If you are a Japanese tax resident working in Japan subsidiary or branch and receive shares in parent company outside Japan based on share compensation plan, you need to file individual income tax return to Japanese tax authorities. In most cases, you need to pay additional income tax for the income equivalent to the share compensation. This may also apply to non-resident previously working in Japan during a specific period.
In general, a foreign corporation without a permanent establishment (PE) in Japan is not subject to capital gains tax on the disposal of shares in a Japanese company. However, there are some exceptions to the general rule. The Japan 2018 Tax Reform Proposal amends one of the exceptions as summarized below.
We summarize the Japan 2018 Tax Reform Proposal related to resident individual income taxpayers as below. Broadly speaking, this proposal contains tax increases for high-income individuals. All amendments below are scheduled to be effective for individual income tax on or after 2020.
The 2018 Tax Reform broadens a definition of Agent PE under the domestic tax law in Japan. This amendment above is effective for fiscal years of corporation beginning on or after January 1, 2019.
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