News Details
2019.02.28
Reporting Requirement for Economic Benefits Received from Foreign Parent Companies
1. Introduction
When directors or employees of a Japanese subsidiary of a foreign parent company receive economic benefits based on stock options or RSU (Restricted Stock Unit) granted by the foreign parent company, the Japanese subsidiary is required to report the details of such equity income to the tax authorities. However, it is reported that many Japanese subsidiaries fail to submit the statement to the tax authorities. In this News, we will mention the statement reporting economic benefits received from foreign parent companies which Japanese subsidiaries must submit by 31 March of the year following the year of exercising rights.
2. Background
When directors or employees of a Japanese subsidiary of a foreign parent company exercise stock options or other stock-based compensation granted by the foreign parent company, such income is subject to Japanese income tax. However, it is neither withheld at source nor settled at year-end tax adjustment by the Japanese subsidiary; instead, directors or employees must report such equity income by filing individual income tax returns. In most cases, however, directors or employees fail to file income tax returns and do not report such income to the tax authorities. From this background, in order to prevent the failure of reporting, Japanese subsidiaries are required to submit the statement on economic benefits by exercising stock options or other stock-based compensation granted by foreign parent companies.
3. Required statement
When directors or employees of a Japanese subsidiary or branch of a foreign company exercise stock options or other stock-based compensation granted by the foreign company, the Japanese subsidiary or branch must submit the “statement on economic benefits by exercising stock options or other stock-based compensation granted by foreign parent companies” describing types of stocks and other related information by 31 March of the year following the year of exercising rights.
4. Penalties
Japanese subsidiaries or branches who fail to submit the statement or give the false statement are punished by imprisonment with work for not more than one year or a fine of not more than five hundred thousand yen.
5. Conclusion
In this News, we mentioned “Reporting Requirements for Economic Benefits Received from Foreign Parent Companies.”
Please note that this News only introduces general outlines and does not include professional advice. So please make sure not to make any decisions without taking professional advice individually. If you have any questions, please feel free to contact us.
(Reference / Japanese)
National Tax Agency
https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/hotei/1255.htm
（Accessed on 21 February, 2019）
Query on the phone+81-3-6821-9455