Commisions (Outsourcing Fee)
When engaging with an individual in a subcontractor agreement, careful attention needs to be provided considering withholding income tax obligations. The tax authority in Japan loves to challenge subcontractor engagement to full time employment. In case the subcontractor engagement does not qualify as such under the tax code in Japan, it will be deemed as salary to full time employee status staff subject to withholding income tax obligations. Questions which needs to be asked are
- Is the subcontractor responsible for his performance?
- Is the subcontractor under supervision of the company?
- Does the subcontractor have constraints regarding working hours and place of work?
Depending on the answer to these questions,some subcontractor engagement will require withholding obligations regardless of the contractual content. If deemed employee salary for the subcontractor agreement, not only on withholding income but also consumption tax position will change. Therefore, close communication will be necessary with the tax accountant in regards to subcontractor agreement.