Can Shareholder Dividends Be Included in Annual Income for Highly Skilled Professionals?#

In the Japanese immigration system, the “Highly Skilled Professional” (HSP) status allows applicants to receive preferential treatment based on a point-based evaluation system. Points are awarded for various categories such as academic background, professional career history, and annual income. Among these, “Annual Income” carries significant weight, and many applicants strive to maximize this figure to meet the required passing score.

However, a common question arises for applicants who are business owners or investors: “Can shareholder dividends be included in the calculation of annual income?”

The concise answer is: In principle, shareholder dividends cannot be included in the annual income for HSP point calculation.

This article explains the rationale behind this exclusion based on the Immigration Control and Refugee Recognition Act and relevant operational guidelines, clarifying what exactly constitutes “remuneration” under this visa category.

Definition of “Annual Income” for Highly Skilled Professionals#

To understand why dividends are excluded, one must first grasp the strict definition of “annual income” within the context of the HSP point system.

According to immigration guidelines, annual income is defined as the “annual amount of remuneration received from the contracting organization.”

There are two critical components to this definition:

Payment from the Contracting Organization: The income must come from the organization (company) in Japan that is sponsoring the visa. Generally, income from side jobs, real estate investments, or other unrelated entities is not aggregated into this amount (with limited exceptions for certain management activities where an applicant may serve multiple organizations).
Consideration for Duties (Remuneration): “Remuneration” refers to payments made in exchange for services or labor provided. It essentially equates to salary, bonuses, or director’s compensation for work performed.

Why Shareholder Dividends Are Excluded#

The reason dividends are not counted lies in their legal and financial nature.

Shareholder dividends are a distribution of profits to shareholders based on their investment (equity) in the company. This is classified as “asset income” or “unearned income,” not “earned income” derived from labor or professional services.

Even if the applicant is the Representative Director (CEO) of the company and owns 100% of the shares, the Immigration Services Agency draws a clear line between:

Director’s Remuneration (Yakuin Hoshu): Compensation for executing management duties.
Dividends (Haito-kin): Returns on capital investment.

The objective of the Highly Skilled Professional system is to evaluate the applicant’s professional expertise and the economic value placed on their specific skills or management abilities in the labor market. Dividends, being a return on investment, do not serve as a direct indicator of professional capability or labor value, and are therefore excluded from the calculation.

What is Included vs. What is Excluded#

When calculating points, it is crucial to distinguish between eligible remuneration and ineligible income.

Items Included in Annual Income#

Generally, fixed, taxable compensation for duties is included.

Basic Salary (Monthly Salary): The core component of compensation.
Bonuses:
- These must be guaranteed or projected based on the contract. Since the HSP assessment looks at “projected income for the coming year,” discretionary bonuses that are not contractually assured may sometimes be scrutinized, but standard bonuses are generally included.
Director’s Remuneration:
- For business managers, the compensation fixed by the general meeting of shareholders is the primary source of eligible income.

Items Excluded from Annual Income#

The following are typically excluded, even if they appear on the tax withholding slip or bank statement:

Shareholder Dividends:
- As explained, these are investment returns, not remuneration for duties.
Overtime Pay:
- Because the HSP calculation is based on “projected” income, variable components like overtime pay cannot be predicted accurately and are thus excluded. (Exceptions may exist when proving past income for other visa types, but for HSP points, the projected base is key).
Commuting Allowances:
- These are reimbursements for expenses, not income for services.
Housing/Dependent Allowances (Variable):
- While treatment can vary depending on whether they are taxable, allowances that are not strictly compensation for professional duties are often excluded to ensure a conservative and accurate calculation.

Special Considerations for Business Owners#

For entrepreneurs establishing their own companies in Japan (often transitioning from a “Business Manager” visa), tax planning strategies often conflict with visa requirements.

It is a common tax strategy to keep Director’s Remuneration low to minimize income tax and social insurance premiums, while taking money out of the company as Dividends (which may be taxed differently or effectively result in lower corporate tax retention). However, this strategy can be detrimental for HSP applications.

Consider the following scenarios for a business owner with a total cash flow of 10 million JPY:

Scenario A: Director’s Remuneration 10 million JPY / Dividends 0 JPY.
- Immigration Result: The recognized annual income is 10 million JPY. This yields a significant number of points (e.g., 40 points for income alone in some categories).
Scenario B: Director’s Remuneration 3 million JPY / Dividends 7 million JPY.
- Immigration Result: The recognized annual income is only 3 million JPY. While this meets the absolute minimum requirement for the visa, it yields zero points for the income category, making it extremely difficult to reach the passing score of 70 or 80 points.

Therefore, business owners aiming for Permanent Residency via the HSP route must carefully plan their director’s compensation at the time of their company’s annual resolution, prioritizing visa eligibility over short-term tax optimization.

Conclusion#

In conclusion, shareholder dividends cannot be included in the annual income calculation for the Highly Skilled Professional visa points. The Immigration Services Agency recognizes only remuneration paid as consideration for duties (such as salary and director’s remuneration) as valid annual income.

Dividends are viewed as asset income separate from professional duties. Applicants, particularly business owners, must be aware that relying on dividends for their livelihood may inadvertently lower their recognized income for immigration purposes, potentially jeopardizing their eligibility for the Highly Skilled Professional status.