Japan's Residency Management System: Perspectives on Corporate Compliance and Risk Management

Against the backdrop of globalization and demographic changes within Japan, securing talented foreign professionals has become an essential management strategy for the growth of many Japanese companies. However, employing foreign talent and maximizing their potential requires more than just personnel and labor management; it demands specialized legal knowledge. In particular, a deep understanding of the Japanese Immigration Control and Refugee Recognition Act (hereinafter referred to as the “Immigration Control Act”), which is the fundamental law governing the activities of foreigners in Japan, is an extremely important element in modern corporate governance and risk management. This system determines the legal status of all foreigners residing in Japan and strictly defines the scope of their activities. Therefore, for companies to comply with and properly operate under this legal system is not only about avoiding legal liabilities but also about creating an environment where foreign employees can work with peace of mind, thereby laying the foundation for the sustainable growth of the company. This article provides a professional perspective on the core aspects of the Japanese residence management system that corporate executives and legal professionals should grasp, namely the permission system during residence, procedures for departure and re-entry, and related legal risks, along with specific laws and practical points to consider.

The Fundamentals of Residence Management: The Japanese Status of Residence System

In Japan, for foreigners to legally stay and engage in activities, it is an absolute prerequisite to acquire and maintain one of the ‘statuses of residence’ defined by the Immigration Control Act. This status of residence system forms the backbone of Japan’s residence management administration, and understanding its structure is the first step in compliance.

Basic Principles of the Japanese Status of Residence System

The Japanese status of residence system is fundamentally based on a ‘permission principle,’ which individually authorizes specific activities. Instead of listing prohibited activities, the law restricts the range of activities permitted for each status of residence. Under this framework, activities outside the permitted scope, especially those generating income, are generally prohibited unless special permission is obtained separately. This ‘default prohibition’ structure is a fundamental principle that companies must always be aware of when managing the work content of their foreign employees.

Statuses of residence are broadly classified into two categories based on their basis.

One is the ‘activity-based status,’ which focuses on the content of activities conducted in Japan. For example, ‘Engineer/Specialist in Humanities/International Services’ and ‘Business Manager’ fall under this category, where only specific professional or technical activities that are permitted can be engaged in.

The other is the ‘residential status,’ which focuses on an individual’s status or position. This includes ‘Permanent Resident’ and ‘Spouse of a Japanese National,’ among others. Holders of these statuses of residence are generally not restricted in their activities and are free to work.

From the perspective of corporate compliance and risk management, there are important differences between these two categories. When employing employees with an activity-based status, companies have the responsibility to continuously manage that the employee’s work content does not deviate from the range permitted by their status of residence. On the other hand, for employees with a residential status, there are no restrictions on work activities under the Immigration Control Act, significantly reducing the management burden on the company. This difference can be an important factor to consider when devising a recruitment strategy.

Residence Card: Proof of Status and Work Permission

Foreign nationals who reside in Japan for medium to long terms are issued a ‘Residence Card’ by the Minister of Justice. This card is not just an identity document but a public document that consolidates important information for residence management. The card’s face includes basic information such as name, nationality, and date of birth, as well as the type of status of residence, the expiration date of the period of stay, and most importantly, ‘whether there are work restrictions.’

Article 23 of the Immigration Control Act obligates medium to long-term residents to carry their Residence Card at all times. For companies, the Residence Card is the sole and definitive source of information to verify the work qualifications of a foreign national they intend to employ. Verbal declarations or self-promotion from candidates are insufficient; it is legally required to check the original Residence Card before concluding an employment contract to accurately understand whether work is permitted and, if so, the scope of that permission. Neglecting this verification process could lead to the company being accused of facilitating illegal employment, which would be a serious flaw in compliance.

Key Residency Statuses for Business in Japan

While there are various residency statuses directly related to corporate activities, a precise understanding of the requirements and operations of two particular statuses, which concern management and specialized professionals, is essential.

Business Management

The “Business Management” residency status targets foreign nationals engaged in managing or administering businesses in Japan. This includes roles such as representative directors and directors of corporations, as well as branch managers. In the evaluation of this residency status, not only the applicant’s personal background but also the substance, stability, and continuity of the business itself are rigorously assessed.

