1. Introduction
The filing season for individual income tax returns for 2022 started on 16 February.
In cases where you are an employee or a director (a resident for Japanese income tax purposes) who works for a foreign-based company and receives not only cash salary but also incentive compensation such as RSUs and stock options, you need to file an individual income tax return to Japanese tax authorities. In this News, we will mention the tax treatment of RSUs granted from overseas parent companies and the individual income tax return.
2. RSU
A Restricted Stock Unit (RSU) is a form of stock-based compensation which companies directly offer to employees/directors as benefit. After continuous service of a certain period, employees/directors receive the right to own company shares at the time of vest.
3. Individual income tax return related to RSUs
In cases where employees/directors receive RSUs from overseas parent companies, they have to file an individual income tax return and pay taxes, depending on the following stages.
(1) Grant
Tax filing is not required at the time of grant because no economic benefits are obtained.
(2) Vest
After certain restrictions are met, employees/directors receive the right to own company shares. The market value of shares on the vesting date is taxed as salary income. Employees/directors need to file a tax return for the salary income together with salary paid by Japanese subsidiaries.
(3) Sell
If employees/directors transfer shares under RSUs and earn a profit, they have to file a tax return for the capital gains (the sales price ? the acquisition cost). Please note that although the capital gains or losses on listed shares of foreign companies through overseas financial institutions are allowed to offset against other capital gains or losses from listed shares in Japan, the capital losses are not allowed to offset against dividend income or carry-forward to the following years.
If employees/directors receive dividends by holding shares, they also have to file a tax return for dividend income. In order to eliminate tax duplication, foreign tax credit is applicable if taxes are withheld from dividend income or capital gains.
4. Conclusion
In this News, we mentioned “RSU and Individual Income Tax Return.” Please be aware that penalty taxes might be imposed if an employee/a director forgets to file a tax return for income derived from incentive awards or fails to calculate the taxable amount correctly.
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
(Reference / in Japanese)
National Tax Agency
No.1474 Offset or Carry-forward of Capital Losses on Listed Shares
Query on the phone+81-3-6821-9455