Suspicion Regarding Unpaid Executive Remuneration in Immigration Reviews#
In the context of Japanese residency status, particularly for applications regarding the renewal or change of work-related statuses such as the “Business Manager” visa, the setting of executive remuneration and the actual status of its payment are critical points of examination. It is occasionally observed that when a company’s financial condition deteriorates or in an attempt to secure cash flow, executive remuneration is recorded in the accounting books, but no actual monetary payment is made to the individual executive (unpaid or undrawn remuneration).
While this may appear to be an internal financial adjustment based on an agreement between the company and the individual, in the practical examination by the Immigration Services Agency of Japan, this discrepancy creates significant grounds for suspicion. This article explains the logical background and risks associated with why unpaid executive remuneration is viewed as a suspicious point in immigration reviews.
Discrepancy Between Accounting Records and Reality#
The primary issue arises from the consistency between the company’s financial statements and the individual’s income certification documents. Under Japanese tax accounting, if executive remuneration meets certain requirements (such as being a “fixed monthly salary”), it can be included as a corporate expense (deductible) by recording it as an account payable, even if no cash is actually paid out. This allows the company to compress its profits and reduce corporate tax.
Conversely, since the remuneration is deemed to have accrued to the individual executive, the company is obligated to withhold and pay income tax. Consequently, the individual executive’s “Taxation Certificate” (Kazei-shomeisho) or “Tax Payment Certificate” (Nozei-shomeisho) will reflect a high income, as if they had received the money.
Immigration examiners do not look solely at the figures on the Taxation Certificate. They cross-reference the submitted corporate financial statements (Balance Sheet and Profit and Loss Statement) with copies of the individual’s bank passbook. If facts emerge such as “the Taxation Certificate shows an annual income of 5 million yen, but there are no records of salary transfers in the bankbook” or “a large amount of unpaid expenses (or borrowing from directors) is recorded on the company’s balance sheet,” the examiner will harbor suspicion that the application is deceptive and not based on reality.
Doubts Regarding Ability to Maintain Livelihood#
One of the criteria for residency examination is the requirement to “have sufficient assets or skills to earn an independent living.” Living in Japan inevitably incurs living expenses such as rent, food, and utilities.
The fact that executive remuneration is unpaid (undrawn) implies that no cash is entering the individual’s hands. If the applicant is nonetheless able to live in Japan, the Immigration Bureau will suspect illegal sources of funds, such as:
- Suspicion of Engaging in Activities Outside the Scope of the Visa: The applicant may be secretly working part-time or employed by another company illegally.
- Opaque Inflow of Funds: There may be undeclared remittances from overseas or income from underground businesses.
While it is theoretically possible to claim, “Since the company’s performance is poor, I am not taking remuneration but am living by drawing down personal savings,” proving this requires objective documentation that clearly shows sufficient past savings and a history of their depletion. A mere verbal explanation of “enduring financial hardship” is generally insufficient to pass the examination.
Fulfillment of Social Insurance and Tax Obligations#
Once executive remuneration is set, obligations to pay social insurance premiums (Health Insurance and Employees’ Pension) and residence tax arise. Even if the remuneration is unpaid, these public obligations are not waived.
In companies struggling with cash flow, it is frequently observed that while remuneration is left unpaid, the payment of the company’s and the individual’s share of social insurance premiums is also in arrears. Since recent amendments to the Immigration Control Act, the status of fulfillment of public obligations is checked with extreme strictness during examinations.
The logic that “taxes and insurance premiums cannot be paid because remuneration has not been received” is not accepted. The obligation to pay is fixed at the time the remuneration is set, and any delinquency or non-payment significantly increases the likelihood of denial of the residency extension. Furthermore, maintaining a nominal remuneration amount solely to remain enrolled in the social insurance system without actual cash flow risks being regarded as an abuse of the system.
Impact on Business Continuity and Stability#
The fact that executive remuneration cannot be paid suggests that the company’s management condition has deteriorated significantly. For the “Business Manager” visa, the “continuity and stability” of the business forms the core of the examination.
A business that cannot generate enough profit to pay the manager a living wage may be judged as failing. While temporary non-payment might be accepted with a reasonable explanation and a reconstruction plan, a state where non-payment continues over a long period and “borrowing from directors” or “accounts payable” accumulate on the balance sheet is perceived as a prelude to insolvency. This constitutes a fatal negative factor for visa renewal.
Conclusion#
Unpaid (undrawn) executive remuneration is not merely an internal cash flow issue; in immigration examinations, it invites serious suspicion from multiple perspectives: the credibility of the application, the ability to maintain a livelihood, the fulfillment of public obligations, and the continuity of the business. Aligning the figures in the accounting books with the actual cash flow, and properly paying taxes and social insurance premiums, are essential conditions for maintaining residency status in Japan.