RetireJapan

so selling some of the stocks could be the fastest option to pay that taxes.....

It is crazy indeed. You can sell to cover taxes yes (even at a loss to reduce the burden if you're so inclined).
After having declared and paid (in April-May) your taxes for the previous year RSUs, you will have to pay again 1/3 of that tax amount early August I believe and 1/3 late November (the last 1/3 being when you declare again the following year, and you will get a tax credit if you paid too much).


Below my own experience with the NTA regarding the Yotei nouzei.
I was so shocked the first time that I had to go and ask about it while thinking (naively) that I would be able to negotiate.
Long story short, they said that this was to alleviate the burden during the following year (I would rather invest during the 8 months and pay in full the following year...) and that I had no choice.

Anyway, regarding pushing back payment, they offered the easy way and the little bit more time consuming way.
I naively asked for the easy way, which involves signing a paper to push back the payment. Easier than I thought...
This will lead to and additional +2.1% during the first 2 months you are late, and +8.8% after that.
I politely declined and was offered the time consuming way, which involves filling some papers in Japanese in order to explain why you cannot pay and want to push back payments, and how and when you will be able to pay, etc. This will lead to a more generous +1% only...
They also said that when seeing the papers, most people think it is "mendokusai" (their word) and end up paying on time, "as it is expected".
(I still think filling the papers, pushing back payment and paying the +1%, while investing in the meantime should prove worth it)

The fact that they ask to pay this based on their guessing you will receive and declare the same (even if not 100% sure at the time of payment that you will get the same amount, due to stock valuation or whatever) sounded particularly crazy the first time (still does).
What if you did not get as many RSUs or the stock price tanked and you end up paying too much yoteinouzei?
I did ask about that, telling them I thought it was not fair (lol), as I would get the feeling I am lending them money 'for free' while I could be doing better things with it.
Rest assured they said, you will receive a "kasankin" of +1%~+1.6% (it gets reduced every year, I think now it's +1%).

Note that if you can prove that this was a one-off, or that your income will clearly become lower, you can get the yotei nouzei drastically reduced or waived.

Hope this helped.

thanks a lot. it really helps! Appreciate the time writing your experience

Any Economic Benefit in anything other than Cash is considered Payment In Kind, and is taxable as Employment Salary Income at your Marginal Tax Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
If they paid you in Apples, the Market Price of the apples on that day would be considered to be the Economic Value to you and Payment In Kind, and subject to taxation as Employment Salary Income at your Marginal Tax Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).

There are some differences if you work for a Japanese Company and the RSUs, Options or ESPP are on Japanese Stock, for which Tax is withheld.
However, for Foreign Companies' Overseas Stock, the following applies.

Let me deal with RSUs first.

Employee Restricted Stock Units

If you receive RSUs, for which you pay nothing, then the value of the Shares on the day they Vest (i.e. when the shares are transferred into your account) is the Economic Benefit to you, and is considered as Payment in Kind Or Additional Salary Income, and is taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
You have to take the Closing Share Price on Vesting day x TTB Exchange Rate on that day x No. Of Shares Vested = Economic Benefit = Taxable Salary = Tax Basis and report that as Additional Earned Income From your employer on Form B - Page 1

When you sell the Shares received as RSUs, the Capital Gain over the Tax Basis is taxed at the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes).
You have to take the Sell Price x TTB Exchange Rate x No. Of Shares Sold minus Tax Basis calculated above = Capital Gain or Loss
If you select Aggregate Taxation, then this Capital Gain will be taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
Therefore, you have to select Separate Self-Assessment Taxation to claim the Capital Gains Tax Rate (15% National, 0.315% Reconstruction Tax, and 5% Residential Taxes). Form B Pages 1&2 AND Page 3.
You have to select Separate Self-Assessment Taxation to claim any Capital Loss.

Employee Stock Options

Employee Stock Options differ from RSUs in that an RSU gives you a full Share of Stock for free.
Whereas, an Employee Stock Option only gives you the right to buy a Share of Stock at a particular price (The Strike Price) in the future. i.e. The Economic Benefit to you is only the price increase over the Strike Price, so if the Strike Price is $15 and the Share Price goes up to $20, then the Economic Benefit to you is $5, but if the Share Price goes down to $10, then the Option is said to be 'Out of the Money' or 'Underwater', and the Economic Benefit to you is $0 Zero. Why would you exercise the Option when you can buy the Shares on the open market for less?

