When do you graduate from an EOR to your own Japan entity?
Setting up a Kabushiki Kaisha in Tokyo takes 8 to 12 weeks before your first payroll runs. Mandatory shakai hoken registration, a corporate seal, and a Japanese business bank account each add weeks to the timeline. The EOR is cheaper at low headcount while you find out whether Japan will deliver. Here is how to do the maths.
· Japan guide
Illustration · Tokyo, Japan
For Japan, an EOR is faster and cheaper at low headcount. Setting up a Kabushiki Kaisha typically takes 8 to 12 weeks. Formation typically costs JPY 500,000 to 2,000,000. Running it costs roughly JPY 400,000 to 600,000 per month in fixed overhead.
Those are typical ranges, not law figures. Entity costs vary by corporate structure, professional fees, and how much you outsource to licensed advisors. The crossover point typically lands around 6 to 9 employees at average Tokyo tech salaries.
Employer welfare pension is 9.15% on both sides of the comparison. Total employer social insurance contributions run approximately 15% for a Tokyo office employer with workers under 40. That rate is the same whether you use an EOR or your own entity. The entity side also carries formation costs and ongoing compliance overhead.
The crossover maths
EOR cost scales with headcount. One fee per employee per month. Entity cost has a fixed overhead. That fixed line and the EOR line cross at around 6 to 9 employees for average Tokyo tech salaries.
Teamed charges from $599 per employee per month. At a common JPY rate that works out to roughly JPY 93,000 at around 155 JPY/USD. Your own Japan KK carries a typical fixed monthly overhead of JPY 400,000 to 600,000 for payroll bureau, bookkeeping, shakai hoken filings, and HR admin.
The calculation below uses JPY 93,000 as the illustrative JPY equivalent of the Teamed fee. This is illustrative, not a fixed JPY price. The actual JPY amount depends on the exchange rate at the time of invoice. Teamed charges from $599 USD with zero FX mark-up.
All entity cost figures in this table are typical ranges. They cover outsourced payroll, bookkeeping, shakai hoken filings, and HR admin for a small KK. They are illustrative, not law figures. Actual costs vary with the complexity of your setup and the advisory model you choose.
The crossover compresses faster at higher salaries. Employer social insurance contributions run approximately 15% for a Tokyo office employer, with the welfare pension component at 9.15% on standard monthly remuneration capped at JPY 650,000. At higher salaries the cap means the rate as a percentage of total salary falls; the crossover shifts toward 8 to 9 employees. At lower salary bands it shifts closer to 5 to 6.
Annual bonuses (typically two per year in Japan) sit outside standard monthly remuneration but still attract social insurance contributions. Factor this into your per-employee cost model. Run the Crossover Calculator with your own headcount and salary band.
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Calculate the EOR cost
Multiply the Teamed fee (from $599 USD) by your planned Japan headcount. This is the variable cost. It grows linearly as you hire.
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Estimate the entity fixed overhead
Typically JPY 400,000 to 600,000 per month for a small KK. This covers payroll bureau, shakai hoken filings, bookkeeping, and HR advisory. This cost does not grow much until headcount exceeds 15.
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Find the crossover headcount
The crossover is where EOR monthly cost equals entity monthly overhead. For most Tokyo tech salary bands, this is around 6 to 9 employees. Use the Crossover Calculator for your own numbers.
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Factor in non-financial triggers
The maths gives you a headcount threshold. Enterprise customer requirements, tax treaty substance, and Japan market-validation reversibility are separate questions that may override the cost crossover in either direction.
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Plan the graduation date
Allow 8 to 12 weeks for KK formation before the first payroll on your own entity. The bank account is the gating step for foreign-parented companies. Start the GEMO process while EOR continues running.
Japan entity setup: what it actually costs
Forming a Kabushiki Kaisha in Japan typically costs between JPY 500,000 and JPY 2,000,000 all-in. The Legal Affairs Bureau registration fee depends on capital: minimum JPY 150,000. The gap between that and JPY 2,000,000 is notary fees, corporate seal costs, bank account opening, shakai hoken registration, and professional fees.
Allow roughly 8 to 12 weeks from the decision to your first payroll run. The corporate bank account is usually the gating step for foreign-parented companies.
