Employment for Skill Development Wages: Generally Taxable

The salaries of foreign nationals working under the Employment for Skill Development Program (ESD) which begins on April 1, 2027 (ESD foreign nationals), will, in principle, be subject to income tax and withholding tax. While some Technical Intern Training participants were exempt from salary taxation under tax treaty exemption provisions, ESD foreign nationals will, in principle, not be eligible for such exemptions. The National Tax Agency indicated this treatment in a document response dated September 15, 2026, and the Immigration Services Agency (hereinafter, “Immigration Services Agency”) also explained in its updated “ESD Q&A” on October 15, 2026, that resident tax will similarly be subject to taxation. This article will clarify what changes and what preparations are necessary for HR and payroll managers at accepting companies, as well as for foreign nationals considering coming to Japan under the ESD.

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1. Conclusion: Four Key Points to Understand First

• Salaries received by ESD foreign nationals from accepting organizations (ESD implementers) are, in principle, subject to income tax as employment income and subject to withholding tax (National Tax Agency Document Response, September 15, 2026).
• The tax treaty exemption provisions for individuals who are “solely… undergoing training” do not, in principle, apply to ESD foreign nationals. It is important to note that they will not be treated the same as Technical Intern Training participants.
• The Immigration Services Agency’s ESD Q&A (Q80) explains that resident tax will also be subject to taxation, similar to income tax.
• It is crucial for accepting companies to review their payroll calculations and explanations of “take-home pay” to ensure they are not based on the assumption of tax exemption before the system’s implementation.

2. Content of the National Tax Agency’s Document Response

2-1. Who Inquired and What Was Inquired About

On September 3, 2026, the Director of Policy Division of the Immigration Services Agency and the Counselor (Overseas Human Resources Development) of the Ministry of Health, Labour and Welfare inquired with the Director-General of the Taxation Department of the National Tax Agency regarding “taxation of salaries received by ESD foreign nationals from ESD implementers.” The National Tax Agency responded on September 15, 2026, stating, “There is no objection to your opinion, provided that it is based on the facts of the inquiry.”

The key points of the inquiry are as follows:

• Some tax treaties contain provisions that exempt income tax on salaries paid in Japan under certain conditions when an individual is “solely… undergoing training” (the inquiry cited Article 19 of the Japan-Thailand Tax Treaty as an example).
• Based on the purpose and facts of the ESD, ESD foreign nationals do not, in principle, fall under the category of “solely… undergoing training,” and their salaries are subject to income tax and withholding tax as employment income.

2-2. Reasons for the Judgment

The inquiry cited the differences between the Technical Intern Training Program and the ESD as reasons.

• The ESD is a system aimed at human resource development and securing human resources in sectors facing labor shortages, which differs in purpose from the Technical Intern Training Program, which aims at international contribution through skill transfer.
• While return to home country was a fundamental principle of the Technical Intern Training Program, requirements based on the premise of return have been abolished in the ESD.
• ESD foreign nationals engage in work based on an employment contract with the accepting organization and receive salaries as remuneration for that work.
• The provision in the Technical Intern Training Act stating that it “shall not be conducted as a means of adjusting labor supply and demand” is not included in the ESD. Restrictions on “essential tasks” have been relaxed, and the distinctions between “related tasks” and “ancillary tasks” have been abolished, allowing for more flexible work arrangements.

ESD foreign nationals are, in principle, not considered individuals “solely… undergoing training” as defined by tax treaties, and their salary income is considered subject to income tax and withholding tax (Summary of the inquirer’s opinion).

National Tax Agency Document Response Case “Regarding the Taxation of Salaries Received by ESD Foreign Nationals from ESD Implementers” Appendix 3 (Summary)

2-3. Positioning of the Document Response

The National Tax Agency’s response includes two caveats: ① it is a general response based on the facts of the inquiry, and different tax implications may arise when applied to specific individual transactions, and ② it represents the National Tax Agency’s view and does not bind the declaration content of individual taxpayers. Including the expression “in principle, subject to taxation,” please confirm with the competent tax office or a tax accountant if there are individual circumstances.

3. Differences from Technical Intern Training

Item	Technical Intern Training	Employment for Skill Development
Purpose of the system	International contribution through skill transfer	Human resource development and securing human resources in sectors facing labor shortages
Return to home country	Return to home country was a fundamental principle of the system	Requirements based on the premise of return have been abolished
Tax treaty exemption provisions	Some Technical Intern Training participants from certain countries were exempt from taxation	In principle, not subject to exemption provisions
Income Tax	Taxable, except in cases where exemption applies	In principle, subject to taxation and withholding tax
Resident Tax	(Not covered in the sources for this article)	Taxable, similar to income tax (Immigration Services Agency Q&A Q80)

Furthermore, Technical Intern Trainees who have already arrived in Japan by April 1, 2027, can continue their Technical Intern Training based on their certified plans (Immigration Services Agency Q&A Q77). This National Tax Agency document ruling concerns the salaries of Employment for Skill Development (ESD) foreign nationals.