Specific requirements include having a business office secured within Japan, meeting certain business scale criteria (for example, employing at least two full-time staff or having a capital or total investment amount of over 5 million yen), and presenting a concrete and feasible business plan. Particularly, the business’s continuity is strictly examined, with financial conditions such as being in excess of liabilities in recent financial statements being scrutinized.

Recent trends indicate a tightening of the requirements for this residency status. For instance, the direction towards introducing a system that demands a certain level of Japanese language proficiency from the applicant or full-time staff reflects the authorities’ emphasis on the ability and intention to substantively operate a business within Japan, beyond merely fulfilling formal requirements. When companies invite foreign nationals under this residency status, they must prove with objective documentation that the business is not only established but also substantial and sustainable.

Engineering, Humanities Knowledge, International Services

The “Engineering, Humanities Knowledge, International Services” status is one of the most representative work-related residency statuses. It covers activities involving skills or knowledge in the fields of natural sciences such as science and engineering (Engineering), knowledge in the fields of humanities such as law, economics, sociology (Humanities Knowledge), or activities requiring thought or sensitivity based on foreign cultures (International Services). Examples include IT engineers, mechanical designers, accounting and finance professionals, consultants, interpreters and translators, language teachers, and designers.

The most crucial requirement for obtaining this residency status is a direct and reasonable connection between the applicant’s educational background or work experience and the job duties to be performed in Japan. For example, in the fields of “Engineering” or “Humanities Knowledge,” the applicant is generally required to have graduated from a university specializing in subjects related to the job or to have over ten years of practical experience. In the field of “International Services,” except for translation, interpretation, and language instruction, generally, at least three years of practical experience is required.

An important point is that this residency status does not permit engagement in activities considered simple labor that do not require specialized knowledge or skills. A mismatch between educational background or work experience and job duties is one of the most common reasons for residency status application denial. Therefore, companies must carefully ensure that the candidate’s expertise aligns with the job duties assigned at the time of hiring and clearly describe this relevance in the application documents. Furthermore, continuous management to ensure that employees’ job duties do not deviate from the scope described at the time of application and do not extend to activities considered simple labor is essential for compliance.

Procedures During Residence in Japan

Foreign nationals residing in Japan must undertake various legal procedures in response to changes in their circumstances. Properly managing these procedures is fundamental to maintaining a stable residency status.

Change of Residence Status Permission Under Japanese Immigration Law

Foreign nationals holding a residence status in Japan must apply for and obtain “Change of Residence Status Permission” before engaging in activities that fall outside the scope of their current residence status. This procedure is stipulated in Article 20 of the Immigration Control and Refugee Recognition Act. For example, a student with the “Student” residence status who wishes to work as a professional in a Japanese company after graduation must change their residence status to “Engineer/Specialist in Humanities/International Services” or similar.

The application for a change of residence status is not merely an update of registration information. It is a rigorous examination equivalent to a new application for residence status, assessing whether the applicant meets all the requirements of the new residence status. The examining authorities will make a comprehensive judgment based on the documents submitted by the applicant, considering the validity of the new activities, the applicant’s eligibility, and their conduct during their stay in Japan, including their past residence status.

Renewal of Period of Stay Authorization Under Japanese Immigration Law

In Japan, each residency status is assigned a specific period of stay as determined by the Ministry of Justice Ordinance. If you wish to continue residing in Japan beyond the expiration date of the period of stay noted on your residence card, you must apply for a “Renewal of Period of Stay Authorization” before the expiration date. This procedure is based on Article 21 of the Immigration Control and Refugee Recognition Act. Applications can generally be made starting from approximately three months prior to the expiration date of the current period of stay.

The renewal application also serves as a regular compliance audit regarding residency status. The examining authorities reassess whether the applicant continues to engage in activities that correspond to the granted residency status with integrity and whether there are any issues with the applicant’s conduct. For example, if you hold a residency status for “Business Management,” the authorities will check whether the business is being maintained in a sound condition, and for “Engineering, Humanities Knowledge, International Services,” whether you are still engaged in specialized professional duties.

Even if a decision on the application has not been made by the expiration date of the period of stay, a “special extension period” of up to two months from the original expiration date is provided, as long as the renewal application has been accepted before the expiration date. This is an important system designed to prevent individuals from falling into an illegal overstay situation due to delays in the review process.