If you receive Employee Stock Options, they are worth nothing until you choose to Exercise them.
Vesting (When the Options become Exercisable) is Not a taxable event. Only when you Exercise is there a taxable event.

When you Exercise The Option To Buy the Shares, then the Economic Benefit to you is considered Payment in Kind Or Earned Income, and is taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).

There are three ways to Exercise Employee Stock Options:

1. Exercise For Cash

If you choose to Exercise For Cash, then your broker will pay the Strike Price for the Stock and immediately sell them at Market Price. You will receive the profit difference. You pay nothing.
You have to take the (Share Price on Exercise Minus the Strike Price) x TTB Exchange Rate x No. Of Options Exercised = Economic Benefit = Taxable Salary and report that as Additional Earned Income from your employer on Form B - Page 1.
This is taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).

That is the end of that transaction. There is no Tax Basis for future consideration.

2. Exercise And Hold

If you choose to Exercise And Hold, this means that you will pay up the Cash to Purchase the Stock at the Strike Price.
i.e. You pay Strike Price x TTS Exchange Rate x No. of Shares Exercised.

The Economic Benefit is the difference between what you paid and the value of the Stock on that day.
i.e. (The Closing Share Price on the day of Exercise x TTB Exchange Rate on that day x No. Of Shares Exercised) minus (Strike Price x TTS Exchange Rate x No. of Shares Exercised) = Economic Benefit = Taxable Income and report that as Earned Income on Form B - Page 1

In this case the Tax Basis is

The Closing Share Price on the day Of Exercise x TTB Exchange Rate On that day x No. Of Shares Exercised = Tax Basis

When you sell the Shares, any Capital Gain over the Closing Share Price on the day of Exercise is taxed at the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes).
You have to take the Sell Price x TTB Exchange Rate x No. Of Shares Sold minus Tax Basis calculated above = Capital Gain Or Loss
If you select Aggregate Taxation, then this Capital Gain will be taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
Therefore, you have to select Separate Self-Assessment Taxation to claim the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes). Form B Pages 1&2 And Page 3.
You have to select Separate Self-Assessment Taxation to claim any Capital Loss.

3. Exercise To Cover

If you choose to Exercise To Cover, this means that you will Exercise For Cash enough shares to pay the Cash to Purchase the remainder of the Stock at the Strike Price. You pay nothing.

The Economic Benefit is the combination of 1. And 2. above. i.e. The amount of Cash generated from 1., and the Paper Gain of 2.

For the portion you Exercise for Cash, 1. applies.

And, for the portion you Exercise and Hold, 2. applies.

The Economic Benefit is still the same as 1.

The (Sell Share Price Minus the Exercise Price) x TTB Exchange Rate x Total No. Of Options Exercised = Economic Benefit = Taxable Salary and report that as Additional Earned Income from your employer on Form B - Page 1

The Tax Basis is then the same as 2. above.

The Closing Share Price on the day Of Exercise x TTB Exchange Rate On that day x No. Of Shares Retained = Tax Basis

When you sell the Shares, the Capital Gain over the Closing Share Price on the day Of Exercise is taxed at the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes).
You have to take the (Sell Price x TTB Exchange Rate x No. Of Shares Sold) minus Tax Basis calculated above = Capital Gain Or Loss
If you select Aggregate Taxation, then this Capital Gain over the Closing Share Price on the day Of Exercise will be taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
Therefore, you have to select Separate Self-Assessment Taxation to claim the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes). Form B Pages 1&2 And Page 3.
You have to select Separate Self-Assessment Taxation to claim any Capital Loss.

Employee Stock Purchase Program (ESPP) or Employee Stock Option Program (ESOP)

If you participate in an Employee Stock Purchase Program where you save a certain amount out of Salary each month and then purchase your company's shares, maybe every 6 months, maybe at a significant discount to the market, then the difference between the total amount paid and the value of the shares on the day you receive them (or the difference between the Market Price on the purchase date and the Purchase Price) is the Economic Benefit to you, and is considered as Payment in Kind Or Additional Salary Income, and is taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).

The easiest way to calculate this value is:

You take the (Closing Share Price on Purchase day x TTB Exchange Rate on that day x No. Of Shares Vested) minus The Sum Total of Yen Contributions deducted from Payroll = Economic Benefit = Taxable Salary and report that as Additional Earned Income From your employer on Form B - Page 1

The more correct, but more complicated way to calculate this value is:
(I wouldn't bother doing this for the extra work...)

