Do I need to report RSUs in my tax return?
If you are a resident for tax purposes in Japan (which includes both “permanent residents” and “non-permanent residents”) working as an employee of a subsidiary/branch of a foreign-owned company, and if you have received Restricted Stock Units (RSUs) from the overseas parent company as part of incentive compensation package, you must file a tax return in Japan.
Even if your employer has completed the year-end adjustment for you and you don’t have any other income (e.g. real estate or miscellaneous income) to report, you still have to file a tax return for RSUs. Since RSUs are granted as compensation for your service in Japan, they are treated as Japan-sourced income and should be added up with your employment income even though they were granted directly from the overseas parent company.
When are RSUs become taxable?
RSUs are normally granted with transfer restrictions. They are not taxable at the time of the grant. When the transfer restriction is removed (when RSUs become ‘vested’), RSUs are taxed based on the fair market value.
How is the fair market value (FMV) calculated?
FMV can be calculated as follows:
TTM (Telegraphic Transfer Middle) rate is applied when converting into JPY.
Capital gains from RSUs
If you sell RSUs in Japan after the vesting date and earn a profit, the capital gains should be reported separately by submitting a self-assessment tax return. For example, suppose FMV on the vesting date was $100 and the selling price was $120, the capital gains of $20 is taxable.
The tax rate for the capital gains is 20.315%.
Are RSUs taxed in Japan even though I relocated to overseas before they became vested?
If you were granted RSUs while working in Japan but relocated to overseas before the vesting date, they are still taxable in Japan on a pro-rata basis for the time worked in Japan and the time worked overseas
Are the Japanese tax authorities aware of RSUs granted by overseas parent companies?
Japanese subsidiaries/branches of foreign-owned companies are required to submit a report of economic benefits provided to the employees and directors by overseas parent companies. Based on this report, the Japanese tax authorities are able to see the provision of RSUs to the taxpayers and their filing status.
Therefore, don’t forget to file a tax return for RSUs!