Permission for Engaging in Activities Outside of Qualification in Japan

Foreign nationals residing in Japan with a specific status of residence must obtain “Permission for Engaging in Activities Outside of Qualification” before they can partake in income-generating activities not covered by their current residency status, provided these activities do not hinder their primary purpose of stay. This permission is granted based on Article 19, Paragraph 2 of the Immigration Control and Refugee Recognition Act (入管法).

There are mainly two types of permissions. The first is the “General Permission,” which primarily targets individuals with residency statuses such as “Student” or “Family Stay.” This permission generally allows for employment of up to 28 hours per week, excluding certain industries such as adult entertainment. The second type is the “Individual Permission,” which is granted to professionals with working qualifications who wish to engage in side jobs such as lectures or consulting, based on their expertise, specifying the content of the activity and the contracting party.

When companies in Japan employ students as part-time workers, it is insufficient to merely check for the presence of permission for activities outside of qualification on the residence card. The 28-hour weekly limit must be calculated cumulatively, including work hours under other employers. Therefore, companies must establish a system that ensures the cumulative weekly work hours do not exceed 28 hours (through self-reporting, pledges, and application for concurrent jobs, etc.), and take corrective action if there are signs of exceeding this limit. Neglecting this management and consequently allowing an employee to work beyond the limit may result in the company being deemed as promoting illegal employment.

Permanent Residency Permission in Japan

“Permanent Residency Permission” allows for the change of residency status to “Permanent Resident” under Article 22 of the Japanese Immigration Control and Refugee Recognition Act. The residency status of a permanent resident is not limited by the type of activities they can engage in, and the period of stay is indefinite, which significantly relaxes residency management compared to other residency statuses. This greatly stabilizes the foundation of one’s life in Japan.

To obtain Permanent Residency Permission, it is necessary to meet three stringent requirements set forth in Article 22, Paragraph 2 of the Immigration Control Act. First, the applicant must have “good conduct” (Good Conduct Requirement), second, they must possess “sufficient assets or skills to make an independent living” (Independent Living Requirement), and third, “the person’s permanent residency must be recognized as being in the interests of Japan” (National Interest Requirement). The National Interest Requirement generally includes having resided in Japan for more than 10 consecutive years, properly fulfilling public obligations such as paying taxes and social insurance premiums, among others.

The examination for Permanent Residency Permission is conducted with extreme caution, and the standard processing period is set at 4 months. However, it is not uncommon for the actual process to take 6 to 10 months, or even longer. The applicant’s compliance with laws and regulations throughout their entire period of stay in Japan is scrutinized in detail, and even minor past violations or discrepancies can lead to denial of permission.

Temporary Departure and Re-entry into Japan

Foreign nationals residing in Japan who wish to temporarily leave the country for business or personal reasons and then re-enter with the same residency status must complete the appropriate procedures before departure. Failure to do so can result in the revocation of their residency status, necessitating a fresh application for a Certificate of Eligibility to return to Japan.

Overview of the Re-entry Permit System

To facilitate smooth re-entry after leaving Japan, there are two systems available: “Re-entry Permit” and “Special Re-entry Permit.” The choice between these systems should be made carefully, based on the duration and purpose of the departure.

The “Re-entry Permit” is a system based on Article 26 of the Immigration Control Act, requiring an application and approval from the regional immigration bureau before departure. This permit is used when a long-term departure of more than one year is planned. There are single and multiple re-entry permits available, with the latter allowing multiple uses within the validity period, which can be granted for up to five years, within the current residency period.

On the other hand, the “Special Re-entry Permit” is a simplified system based on Article 26-2 of the Immigration Control Act. It allows mid- to long-term residents with a valid passport and residence card to re-enter Japan within one year of departure without prior application, by expressing their intention to return on the Embarkation and Disembarkation Card (ED Card) at the time of departure.

Choosing the Right System from a Risk Management Perspective

The “Special Re-entry Permit” is widely used for short business trips and travel due to its simple procedure and lack of fees. However, this system carries significant risks. Its major weakness is that the validity period of one year (or the expiration date of the residency period, whichever comes first) cannot be extended from outside Japan. Regardless of the reason—unexpected illness, local political instability, or an extension of business activities—if one cannot re-enter Japan within a year, the residency status is automatically revoked. If the residency status is revoked, the continuous residency period accumulated for permanent residency applications is also reset.

