The term RSU (restricted stock unit) does not appear in the Income Tax Act or Corporation Tax Act. It is not Japanese statutory tax terminology, but a name for a promise to deliver shares after conditions such as a specified period of service are met. The similarly named specified restricted shares (restricted stock), is a separate statutory concept. In an ordinary RSU, the economic benefit upon acquiring shares after service or other conditions are met is generally employment income as remuneration based on employment or a similar relationship. Below, we distinguish this ordinary form from cases where the delivered shares carry additional transfer restrictions and examine the applicable provisions.

Statutory definition

The amount to be the amount of revenue or the amount to be included in the gross revenue in the calculation of the amount of various incomes for that year shall, except as otherwise provided, be the amount to be received in that year (in the case of receiving by things or rights other than money, or other economic benefits, the value of those things or rights other than money, or other economic benefits).

Article 36 of the Income Tax Act is the general rule valuing revenue received in property other than money, rights or other economic benefits at the value of that property, rights or benefits. When shares are actually delivered under an arrangement called an RSU, Article 36 is the first provision to consider.

Overview

Which provisions apply first when shares are delivered?

When shares themselves are delivered to an individual under an RSU arrangement after service or other conditions are met, Article 28 of the Income Tax Act, on employment income, is one starting point. It states: “Employment income means income from salaries, pay, wages, annual allowances and bonuses, and remuneration of a similar nature (hereinafter ‘salaries, etc.’ in this Article).” Article 36 also states, concerning noncash property or rights: “The value of the property other than money, rights or other economic benefits in the preceding paragraph shall be the value when the property or rights are acquired or the benefits enjoyed.” Determining value at acquisition is therefore the initial statutory issue.

Where delivered shares carry additional transfer restrictions

At RSU grant, the shares themselves have generally not yet been delivered. Vesting of the right to receive shares after conditions are met differs from the lapse of restrictions on shares already delivered. Article 84 of the income tax Order, discussed here, concerns delivered shares carrying additional restrictions and qualifying as “specified restricted shares.” It provides that, where an individual provides services to a corporation and receives as consideration restricted shares meeting the listed requirements (“specified restricted shares”), their value, or the value of successor restricted shares, under Article 36(2) of the Act (Revenue) is their value on the date transfer restrictions (...) lapse (...). The requirements are: “The restricted shares are delivered to the individual in exchange for contribution of a claim arising to the individual as consideration for the services,” or “In addition to the preceding item, the restricted shares are substantively regarded as consideration for the services.” If applicable, Income Tax Basic Circular 23–35 Common-5-2 classifies the recipient's income: “Where specified restricted shares, etc. are found to have been delivered by reason of an employment contract or similar relationship with the delivering corporation, the income shall be employment income.”

Which special expense-timing rules may apply to the issuer?

In ordinary terminology, RS means shares delivered first with transfer restrictions; RSU means an advance promise of a fixed number of shares delivered after a period of service or other conditions are met. Both differ from stock options granting share acquisition rights. Qualifying RS arrangements require examination of Corporation Tax Act Article 54 and Order Article 111-2. Where RSUs constitute remuneration based on an arrangement to deliver a fixed number of shares to an officer of a domestic corporation, Performance-based stock compensation delivered after the fact the relevant category under Corporation Tax Act Article 34 is “...remuneration based on an arrangement to deliver a fixed number of shares (...) or share acquisition rights ...,” discussed there, together with Order Article 71-3 governing expense amounts. Article 71-3 excludes “...compensation in specified restricted shares or successor restricted shares under Article 54(1) of the Act (Special provisions on the business year of expenses in consideration of restricted shares) or specified share acquisition rights or successor share acquisition rights under Article 54-2(1) (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights) ...” before calculating fixed-number compensation expenses. Article 54-2 separately governs the business year of expenses where share acquisition rights are consideration. For issuer-side deductibility, see also Tax deductibility for the issuing company of stock options.

Which judgment is relevant to foreign-parent grants?

For RSUs granted under a foreign parent's plan, there is the Supreme Court's Third Petty Bench judgment of January 25, 2005 (2004 (Gyo-Hi) No. 141) concerning foreign-parent stock options. Its summary states: “The gains realized by the representative director of a Japanese subsidiary of a U.S. corporation ... upon exercising those rights constitute employment income under Article 28(1) of the Income Tax Act.” However, this was a stock option case, not an RSU precedent. For details of foreign-parent stock option taxation, see Taxation of foreign parent company stock options. The National Tax Agency's “Taxation of Stock Options (Q&A)” (last revised November 2024), as its title indicates, explains What is a stock option?.

Points that require care in practice

• Check whether the grant delivers units promising future shares or the shares themselves. For ordinary RSUs, the individual tax questions are vesting conditions, the time shares are acquired, and their value then. Examine separately the requirements of income tax Order Article 84 for additional restrictions on delivered shares, and Corporation Tax Act Article 34 and Order Article 71-3 for issuer-side officers' remuneration.
• Where the shares do not qualify as specified restricted shares, etc., the provisions and circulars governing the recipient's income classification must be checked individually against the contract.
• For foreign-parent grants, the extent to which the January 25, 2005 Supreme Court judgment applies must be considered against the individual facts.