4. Immigration Services Agency’s Employment for Skill Development (ESD) System Q&A (Q80)

The “Employment for Skill Development (ESD) System Q&A,” updated by the Immigration Services Agency on October 15, 2026, includes Q80 under the heading [Taxation]. It explains that, unlike Technical Intern Trainees, the salaries received by Employment for Skill Development (ESD) foreign nationals are, in principle, not subject to tax exemption provisions under tax treaties and are subject to Income Tax. Resident tax is also subject to taxation in the same way as Income Tax. It advises checking the National Tax Agency website for details on the document ruling.

Given that the competent authority for the system addresses tax treatment within its Q&A explaining acceptance procedures, our office recommends that accepting companies and Supervising and Support Organizations explain this to the foreign nationals in advance.

5. What to Check for Salary Calculation by Accepting Companies

5-1. Income Tax (Withholding Tax and Year-End Adjustment)

Under the Income Tax Act, those who pay salaries in Japan to residents (individuals who have a domicile in Japan, or have continuously resided in Japan for one year or more) must withhold Income Tax at the time of payment and, in principle, pay it to the government by the 10th day of the month following the month of collection (Income Tax Act, Article 2, Paragraph 1, Item 3 and Article 183). Furthermore, for residents who have submitted a “Declaration for Dependent Exemption for Salary Earners,” a year-end adjustment is performed at the time of the last salary payment for that year (Income Tax Act, Article 190).

Companies accepting Employment for Skill Development (ESD) foreign nationals must incorporate withholding tax and year-end adjustments in the same way as for Japanese employees.

5-2. Resident Tax (Taxation in the following fiscal year based on the previous year’s income)

The income-based portion of individual Resident tax is calculated based on the previous year’s income (Local Tax Act, Article 32 and Article 313) and is levied by the prefecture and municipality where the individual has a domicile on January 1 of that year, which is the assessment date (Local Tax Act, Article 39 and Article 318) (Local Tax Act, Article 24 and Article 294). In the case of special collection, where the tax is deducted from salary, the tax amount notified by the municipality is collected from monthly salaries and paid from June to May of the following year (Local Tax Act, Article 321-5).

For example, for someone who arrived in Japan and started working in 2027, Resident tax will be levied by the municipality where they have a domicile on January 1, 2028, based on their 2027 income. If it’s special collection, deductions will begin from their June 2028 salary. It is important to explain in advance that the “take-home pay” will change before and after Resident tax deductions begin.

5-3. Review Checklist

1. Are the salary calculation settings, which assumed tax exemption for Technical Intern Training, being applied as is to Employment for Skill Development (ESD) foreign nationals?
2. Are explanations in job postings and employment conditions based on the premise that “no taxes will be incurred” or “take-home pay is the same as the gross amount”?
3. Have the procedures for Income Tax withholding/year-end adjustment and Resident tax special collection been confirmed internally (or with the outsourced party)?
4. In the case of special collection, can it be explained in a way the individual understands that Resident tax deductions will begin from the June salary of the year following their arrival in Japan?
5. Is there a designated contact point for confirming with a tax accountant or tax office in case of individual circumstances (such as dependent exemption declarations)?

6. To Foreign Nationals and HR Professionals of Companies

To Foreign Nationals:

• When working in Japan under Employment for Skill Development (ESD), Income Tax will, in principle, be deducted from your salary, and Resident tax will also be deducted from your June salary of the year following your arrival in Japan (in the case of special collection deducted from salary).
• Even if you heard from acquaintances in your home country who were Technical Intern Trainees that “no taxes were incurred,” the same treatment will, in principle, not apply to Employment for Skill Development (ESD).
• If you do not understand how to read your payslip or the tax amount, please consult with the person in charge at your accepting company or the tax office/municipal office in your area of residence.

To HR Professionals of Companies:

• Although the system will commence operation on April 1, 2027, applications for certification of Employment for Skill Development (ESD) plans before the enforcement date have been accepted by the Organization for Technical Intern Training of Foreigners since September 1, 2026 (Immigration Services Agency Q&A Q3). Since explanations of job postings and employment conditions proceed in parallel with plan development, it is reassuring to have tax explanations ready at this stage.
• Accepting companies in Miyazaki Prefecture should also confirm the handling of the acceptance quota (designated area) to facilitate the creation of acceptance plans.
• For specific tax calculations and individual tax judgments, please consult a tax accountant or the tax office. Our office assists with Status of Residence and Employment for Skill Development (ESD) acceptance procedures.

7. Frequently Asked Questions

Q1. Are the salaries of Employment for Skill Development (ESD) foreign nationals taxed for all nationalities?

The National Tax Agency’s document ruling and the Immigration Services Agency’s Q&A explain that Employment for Skill Development (ESD) foreign nationals are “in principle” not subject to tax exemption provisions under tax treaties. Since the National Tax Agency also states that different tax treatments may arise depending on individual circumstances, please confirm with the competent tax office or a tax accountant if there are special circumstances.

Q2. Will the treatment of Technical Intern Trainees also change?