From a corporate crisis management perspective, if there is even a slight possibility that an employee’s overseas business trip may be extended, or if it is expected to be nearly a year-long, it is most prudent to instruct them to obtain a regular “Re-entry Permit” before departure, despite the time and cost involved. This is an important insurance measure to maintain the employee’s stable residency status and prevent business interruption due to unforeseen circumstances.

Below is a summary of the main differences between the two systems.

Corporate Responsibility and Legal Risks: A Management Perspective

Properly managing the residency of foreign employees is not only a social responsibility for companies but also a critical management issue to avoid significant legal risks. In particular, issues related to illegal employment can severely damage a company’s reputation and lead to harsh criminal penalties.

Crime of Promoting Illegal Employment

Article 73-2 of the Immigration Control and Refugee Recognition Act (Japan) defines the “crime of promoting illegal employment.” This crime punishes the act of employing foreigners without proper work qualifications or allowing them to engage in activities beyond the scope permitted by their residency status. It also targets those who place foreigners under their control for the purpose of engaging in illegal employment activities or those who broker such activities as a business. The statutory penalties are severe, including imprisonment for up to three years or a fine of up to 3 million yen, or both.

The most notable point of this crime is the provision of the same article’s second paragraph. It states that even if the employer “did not know” that the foreigner was an illegal worker, they would still be subject to punishment “when there is negligence.” This effectively imposes a strict obligation on employers to rigorously verify the residency status and work eligibility of their foreign employees. Simple excuses such as “I didn’t know” will not suffice if basic due diligence, like checking residency cards, is neglected. In fact, various industries, including staffing agencies, construction companies, restaurants, and Japanese language schools, have been prosecuted for this crime, indicating that authorities are actively enforcing the law.

From Criminal Penalties to Civil Liability: Hiroshima High Court Decision, March 26, 2021

The risks arising from inadequate residency management extend beyond criminal penalties and administrative sanctions. In recent years, judicial decisions have recognized direct civil liability for damages against companies, a trend that managers must take seriously.

A symbolic case is the Hiroshima High Court decision on March 26, 2021. In this case, a foreign national employed as a “bread-making” technical intern was ordered by the company to work in a restaurant, washing dishes and serving in the hall, which was outside the scope of the technical internship plan. As a result, the technical intern was arrested and detained on suspicion of engaging in activities beyond their qualifications.

In this case, the court ordered the company and its representative director to compensate the technical intern for damages. The rationale for this decision is highly instructive for corporate risk management.

Firstly, the court found that ordering work outside the planned scope constituted a breach of the employment contract. More importantly, the court determined that the company had a duty of care under tort law not to issue work orders that would lead to violations of the Immigration Control Act and that the company had breached this duty. The company argued that it had consulted with the supervisory organization, but the court rejected this claim, stating that the ultimate responsibility for compliance with the law rests with the employer, the company itself. Furthermore, the court recognized that it was inevitable for the foreign employee to trust the company’s instructions and did not hold the employee responsible.

The significance of this judgment is profound. It demonstrates that a public law issue, such as a violation of the Immigration Control Act, can directly lead to a private law issue, such as a claim for damages from the employee to the company. In other words, if a company improperly manages an employee’s residency status and orders work beyond the permitted scope, it not only risks administrative penalties but also faces a new risk of being sued by the employee for civil damages, including lost profits and compensation for emotional distress. This has elevated residency management from a mere compliance issue to a core management concern involving labor relations, corporate liability insurance, and comprehensive corporate governance.

Summary

The Japanese Immigration Control System is built on a strict framework based on individual permissions, and its operation is complex. For companies, understanding and complying with this system is no longer just a part of administrative tasks. It is a fundamental compliance activity to protect the valuable management resource of foreign talent and support the growth of the company. The risks of neglecting careful verification of residency status, continuous management of the scope of work, and proper execution of various procedures range from criminal penalties to civil liability for damages, which can be extremely severe.

Navigating this complex and specialized field of law requires deep expertise and extensive practical experience. Monolith Law Office has a proven track record of providing legal services in all aspects of Japanese immigration law to a multitude of domestic and international clients over the years. Our firm includes several English-speaking professionals, some of whom are qualified as foreign attorneys, enabling us to accurately respond to the diverse needs of an international business environment. We offer comprehensive support to ensure that our client companies can effectively reduce legal risks and utilize global talent in a stable and compliant manner.