About RSU stock taxation in Japan

[carla.alinei]

Hello everyone, need help with RSU (Restricted Stock Options) and their taxation here in japan.
When does exactly i need to pay taxes for them? and for how long? Can i sell them at lost in order to reduce the tax burden?
appreciate if anyone is able to give me an explanation on how it works, cos i`m not able to find anything simple to understand

[TokyoWart]

Hello everyone, need help with RSU (Restricted Stock Options) and their taxation here in japan.
When does exactly i need to pay taxes for them? and for how long? Can i sell them at lost in order to reduce the tax burden?
appreciate if anyone is able to give me an explanation on how it works, cos i`m not able to find anything simple to understand

For several years I received stock options from my employer here in Japan. Because they were oriented to the Japanese tax system they were issued in a way that made them qualified for special treatment in Japan which meant:

1. We were not taxed at the time of receiving the options. In some years the options were issued as vesting immediately and in others as vesting after a few (1 or 2?) years but in neither case were taxes assessed by Japan at issuance or vesting.

2. We could only exercise up to 12 million yen worth (I mean paying 12 million yen for whatever the option had as the strike price) in any year. If we stayed below that limit no tax was assessed at time of exercise but if we exercised over 12 million yen worth there would be an immediate assessment of the value by which the actual stock price exceeded option strike price as taxable income even though we were not selling the stock.

3. We were not allowed to sell the stock after exercise unless we had already left the company at least 12 months previously. This might have been because everyone receiving the options was a corporate insider but in general we are not allowed to sell that stock until we have left the company and waited 12 months. If we satisfy that condition we will owe capital gains taxes on the difference between the price we paid to exercise the option and the sales price. I still have not experienced this step.

[eyeswideshut]

You should probably talk to a tax advisor or ask your company"s HR as it will depend on the structure of the grants. You could also go down to he tax office and they will help you out.

But usually RSUs are taxed as ordinary income and you must declare them in your annual tax filing and the NTA will issue you a bill for the excess tax owed. As to calculating the value, if you don't sell then they are taxed at their vesting value in JPY on the day they vested. If you sell them within the same tax year as vesting then the calculation is complicated but the general rule of thumb that seems to work is that you declare them as income at the price (in JPY) that you sold them at.

RSUs can lead to a nasty tax shock if you are not aware of the liabilities so I always at minimum sell enough RSUs to cover my tax liabilities and convert the money to JPY to hold in reserve for my taxes. I had one panicky year where I was scrambling to get the money together to pay my taxes and swore I would never make the same mistake again.

[TokyoWart]

But usually RSUs are taxed as ordinary income and you must declare them in your annual tax filing and the NTA will issue you a bill for the excess tax owed.

I understood the question to about taxation of stock options not stock grants (out-of-the-money options are not taxed at issuance in Japan). For what it's worth, my company switched from giving options to making stock grants a few years ago and these were taxed immediately because there was no vesting period. They were still restricted in the sense that we weren't (aren't) allowed to sell but that is because of being corporate insiders as I understand it. The national income tax (所得税) was withheld immediately from paychecks from any yen that was to be paid at that time with a further adjustment a month later because the personnel department had to set tax withholding in advance and the actual stock price at day of grant isn't known in advance. The stock grants also increase the local tax (住民税) which is payable the following year.

[carla.alinei]

thanks guys, really appreciate the support. Does it mean that every year i have to keep paying for all the growth that that stock is also making right? even if they are still as stock...

[TokyoWart]

thanks guys, really appreciate the support. Does it mean that every year i have to keep paying for all the growth that that stock is also making right? even if they are still as stock...

My experience is that in the years after you have received the stock you will only pay taxes when you sell the stock and at that time you will need to pay capital gains taxes on the difference between the sale price and the options exercise price (if you received the stock through exercise of a stock option) or the stock price at the time of the stock grant (if you received the stock as a stock grant which would also have been taxed as ordinary income in the year of receipt). I haven't had to pay any taxes on "phantom gains" in the stock price before actual sale.

[carla.alinei]

thanks a lot!

[Kiro]

Also, if you have to fill the tax return by yourself for the RSUs (if they’re not taxed immediately on your monthly paycheck due to vesting period), and the amount you declare is 150,000¥ or more, brace yourself for the back-breaking (depending on the amount i guess) 予定納税 letter in June.
Which is basically paying (2/3 of) the next year’s taxes on RSUs in advance during the current year, based on the NTA expecting you will receive and declare by yourself the same amount again.

[carla.alinei]

that is exactly the main reason why opened this thread.....it`S crazy!!!!

[eyeswideshut]

that is exactly the main reason why opened this thread.....it`S crazy!!!!

Yote Nozei months (July and November) are such horrible months as I always have to scramble to make sure I have enough cash to pay my taxes.