These are typical ranges. They are not law figures. There is no law that sets what a KK costs to form. The range reflects real market rates for professional services in Japan. It varies with how much substance your structure needs and whether you use a Japanese corporate services firm.
| Cost item | Typical range | One-off or recurring |
|---|---|---|
| Legal Affairs Bureau registration (registration tax) | JPY 150,000 to 300,000 (varies with stated capital) | One-off |
| Notarial authentication of Articles of Incorporation | JPY 50,000 to 52,000 | One-off |
| Corporate seal (jitsuin) creation and registration | JPY 10,000 to 50,000 | One-off |
| Registered address service (if no local office) | JPY 15,000 to 60,000 per month | Recurring |
| Shakai hoken registration (health and pension) | JPY 0 direct (admin time) | One-off |
| Labor Insurance registration (rodo hoken) | JPY 0 direct (admin time) | One-off |
| Corporate bank account opening | JPY 0 to 50,000 (varies widely) | One-off plus monthly fees |
| Employment contracts and work rules (shugyo kisoku) | JPY 150,000 to 500,000 | One-off |
| Corporate services / legal advisory fees | JPY 200,000 to 800,000 | One-off |
| Realistic total setup cost | JPY 500,000 to 2,000,000 | Mostly one-off |
Why the bank account is the gating step
Japanese megabanks and regional banks are cautious about opening accounts for newly formed companies with foreign shareholders. Expect 4 to 8 weeks from application to an open account. Some foreign-parented KKs wait longer. Without a bank account, you cannot run payroll. This typically turns a 4 to 5-week incorporation into a 10 to 12-week wait before first payroll. Plan for it before you commit to a start date.
Japan entity ongoing cost: typically JPY 400,000 to 600,000 per month
Running a small KK in Japan typically costs JPY 400,000 to 600,000 per month. That covers an outsourced payroll bureau, shakai hoken administration, bookkeeping, tax filings, and a licensed social insurance labor consultant (shakaihokenshi).
Below 6 employees, this fixed overhead makes the per-head cost much higher than the EOR fee. Above 15 employees the overhead amortises and the entity becomes consistently cheaper.
These figures are typical market ranges for a small KK with 1 to 15 employees. They are illustrative. They are not law figures. Actual costs depend on whether you outsource or hire in-house, and whether you use a licensed shakaihokenshi (social insurance labor consultant) or a full-service HR firm.
| Monthly cost item | Typical range | What it covers |
|---|---|---|
| Outsourced bookkeeping and monthly accounts | JPY 50,000 to 150,000 | Cash reconciliation, monthly trial balance |
| Payroll bureau (1 to 15 employees) | JPY 30,000 to 100,000 | Monthly payslips, withholding tax filings |
| Shakai hoken administration (shakaihokenshi) | JPY 50,000 to 120,000 | Health and pension contribution filings, changes |
| Labor insurance (rodo hoken) filings (amortised) | JPY 10,000 to 30,000 | Annual labor insurance year-end filings divided by 12 |
| Corporate tax return (amortised) | JPY 30,000 to 80,000 | Annual corporate tax and consumption tax filings divided by 12 |
| Registered address service (if outsourced) | JPY 15,000 to 60,000 | Virtual office or business address |
| HR and employment law advisory | JPY 50,000 to 120,000 | Contract reviews, work rules updates |
| Software subscriptions (HR, payroll, accounting) | JPY 20,000 to 80,000 | Per-user SaaS tools |
| Statutory filings and reports (amortised) | JPY 10,000 to 30,000 | Annual shareholders meeting, statutory reports |
| Total ongoing monthly | JPY 400,000 to 600,000 | 1 to 15 employee KK |
Above 15 employees, dedicated Japan HR and an in-house finance function typically become necessary. At that scale the overhead still amortises well against the EOR fee. The cost band widens at 20 or more employees.
The cost nobody quotes: representative director liability
Japan's Companies Act (Kaisha-ho) imposes personal liability on representative directors for losses caused to the company by a failure of duty of care. This liability cannot be delegated.
EOR clients do not carry these duties. Teamed holds them as the legal employer.
Most cost comparisons skip the director-liability dimension because it is hard to put a number on. It is worth naming explicitly before you decide.
