ESPP
Jump to
Taxation of Employee - ESPP

Tax on discount at purchase, likely as salary (remuneration) income. Tax authorities may challenge employees who claim ESPP income as occasional income, which is taxable at a lower effective rate.

Tax on sale.

Sub Deduction - ESPP

Likely available if (1) reimbursement is made pursuant to a written agreement, (2) the award income is classified as remuneration income, and (3) amount reimbursed is determined in accordance with general accounting conventions.

However, deduction may not be available for awards granted to officers or directors of the local entity.

Withholding and Reporting

Income Tax:
Generally, no withholding, unless the subsidiary is significantly involved in operation of plan and delivery of payment to employees.

Annual reporting required (assuming local entity is at least 50% owned by issuer and that no withholding is required).

Social Insurance Contributions:
Generally, no.

Securities Restrictions - ESPP

Yes, depending on value and size of offering. However, regardless of value and size of offering, companies making grants solely to employees of a wholly-owned subsidiary that is (1) a first tier or second tier subsidiary of the issuer, and (2) organized as a KK are not required to make any securities filings. If the exemption does not apply, grants to 50 or more offerees in excess of JPY 100 million require an extensive filing in addition to ongoing filings; grants to 50 or more offerees between JPY 10 million and JPY 100 million also require (less extensive) filing.

Aggregation rules apply (12-month aggregation rule applies to the value threshold; 6-month aggregation rule applies to the 50 offeree threshold).

Forced sale restriction does not avoid securities requirements for ESPP.

Exchange Controls - ESPP

Employee must notify Ministry of Finance of remittances in excess of JPY 30 million to purchase shares.

(The local entity may be required to fulfill this notification requirement since it is the entity transferring the payroll deductions to the issuer.) An additional notification is required for purchase of shares with a value in excess of JPY 100 million.

Plan Entitlement - ESPP

Generally, no, if right to terminate plan is reserved in writing.

*An agreement between an employee representative and the local entity may need to be signed for payroll deductions to be permitted under an ESPP. Separate account should be established unless deductions immediately remitted to parent/broker.

Data Privacy - ESPP

Companies are advised to check with their data privacy counsel to determine whether to rely on consent or other basis, after recent changes to data privacy rules in Japan.