stock options (No. 1543). When the parent delivers shares through an overseas broker, the Japan entity has not paid that income through its payroll, so it is not in the adjustment and no Japanese tax was withheld on it. The employee then reports it in their own return. Separately, the Japan entity must file a report of the benefits a foreign parent gave its officers and employees by March 31 of the following year, under Article 228-3-2 of the Income Tax Act. The same equity data serves both, so collect it once in October. Our post on global bonus, commission and equity plans for Japan employees covers how those plans are paid.

The HQ-paid list does the same job for cash. HQ should send it before the December cut-off so the Japan entity can confirm which amounts it pays and includes in the adjustment, and which the employee will report in a return. Finding a split salary in February means reopening figures that have already gone to the employee.

What changes for the December 2026 adjustment

The fiscal 2026 tax reform takes effect on December 1, 2026 and applies to 2026 income, so the December 2026 adjustment changes while monthly withholding through November does not, according to the NTA notice on the 2026 increase in the basic deduction. The main changes, according to the NTA's April 2026 summary of withholding tax changes:

• The basic deduction rises to JPY 620,000 (from JPY 580,000), with additions for lower incomes up to JPY 1.04 million.
• The minimum employment income deduction rises to JPY 740,000 (from JPY 650,000).
• The income limits for dependants and spouses rise, so some family members who did not qualify before now do. The specified relative deduction (特定親族特別控除) for a relative aged 19 to under 23 now starts above total income of JPY 620,000 and runs to JPY 1.23 million, according to the NTA's 2026 guide to performing year-end adjustment.
• The employee declaration forms change from last year.

Because the higher deductions arrive only in December, more employees than usual will receive a refund in the December payroll. Tell HQ finance and employees before payday so a larger December net pay is not queried as an error.

Where foreign-owned subsidiaries usually go wrong

• The vendor's December cut-off comes first. The adjustment is computed after the last payroll closes and ends up in January pay. Agree the cut-off in October.
• Nobody tells high earners. A country manager over the NTA's JPY 20 million limit learns in February that no adjustment was done and a return is due. Tell them in October.
• The declarations were never collected. A secondee who never submitted the dependants declaration is taxed at the 乙 rate all year and cannot be adjusted. Check every employee's file in October, not December.
• Overseas dependants claimed without remittance proof. The claim is in the declaration from January, but the documents never arrive, and the dependant is dropped at the last minute.
• Equity and HQ payments surface after the slips are issued. The year's figures are reopened, and the employee learns about a return they were not expecting.
• Last year's forms are reused. The 2026 forms changed with the reform.

If the Japan payroll is moving to a new provider this year, the handover usually falls in this window. Our post on transitioning Japan payroll and accounting between providers covers the sequencing.

RACI for the year-end adjustment

R is responsible (does the work), A is accountable (signs off), C is consulted, I is informed. The Japan entity is accountable throughout because it is the legal withholding agent.

Task	HQ payroll, HR or mobility	Global payroll vendor	Japan entity	AQ with licensed sharoushi	Employee
Agree the December cut-off and data format	R	C	A	C	-
Send the request letter and forms	C	-	A	R	I
Complete declarations and supply certificates	-	-	A	C	R
Hold forms and My Number details	-	-	A, R	C	-
Export year-to-date pay and tax	I	R	A	C	-
List equity events and HQ-paid amounts	R	-	A	C	-
Review declarations against certificates	-	-	A	R	C
Compute the adjustment	I	C	A	R	-
Pay refunds or collect shortfalls in December	I	R	A	C	I
Remit December withholding	I	C	A, R	C	-
Tell excluded employees they must file a return	R	-	A	C	I
Withholding slips and January 31 reports	I	C	A	R	I

A request letter HQ can send to Japan employees

Send this in mid-October, in English with the Japanese form names, from the Japan entity or HQ HR. Adjust the dates to your December cut-off.

Subject: Japan year-end tax adjustment: documents needed by [date in mid-November]

Dear colleague,

Each December, [Japan entity name] recalculates your Japanese income tax for the year in the final payroll. This is called year-end adjustment (年末調整). If you paid too much tax during the year, the difference is refunded in your December pay; if too little, it is deducted. For most employees it means you do not need to file a tax return. Please return the following by [date].

1. The combined basic deduction and spouse deduction declaration (基礎控除申告書 兼 配偶者控除等申告書 兼 特定親族特別控除申告書 兼 所得金額調整控除申告書), completed by everyone. If you support a child or relative aged 19 to 22 who earned above the dependant limit, complete the specified relative part.
2. Any change to the dependants declaration (扶養控除等（異動）申告書) you submitted this year, such as a marriage, birth, or a dependant who started work.
3. The insurance premium declaration (保険料控除申告書) with the premium certificates your insurers send you, including any national pension premiums you paid yourself.
4. If you are in the second or later year of a housing loan credit: the housing loan declaration from the tax office and your lender's year-end balance certificate.
5. If you claim a dependant who lives outside Japan: proof of relationship and proof of the money you sent them this year, with a Japanese translation.
6. If you joined us this year: the withholding slip (源泉徴収票) from your previous employer.
7. Please also tell us if you received shares, options or any pay from another group company or another employer this year, or if you expect to leave Japan before December 31.

If your salary this year will exceed JPY 20 million (the limit in Japan's Income Tax Act) or if you received equity from our parent company, you will need to file your own tax return in addition to this process. If you bought a home this year and want the housing loan credit, you claim it in your own tax return for the first year (NTA No. 1211-1). We will confirm which applies to you.

Working with AQ Partners. Our Tokyo team provides year-end adjustment, monthly payroll coordination with a licensed sharoushi, and payroll software setup and transition for foreign-owned subsidiaries in Japan, working alongside your global payroll vendor. Book a consultation to plan this year's adjustment and the December cut-off with us.