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Up to just a few years ago, there used be a regulation that a Japanese company should have at least one representative director who has address in Japan. Currently it is OK even if all of the representative directors of a Japanese company are living outside Japan as such regulation has been lifted.
However, a non-resident director of a Japanese company may cause complex tax implication here in Japan.

Personal income tax implication

Scope of taxable income 

Natural person living outside Japan is regarded as a “non-resident” for the Japanese tax purposes (Article 2 para 1 item 5 of the Income Tax Law). 
A non-resident’s incomes to be taxed in Japan are limited to domestic source income. As for salary, compensation and retirement allowance, it is taxable in Japan only when it is paid as a consideration for labor or services performed physically in Japan (ITL Article 161 para 1 item 12). 
However, such compensations are included in the domestic source income regardless of working location if they are paid to a director of a domestic corporation (a company, a foundation or an association established in Japan) since the law specifically provides so.
Accordingly, any compensation paid to non-resident director shall be subject to the Japanese income tax.   

Article 161 Domestic source income
In this part, “Domestic source income” means the following incomes:
 12  the following salary, compensation or pension
    i) Salaries, wages, allowances, bonuses or any other compensations having nature of those paid for employment or labor performed in this country (including employment or labor performed abroad by a director of a domestic corporation and other services provided in the Enforcement Order). 
    ii) Public pensions provided in paragraph 3 of the Article 35 (excluding the pensions provided in the Enforcement Order ).
    iii) Retirement allowances provided in paragraph 1 of the Article 30 paid in relevant to employment or labor performed when the payee was a resident (including employment or labor performed abroad by a director of a domestic corporation and other services provided in the Enforcement Order).

Income tax rate

Common salaries are taxed by “Aggregate Assessment Taxation”.
Actual taxable amount is the balance which deducted several income deductions (e.g., Basic deduction, Deduction for spouse, Deduction for dependants) from the balance of the total paid salaries minus the estimated amount of necessary expenses of “Employment income deduction”.
The income tax is levied at a progressive rate of 5% to 45% (a rate that increases as the taxable income increases) against this net balance.

In contrast, salaries paid to non-resident directors are simply levied at a flat rate of 20.42% (including 0.42% special income tax for reconstruction) in a method called “separate taxation” (ITL Article 164 para 2).
In the separate taxation system, there is neither “Employment income deduction” nor “income deduction”, and the gross amount of paid salaries is taxable, so depending on the amount, the tax burden will be heavier than the common salaries taxed in Aggregate Assessment Taxation system.

Withholding tax

Companies that pay salaries to to non-resident directors are required to withhold 20.42% of income taxes for each payment and to pay the tax to the tax office by the 10th day of the following month (ITL Article 212 para 1).
Quite a few small companies with less than 10 employees are allowed to pay the withholding tax to the tax office only twice a year applying the exception. However, income taxes withheld from payments to non-residents are not eligible for this semi-annual tax payment (ITL Article 216).
Therefore, when a company pays compensation to non-resident directors, the withholding tax shall be paid to the tax office by 10th day of the following month.

Besides, you need to use the unique payment slip ” Withholding tax on income paid to non-residents and foreign corporations”. This payment slip cannot be prepared with the e-Tax web version. So you needs to visit the tax office to obtain it.

Corporation tax implication

Condition for tax deduction of directors’ compensation

In principle, the directors’ compensation cannot be deductible for the corporation tax purpose (The Corporation Tax Law Article 34 para 1).
There are exceptional cases where deduction is allowed if the compensations are resolved by the general shareholders’ meeting and the all conditions provided in the CTL are satisfied (the para 1 item 1 through 3).

Periodical and the same amount salary (the item 1) and Predetermined salary (the item 3) shall be paid in the amount on the date predetermined to satisfy the conditions for the deduction.
Fluctuation in currency exchange and/or time difference may cause difference from the amount or payment date predetermined then fail to satisfy the conditions.
So you should denominate clearly the payable amount in either Japanese yen or foreign currency and define the payment date in Japanese time.

Transfer pricing & Thin-capitalization 

Tax implication should be discussed from transfer pricing and thin-capitalization perspective s well when the company have any director assigned from business counter party or alliance party.
If a company’s business is considerably relying on transactions with or borrowings from another company who dispatched the director to the company, even if the other company has no shareholder’ equity to the company, the other company is deemed as a “parent company” having “special relationship” with the company (STML Enforcement Order Article 39-12 and 39-13), consequently the transactions and the borrowings are subject to the transfer pricing rule (STML Article 66-4) and the thin-capitalization rule (STML Article 66-5) respectively.

Permanent Establishment

When a non-resident director has been authorized to represent a domestic corporation, it is also important to pay attention to the tax implication in the  other country.
If the director habitually exercises such authority in the other country to conduct the company’s business, the tax authority in the other country may regard that the company has a Permanent Establishment (fixed place of business such as a branch) in the other country and assess corporate income tax on the company.
In order to prevent such a situation, it is desirable to clarify and limit their authority so that their activities does not constitute the recognition of PE.

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Developments of telecommunication have been stimulating collaboration with foreign business partners.
It is expected that the more domestic corporations have directors from foreign countries and the more residents in Japan are involved in management of foreign corporation.
I just hope taxation does not obstruct such business trends.