This time, we will explain the tax treatment in Japan when receiving Restricted Stock Units (RSU) or participating in an Employee Stock Purchase Plan (ESPP) from a foreign parent company, as well as how to file a tax return.
1: What is a Restricted Stock Unit (RSU)?
An RSU is a system in which a corporation grants units equivalent to its own shares free of charge, either in a lump sum after a certain period or over several years. It is similar to Restricted Stock (RS), but unlike RS, RSUs do not involve actual stock grants; instead, recipients receive units equivalent to shares.
On the other hand, an ESPP allows employees to purchase company stock at a discount.
2: Process of Restricted Stock Units (RSU)
Grant (Right Granted) → Vesting Period (Restricted Period) → Vest (Restriction Lifted) → Sale (Sell/Transfer)
3: Tax Treatment
Each year, when the restriction is lifted, the RSU is taxed as employment income and must be reported together with the salary received from the Japanese subsidiary in the tax return.
Additionally, when the shares are sold, they are subject to taxation as capital gain in the year of sale.
4: How to File a Tax Return
RSUs should be converted into Japanese yen using the TTM (Telegraphic Transfer Middle Rate), and a tax return should be prepared by combining domestic salary and RSU income.
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