Personal director duties under the Companies Act
Under Japan's Companies Act (Kaisha-ho), a representative director of a KK owes a duty of care and a duty of loyalty to the company. Breach of either creates personal liability for losses caused. A director who approves accounts they have not reviewed, or who fails to implement required internal controls, is personally on the hook. These are personal duties. They cannot be outsourced to your accountant or lawyer.
The compliance treadmill
- Annual shareholders meeting (teiji kabunushi sokai): must be held within 3 months of year-end. Skipping it is a Companies Act violation.
- Corporate tax return: due within 2 months of fiscal year-end (or 3 months with extension). Late filing carries automatic penalties and forfeits certain tax benefits.
- Consumption tax return: quarterly or annual depending on scale. Late or incorrect filing attracts additional penalties.
- Shakai hoken filings: monthly contributions, annual revisions (teiji ketei), and ad hoc changes when salaries change. Errors trigger back-payment demands with interest.
- Labor insurance (rodo hoken) year-end filing: annual reconciliation of workers compensation and employment insurance contributions. Filed by July each year.
- Work rules (shugyo kisoku) filing: required at the Labor Standards Inspection Office once you reach 10 or more employees. Changes require re-filing.
Each filing is individually manageable. Stacked across a year in a language most foreign founders do not read, they consume real management attention. An EOR carries all of these on its own entity.
When you should stay on EOR
Below 6 employees, with project-based hires, or while you are still testing the Japan market, the EOR is the right answer. The crossover is a maths threshold. It is not a strategic verdict.
Reversibility matters. Entity setup in Japan is sticky. Closing a KK requires a formal dissolution and liquidation process, often taking 3 to 6 months. EOR is not sticky. If Japan does not deliver, winding down is straightforward.
- Under 6 Japan employees on average salaries: EOR is cheaper and faster every month. The entity overhead has nothing to amortise against.
- Market validation phase: you are hiring 1 or 2 people to test commercial fit in Tokyo. Entity setup commits capital and management attention before you know whether the Japan market will deliver.
- Project-based hires: 6 to 12 month engagements where the formation cost will not amortise before the project ends.
- No Japan-specific benefits platform needed yet: senior hires are not expecting a Japan entity to back stock option plans, or you are still pre-Series A. The entity becomes structurally valuable once phantom equity or Japan stock compensation structures become a lever.
- Language and timezone risk: a KK generates filings predominantly in Japanese, with strict deadlines managed through a licensed advisor network. Until you have a Japan-based finance or legal contact, the compliance overhead compounds.
When you should switch to your own entity
Above 8 employees consistently, with a multi-year Japan plan, or with enterprise customer or investor requirements for a local entity, your own KK beats EOR on cost. It also unlocks capabilities the EOR structure cannot provide.
The single biggest structural pull in Japan is often the enterprise sales motion. Large Japanese companies frequently require their suppliers to be locally incorporated with a domestic entity and a Japanese bank account.
- Sustained headcount above 8 Japan employees at average Tokyo tech salaries: the entity overhead amortises across enough people that per-head cost falls below the EOR fee.
- Enterprise Japanese customers: large domestic corporates and government-adjacent contracts frequently require a locally registered KK. EOR employment does not give you a Japan legal entity for contracting purposes.
- Tax treaty substance: some cross-border structures need actual Japan substance in your own entity. EOR employment does not count as your substance for treaty purposes.
- Work rules obligation at 10+ employees: once you reach 10 employees in Japan, you are required to file shugyo kisoku (work rules) at the Labor Standards Inspection Office. Managing this through your own entity gives you direct control of the rules. Through EOR, the Teamed entity files its own work rules, which may differ from your preferred policies.
- Long-term team commitment: Japan employment carries strong dismissal protection from day one (Labor Contract Act Article 16). Once you commit to a Japan team, a multi-year entity investment is the right frame anyway.
How Teamed's Graduation Model handles the transition
Teamed graduates customers from EOR to their own Japan entity on the same platform. Same Japan specialist. Employment contracts are novated to the new entity. Employee tenure and benefits continue without a break.
Most providers treat graduation as a re-onboarding event. In Japan, where employment protection applies from day one, an interrupted service date creates legal exposure. Teamed treats it as a stage of the employment lifecycle.
