For employees of foreign companies in Japan, RSUs have become a common form of equity, particularly at technology and life sciences companies. The tax treatment is straightforward. Nothing is taxed at grant. When the units vest and shares are delivered, their market value on that date is employment income, added to salary and taxed at progressive rates of up to about 56% including inhabitant tax. That value becomes the tax cost of the shares, and any gain on a later sale is a capital gain taxed at 20.315%.
The practical problem is collection. A Japanese subsidiary is not usually the payer when a foreign parent delivers shares through an overseas broker, so no Japanese tax is withheld at vesting. The employee must declare the income in a tax return, even if their salary is otherwise covered by the year-end adjustment. The Japanese subsidiary or branch must report each delivery to the tax office by 31 March of the following year, so the tax office knows who received what. Tax advisers report that unreported vestings are a recurring problem among gaishikei employees, and they surface later with penalties and interest.
Moves in and out of Japan during the vesting period complicate this. The vesting value is apportioned by time: the share that corresponds to days worked in Japan between grant and vesting is Japanese-source employment income. Someone who has left Japan before the units vest remains taxable in Japan on that share, and a newcomer who is still a non-permanent resident at vesting is taxed on it in full but on the share earned abroad only if it is paid in or remitted to Japan. The National Tax Agency applies the same approach to stock options, and tax treaties can modify it.
Japanese companies have their own versions. Since the 2016 and 2017 tax reforms, restricted stock and performance share units for directors have spread at listed Japanese companies, because they can be deductible for the company if structured within the rules on directors' pay.
What it means for a foreign employer
- Unvested RSUs are the biggest cost of moving. A senior candidate at a technology or life sciences company may be walking away from several years of unvested grants. Buy them out with a sign-on grant or cash, or the offer reads as a pay cut.
- Vesting creates a tax bill without cash. The employee owes Japanese tax on shares they may not have sold. Sell-to-cover on vesting and a clear explanation at onboarding prevent problems.
- Help them file. Providing tax return support for employees with equity is cheap compared with the cost of an executive facing a tax office inquiry.
- Mind the vesting schedule. Three- to four-year vesting is typical. A candidate days or weeks from a large vest will often wait for it; plan the start date around it rather than against it.
Sources
- Income Tax Act, Article 28; Enforcement Order, Article 84 (economic benefit from restricted shares).
- Income Tax Act, Article 228-3-2 (report on benefits granted by a foreign parent).
- Income Tax Act, Article 161 (domestic-source income), and Basic Circular 161-41 (apportionment of pay for work both in and outside Japan).
- National Tax Agency, Q&A on the scope of domestic-source income from stock options (as of August 2025).
- Corporation Tax Act, Article 34 (deductibility of share-based pay for directors).