The difference of the tax laws are quite tricky when you handle the monetary rewards like stock options for your team members spreading many locations over the globe. Now, here is a bit of your must-check-items especially important in Japan’s tax related regulations.
Options Adoptive
to the local tax law
20%
Same percentage of tax that is applied to your capital gain.
In Japan, they call it “separate taxation”. The tax amount is specifically calculated for your capital gain.
For more detailed information, please consult with your accountant.
Options non-Adaptive
to the local tax law
43%
Same percentage of tax rate as salary income (above 9M JPY, it will become 43%)
They call it “Comprehensive Taxation”.
33% of the income tax plus 10% local tax
Ideally, the options should be adoptive one in order to avoid this high tax rate.
Based on these difference that comes from the local tax regulation, maybe you have to design your stock options so as to make it “adoptive” to the local tax low. The “tax-law-adoptive” stock options must comply with following rules.
Rules to comply in order to make your options “Tax Adoptive” with Japanese regulations
Cliff
Longer than 2 years of the non-vesting period.
Capital Gain
There is upper limit. Should be less than 12M JPY annually.
Receiver
Need to be your employee. Should not be your spouse or relative.
Strike Price
The Strike Price should be higher than then-current stock price.
Given for FREE
That stock option must be granted for free.
+
Non-Transferable
Stock option should be stated as “Non-Transferable” on your contract.
Work with
Your accountant might clarify all of your worries but in case you need help, feel free to inquire!
Hi there! It is extremely hot in Tokyo now. They say it’s around 35 degree celsius but I can’t believe normal human can actively walk around the town under this burning air. Let’s start today’s lesson anyways!
A view from beautiful FARO office. It is located at the center of Kagurazka, Shinjuku Tokyo
Want to make your legal entity in JP? You have to make TEIKAN!
When I was working for British digital agency named “Essence Digital”, I experienced the launch of new legal entity. Believe the people in headquarter (UK) were using Deloitte globally to manage local entities of all over the globe, but using that kind of accounting/consulting firm is always quite expensive. They can especially charge the very expensive price when you want every report in English. The process to make legal entity is something like following.
Make TEIKAN of your legal entity
Get that TEIKAN document approved by the legal office
Submit that approved TEIKAN doc to the ministry of law (a.k.a. “Legal Bureau), and register the information of your directors, your capital amount, and headquarter address.
Ball-park cost of legal entity set-up
The whole process above takes some around 3-4 weeks. Asking a judicial scrivener to make a TEIKAN document is so expensive (typically, JPY 150,000) that you should avoid it. I got a copy of approved TEIKAN from my friend and then just modified it as needed. TEIKAN is basically something defines the way you handle your company’s stock and the operational rules of your company’s board meetings.
The fee for certification paid to a notary who approves your TEIKAN document is 50,000 yen.
In case you want to change your TEIKAN, you have to pay JPY25,000 for the updated approval.
Besides that, you have to submit the “registered stamp” to the notary. It might sound a bit weird but all Japanese people basically have their “registered stamp”. That registration is done in the each city office.
Ok.. can foreigners establish a legal entity in JP?
Japan’s law changed in 2017 and they finally started accepting the foreigner’s directorship over Japan’s legal entity but due to the troublesome work listed above, you probably need to get help from local agency when you want to set up a local legal entities.
Hi there! Thanks for reading this! My name is Tomo and I launched ORANGE FOX, this small agency in November 2018. I was working in big global organizations such as Skype, or Microsoft.. and just like many other people, I also noticed that I should run my own business 🙂
View from ARK Mori Bldg. Co-Work Space
In 2017, I spent most of my time at the beautiful co-work space located at the central area of Akasaka, Tokyo. In that space, there are lots of entrepreneurs working to grow their own businesses. I might have been influenced by them slightly. Some of those became my friend and kindly helped me to set up my own legal entity. (It’s quite complicated to work with Japan’s legal bureau. Lots of inconvenience)
It turned out that setting up my own legal entity and drive this business was totally exciting and inspiring experience for me. I have been working as employed for more than 13 years so definitely whole this experience was quite attractive and gave me something I can’t throw away any more. This was possible due to my valuable clients so I will write more about them in the next opportunity. Thanks for reading my blog indeed.