The technical mechanic is contract novation: the employment contract transfers from the Teamed partner entity to your new KK on a specified date. All terms carry across. Salary, shakai hoken membership, annual leave entitlement (10 days days minimum after 6 months, scaling with tenure), and continuous service date all remain unchanged.
What we do operationally:
- Stand up your Japan KK through GEMO, typically 8 to 12 weeks, while EOR continues running in parallel.
- Register the entity for shakai hoken and rodo hoken.
- Open the corporate bank account and establish the payroll bureau relationship.
- Novate every active employment contract on a single effective date.
- Transfer shakai hoken membership records to your new entity without a gap in coverage.
- Provide the same People Ops specialist as the post-graduation primary contact.
The Graduation Model exists because every other EOR makes this hard. We treat the move as something we help you plan for from the day you hire your first employee through us.
How does Teamed handle Japan employment for you?
Teamed becomes your legal employer of record in Japan for from $599 per employee per month, with zero FX mark-up in any currency.
Payroll, benefits, and the full Japan employment law stack run on one platform.
Real HR and legal experts handle your Japan hires from the first offer letter through every shakai hoken filing and annual labor insurance reconciliation. An actual person, not a chatbot or a pooled queue. There is no setup fee and no exit fee. Every employer cost passes through at cost, itemised on every invoice. You see the welfare pension line at 9.15%, and the leave accrual for 10 days days minimum. Nothing is hidden inside the management fee.
EOR payroll, contractor onboarding, and entity setup all live on one platform. Run the Crossover Calculator to see the month the model flips. Start from the Japan hiring overview. Key sources: Labor Standards Act (English translation) and JETRO Setting Up Business in Japan.
Frequently asked questions
At what headcount does an EOR stop being cheaper than a Japan entity?
The crossover typically lands at 6 to 9 Japan employees at average Tokyo tech salaries. Below that, the EOR fee (from $599 per employee per month) is cheaper than the typical KK overhead of JPY 400,000 to 600,000 per month. Above it, the entity overhead amortises and per-employee cost falls below the EOR fee. Use the Crossover Calculator to run your own salary band.
How much does it cost to set up a Kabushiki Kaisha in Japan?
Typically JPY 500,000 to 2,000,000 all-in. The Legal Affairs Bureau registration tax starts at JPY 150,000. The rest is professional fees: notarial authentication of the Articles of Incorporation, corporate seal creation, shakai hoken and rodo hoken registration, employment contracts, work rules drafting, and corporate bank account opening. The range varies with how much you outsource and how much corporate substance your structure needs.
How long does it take to set up a Japan entity and run the first payroll?
Around 8 to 12 weeks from the incorporation decision to first payroll. The bank account is the gating step. Foreign-parented KKs should allow 4 to 8 weeks for a corporate account to open after application. Some foreign-parented companies wait longer depending on the bank and their shareholder structure.
Does Japan have a statutory severance formula?
No. Japan imposes no statutory severance formula tied to years of service. The only required payment on dismissal is notice pay: 30 days average wages in lieu of notice under the Labor Standards Act Article 20. Voluntary retirement allowances are common in Japan but they are contractual, not statutory. When budgeting entity costs, include your contractual retirement allowance policy alongside the statutory minimum.
What is Teamed's Graduation Model in Japan?
Teamed graduates customers from EOR to their own Japan KK on the same platform. Employment contracts are novated to the new entity on a single date. Salary, shakai hoken membership, annual leave entitlement, and continuous service date all carry over unchanged. Teamed handles the entity formation through GEMO, registers for shakai hoken and rodo hoken, and migrates benefits without any lapse.
The Japan bank account is the step that breaks every timeline. Foreign-parented KKs can wait 8 weeks after incorporation before an account opens. If you start planning at the crossover point, your first entity payroll runs three months after it should have. Begin the GEMO process a full quarter before you expect to need it.
EOR is the right answer up to the crossover. Around 6 to 9 employees at Tokyo tech salaries.
Past that, your own KK costs JPY 500,000 to 2,000,000 to set up. The bank account adds 4 to 8 weeks that nobody quotes you.
When the maths flips, we tell you and move you across. That is the only honest version of this.
