Restricted Stock Units (RSUs) are a common form of compensation, especially in multinational companies. While there are plenty of articles explaining what RSUs are, this article focuses specifically on RSU taxation, filing requirements in Japan, and potential cash flow risks.

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When Taxes Are Paid on RSUs

Depending on your company, RSUs may be granted with a gross-up (where the company covers the tax portion), but in most cases, employees are responsible for paying taxes themselves.

• At vesting (when shares are delivered): The fair market value of the stock is treated as employment income and subject to income tax.
• At sale (when shares are sold): Any difference between the sale price and the value at vesting is treated as capital gain or loss.

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Case 1: Rising Stock Price (Simpler Case)

If the stock price increases, the logic is straightforward:

• Example: Vesting price = ¥100, Sale price = ¥150
• Taxable at vesting: ¥100 (employment income)
• Capital gain: ¥50 (¥150 – ¥100)

Here, you pay taxes on income you have effectively gained, which makes sense to most employees.

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Case 2: Falling Stock Price (The Real Problem)

The real risk arises when the stock price falls after vesting.

• Example: Vesting price = ¥100, Stock price at year-end = ¥10
• Taxable at vesting: ¥100 → Income tax @20% = ¥20
• But when selling at ¥10, you only receive ¥10 cash, which is not enough to cover the ¥20 tax liability.

This situation creates a cash flow shortfall, forcing the employee to find other funds to pay taxes.

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Why This Happens: Japan’s Current Tax Rules

One major drawback is that in Japan, capital losses from RSU sales cannot be carried forward or offset against employment income.

• Example: Vesting at ¥100 → Tax paid = ¥20
• Later sold at ¥10 → Loss of ¥90
• That ¥90 loss cannot be used to reduce past taxes or future income.

From a fairness perspective, one might argue that such losses should allow for tax refunds. However, under current Japanese tax law, this is not permitted.

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How to Avoid Cash Flow Problems

One practical strategy is:

• Sell shares shortly after vesting.
  While it may not be possible to sell on the exact vesting date, selling soon after helps secure cash for tax payments before the stock price drops significantly.

This approach reduces your exposure to market fluctuations and ensures you have the funds to meet tax obligations.

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Key Takeaways

• RSUs are not always “free money” — employees can face tax liabilities larger than the value of the shares they hold if the stock price falls.
• Japan’s tax system does not allow RSU-related losses to offset income taxes already paid.
• Employees should carefully plan for tax payment timing and liquidity management.

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Need Advice on RSU Taxation in Japan?

If you are concerned about RSU tax filing, cash flow planning, or possible tax optimization strategies, feel free to reach out through our contact form.
As a licensed Japanese tax accountant with experience in international companies, I provide professional advice tailored to RSU holders.