This written response concerns the salaries of Employment for Skill Development foreign nationals. Technical Intern Trainees who have already arrived in Japan as of April 1, 2027, can continue their Technical Intern Training based on their approved plans (Immigration Services Agency Q&A Q77). For the tax treatment of Technical Intern Trainees, please confirm individually as before.

Q3. When will Resident tax be deducted?

Resident tax is levied by the municipality where an individual resides on January 1 of that year, based on the previous year’s income. In the case of special collection, it is deducted from salaries from June to May of the following year. Therefore, Resident tax on income for the year of arrival will begin to be deducted from the salary for June of the following year, provided the individual has a domicile in Japan on January 1 of the following year.

Q4. What do I need to do if I become subject to Withholding Tax?

Companies paying salaries are required to withhold Income Tax at the time of payment and, in principle, pay it by the 10th of the following month (Article 183 of the Income Tax Act). For those who have submitted a declaration for dependents, etc., year-end adjustment will also be performed (Article 190 of the same Act). This means they will follow the same payroll process as Japanese employees.

Q5. What should Supervising and Support Organizations do?

Since the Immigration Services Agency explains tax-related matters in its Employment for Skill Development Program Q&A, our office recommends that you inform accepting companies and foreign nationals in advance that Income Tax and Resident tax will be deducted from their salaries. Please consider the method and content of the explanation in accordance with the operations of each Supervising and Support Organization.

8. Summary: Reviewing the premise of tax exemption and preparing explanations of net income

In principle, the salaries of Employment for Skill Development foreign nationals are not subject to tax exemption provisions under tax treaties and are subject to Income Tax and Resident tax. The National Tax Agency’s written response (September 15, 2026) and the Immigration Services Agency’s Employment for Skill Development Program Q&A (updated October 15, 2026) both indicate this treatment. If you explain “no taxes” based on the perception of Technical Intern Training, it could lead to trouble due to discrepancies in net income after arrival. Before the system’s operation begins, review your payroll settings and explanations to the individuals. The overall picture of the Employment for Skill Development Program and how to choose a Supervising and Support Organization are explained in the related articles “What is the Employment for Skill Development Program? | Starting April 2027, Explaining Differences from Technical Intern Training” and “What are Supervising and Support Organizations? | Differences from Supervising Organizations and Confirmation Points for Accepting Companies.” For the acceptance quota in Miyazaki Prefecture, please see “Employment for Skill Development Acceptance Quota | Miyazaki is a “designated area” with up to 3 times the quota.”

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Our office, as an Administrative Scrivener Corporation in Miyazaki City, Miyazaki Prefecture, assists with preparations for accepting foreign nationals under the Employment for Skill Development Program.

For procedures that can be filed online, such as applications for a Certificate of Eligibility, change of status of residence and extension of period of stay, we accept requests from clients nationwide. Meetings are held online (Google Meet, LINE) and documents are exchanged by mail or electronically, so there is no need to visit our office. Applications for Permission for Permanent Residence and for Permission of Naturalization cannot be filed online and must be submitted at the counter, so they are limited to residents of Miyazaki Prefecture. Depending on the procedure and its urgency, you may need to collect your Residence Card at the counter of the immigration office covering the area where you live. Online applications cannot be filed on the last day of your period of stay, so please consult us as early as possible.

• Advice on establishing an acceptance system for Employment for Skill Development and Specified Skilled Worker
• Document creation for permission applications for Supervising and Support Organizations
• Scheduling Status of Residence changes and extensions for foreign employees
• Consultation on creating internal explanation materials for acceptance (tax amount calculation and tax judgments should be handled by a tax accountant)

Please feel free to use our free consultation service first.

📩 Contact us here

📞 To book a phone consultation: 0985-68-0851

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This article is written based on publicly available information as of October 2026. Details of the system and implementation dates may change in the future. For actual applications, please confirm with official information from the Immigration Services Agency or our office.

Author of this article: Administrative Scrivener Authorized to File Applications, Satoshi Nakayama

Representative, Administrative Scrivener Corporation Miyazaki International Legal Office

Location: Miyazaki City, Miyazaki Prefecture

Sources (Primary Information)

• National Tax Agency “Regarding the Tax Treatment of Salaries Received by Employment for Skill Development Foreign Nationals from Employment for Skill Development Implementers” (Written Response Example – Response dated September 15, 2026) https://www.nta.go.jp/law/bunshokaito/gensen/260915/index.htm
• National Tax Agency, Same, Inquiry Document (Attachment) https://www.nta.go.jp/law/bunshokaito/gensen/260915/01.htm
• Immigration Services Agency “Employment for Skill Development Program Q&A” (Updated October 15, 2026) https://www.moj.go.jp/isa/applications/faq/ikusei_qa_00002.html
• e-Gov Law Search “Income Tax Act” (Articles 2, 28, 183, 190) https://laws.e-gov.go.jp/law/340AC0000000033
• e-Gov Law Search “Local Tax Act” (Articles 24, 32, 39, 294, 313, 318, 321-5) https://laws.e-gov.go.jp/law/325AC0000000226