What You Need To Know About Reporting Requirements For Stock-based Compensation

By Author: martin well
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Japan tax authorities recently announced new reporting requirements for foreign stock-based compensation received by resident employees and directors of certain entities in Japan. The new requirement comes into effect from January 1, 2013 implying that the prescribed stock-based compensation distributed during 2012 must be reported by certain employers when they make their next submission.

Japan’s new stock options reporting requirements are part of the 2012 Japan tax reform legislation and aim to tighten the noose on what authorities fear is growing non-compliance with declaration of stock-based compensation in Japan by individual tax payers.

Japan Stock-based Compensation Reporting: New Requirements

A Japanese subsidiary or branch must prepare and submit to the tax office, the prescribed form, by March 31 of the subsequent year:

• When a director or an employee of a Japanese subsidiary of an overseas company, where half or more of the outstanding shares in the Japanese subsidiary are directly or indirectly obtained by the overseas company, or
• When a director or employer of a ...
... branch office in Japan of an overseas company receives stock-based compensation.

Any form of stock, cash or other benefits offered to employees and directors in Japan and based on the following rights (established under a contract between the director or the employee and foreign establishment) must be reported:

• Privilege to get stock for no consideration or at a preferable cost,
• Privilege to get cash or other benefits equivalent to stock value or dividends from stock,
• Privilege to receive stock, cash or other benefits in situations where the stock price, performance of the company, or other indicator accomplishes a pre-determined goal.

The new regulations apply to local employees as well expatriates who have been moved by the Japan entity from other locations.

Japan Stock-based Compensation Reporting: The Background

Under present regulations, Japan resident employees and directors who receive compensations including wages, cash-based, share-based incentives, and allowances through an offshore establishment are not subject to the Japanese withholding requirements.

For residents, employers are not required to report offshore compensations to the Government that has been taking radical measures to improve Japan’s tax landscape and make doing business in Japan easier for foreign businesses.

With the introduction of stricter regulations, increased information exchange, increased audit and inspection activities, it is crucial to be informed to avoid expensive consequences later. In anyinternational business expansion, a trusted service provider will provide the necessary assistance in all areas of your business like international financial reporting, global transfer pricing, international financial reporting etc.

Know more on: Transfer Pricing Method & international accounts payable