You sum the Yen Contributions deducted from Payroll
Amount 1 x TTS Exchange Rate on that day
Amount 2 x TTS Exchange Rate on that day
Amount 3 x TTS Exchange Rate on that day
Amount 4 x TTS Exchange Rate on that day
and so on...

Then calculate the Exchange Profit or Loss for each Foreign Currency Purchase against the TTB Rate on Share Purchase day. This is Capital Gain and is taxed at the Capital Gains Taxation Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes).

You then calculate the Economic Benefit which will be taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
((Closing Share Price on Purchase day x No. Of Shares Purchased) minus (The Sum Total of Foreign Currency Contributions accumulated)) x TTB Exchange Rate on Share Purchase Day = Economic Benefit = Taxable Salary and report that as Additional Earned Income From your employer on Form B - Page 1

This should yield a very slightly different amount of tax (a few % of a few %) to be paid due to the Forex Gain being taxed at the Capital Gain Rate instead of your Marginal Tax Rate, especially if the Forex Gain is high over the period, against the extra work you have to do to calculate it... On the other hand, the tax may be slightly higher if the Forex yields a loss, but the share price gain is higher, and charged at your Marginal Tax Rate...

In this case the Tax Basis is

The Closing Share Price on the day Of Purchase x TTB Exchange Rate On that day x No. Of Shares Purchased = Tax Basis

When you sell the Shares, the Capital Gain is taxed at the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes).
You have to take the Sell Price x TTB Exchange Rate x No. Of Shares Sold minus Tax Basis calculated above = Capital Gain Or Loss
If you select Aggregate Taxation, then this Capital Gain will be taxed at your Marginal Taxation Rate (X% National, 2.1% of the Tax as Reconstruction Tax, and 10% Residential Taxes).
Therefore, you have to select Separate Self-Assessment Taxation to claim the Capital Gains Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes). Form B Pages 1&2 And Page 3.
You have to select Separate Self-Assessment Taxation to claim any Capital Loss.


Prior to 2011, ESPP Purchases would be calculated into your Year-End True-Up - Nenmatsu Chosei, and you would not have to declare them in a Kakutei Shinkoku.
From 2011, the regulation was changed and ESPP Purchases are no longer calculated into your Year-End True-Up - Nenmatsu Chosei, and so you HAVE TO declare them yourself in a Kakutei Shinkoku.
The Company is obliged to report RSUs, Stock Options and ESPP Purchases to the Tax Office, so They Do Know!, So, better to report everything above board, rather than waiting to get audited and slapped with heavy penalties.


Sorry, that was very long and boring...

On the subject of Yotei Nozei - Payment of Tax in Advance of Kakuteishinkoku

It is there so that you get three small shocks through the year, July, November and April, instead of one Huge shock in April.

It is due to the fact that that income was not subject to Withholding... So Think of it as the Withholding on income for which other Withholding is not Withheld

P.A.Y.E. is simply Yotei Nozei on your estimated total Employment Salary Income divided by 12 and withheld every month from Payroll. It is estimated by your company's payroll department based on your previous year's salary and the Claim for Next Year's Dependents and Deductions that you fill in every year at the Nenmatsu Chosei. 令和？年分給与所得者の扶養控除等申告書 

It is based on the assumption that the amount of Income / Gains you reported last year, and on which you received a Huge shock in April, would be replicated this year. In many cases it will. So make plans to pay it, and thank them for helping you distribute the tax burden over the year.

If you think and can prove that you will not make the same income or gains in this Financial Year that you made in the previous Financial Year, you can present that to the NTA and they will re-assess the Yotei Nozei. They may decide to reduce it, or even re-assess it to Zero for the current Financial Year.
The form to request re-assessment is here:
https://www.nta.go.jp/english/taxes/ind ... /12008.htm
https://www.nta.go.jp/taxes/tetsuzuki/s ... engaku.pdf
You then take that to you local Tax Office.

The difficulty comes the next year you have a large extra income of gain... You will not have had a huge tax bill in the previous year, so no Yotei Nozei, so no advanced payment and you received a Huge shock in April again ;-(


If you paid Yotei Nozei during the year, Do NOT forget to mention it when doing your Kakutei Shinkoku OR they WILL try to take the Tax again!
When you present the Yotei Nozei Receipts they will deduct that pre-paid tax from the Amount Of Tax Owed, and if the pre-paid tax was greater than the Amount Of Tax Owed, they will give you the refund.

thank you very much everyone for such detailed explanation