Legal basis

• Income Tax Act, Article 36(1) (Revenue) / Quoted wording: “Unless otherwise provided, the amount to be treated as revenue or included in gross revenue in calculating each category of income for a year shall be the amount receivable in that year (where received in property other than money, rights or other economic benefits, the value of that property, rights or benefits).”
• Article 36, Paragraph 2 of the Income Tax Act (Amount of Revenue) / Quoted text: "The value of things other than money, rights, or any other economic benefits under the preceding paragraph shall be the value at the time of acquiring said things or rights, or enjoying said benefits."
• Article 28, Paragraph 1 of the Income Tax Act (Employment Income) / Quoted text: “Employment income means income from salaries, pay, wages, annual allowances, bonuses, and remuneration of a similar nature (referred to in this Article as ‘salaries, etc.’).”
• Order for Enforcement of the Income Tax Act, Article 84(1) (Value of restricted shares, etc.) / Quoted wording: “Where an individual provides services to a corporation and receives as consideration restricted shares satisfying the following requirements (hereinafter ‘specified restricted shares’ in this paragraph) (...), the value under Article 36(2) of the Act (Revenue) relating to those shares or successor restricted shares shall be their value on the date restrictions on transfer (including creation of security interests and other dispositions; the same applies in paragraph (2)(i)) lapse (...).” “The restricted shares are delivered to the individual in exchange for contribution of a claim arising to the individual as consideration for the services.” “In addition to the preceding item, the restricted shares are substantively regarded as consideration for the services.”
• Article 54, Paragraph 1 of the Corporation Tax Act (Special Provisions for Fiscal Year of Attribution of Expenses with Restricted Stock as Consideration) / Cited text: "The provisions of this Act shall apply on the assumption that the services were received on the date on which it is determined that, for the said individual, an amount to be included in the revenue amount pertaining to employment income or other income specified by Cabinet Order prescribed in the Income Tax Act, etc. of the said individual pursuant to the provisions of the Income Tax Act and other laws and regulations relating to income tax, or an amount to be included in the gross revenue amount (referred to as 'taxable salary, etc. amount' in the following paragraph and paragraph 3), arises with respect to the provision of the said services."
• Article 111-2, Paragraph 1 of the Order for Enforcement of the Corporation Tax Act (Scope of Restricted Stock, etc.) / Quoted text: "Restrictions on transfer (including the creation of security interests and other dispositions) are in place, and a period pertaining to such restrictions on transfer (referred to as the "transfer restriction period" in the following item) is established." "Events are provided under which a domestic corporation receiving the provision of services from the individual referred to in Article 54, Paragraph 1 of the Act, or the corporation that issued the shares or delivered them to the individual referred to in the same paragraph, will acquire the shares without consideration (limited to events based on the work status of the individual, such as the individual referred to in the same paragraph who has received the delivery of the shares failing to continue working for a predetermined period within the transfer restriction period, or the work performance of the individual not being favorable, or events based on the status of business performance or other indicators of these corporations, such as the business performance of these corporations failing to reach a predetermined standard)."
• Corporation Tax Act, Article 34(1)(ii) (Nondeductibility of officers' remuneration) / Quoted wording: “Remuneration based on an arrangement to deliver, at a specified time for an officer's duties, a fixed cash amount, a fixed number of shares (including capital contributions; hereinafter the same in this paragraph and paragraph (5)) or share acquisition rights, or specified restricted shares under Article 54(1) (Special provisions on the business year of expenses in consideration of restricted shares) or specified share acquisition rights under Article 54-2(1) (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights) relating to a fixed monetary claim, which is neither regular equal-amount remuneration nor performance-linked remuneration (...).”
• Order for Enforcement of the Corporation Tax Act, Article 71-3 (Expenses, etc. for remuneration based on an arrangement to deliver a fixed number of shares) / Quoted wording: “Where delivery of shares or share acquisition rights as remuneration based on an arrangement to deliver a fixed number of shares (including capital contributions; hereinafter the same in this Article) or share acquisition rights at a specified time for duties of an officer of a domestic corporation (... hereinafter ‘fixed-number compensation’ in this Article) occurs on normal transaction terms, the expense amount for that compensation, excluding compensation in specified restricted shares or successor restricted shares under Article 54(1) of the Act (Special provisions on the business year of expenses in consideration of restricted shares) or specified share acquisition rights or successor share acquisition rights under Article 54-2(1) (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights), shall equal the unit value on the date the arrangement was made of shares or rights of the same issue as those delivered, multiplied by the number delivered (... hereinafter ‘value at the delivery resolution’ in the following paragraph).”
• Corporation Tax Act, Article 54-2(1) (Special provisions, etc. on the business year of expenses in consideration of share acquisition rights) / Quoted wording: “Where a domestic corporation receives services from an individual and restricted share acquisition rights (meaning rights prescribed by Cabinet Order as subject to transfer restrictions or other conditions; hereinafter the same in this paragraph) meeting the following requirements (hereinafter ‘specified share acquisition rights’ in this Article) are delivered in respect of the service expenses (...), this Act shall apply as if the services were received on the date an event occurs that gives rise, under the Income Tax Act or other income tax laws and regulations, to an amount to be treated as revenue or included in gross revenue for the individual's employment income or other income prescribed by Cabinet Order relating to those services (referred to in the following paragraph as an ‘event triggering taxation of salaries, etc.’).”

Relevant administrative guidance, Q&A, and cases

• Income Tax Basic Circular 23–35 Common-5-2 (Income classification when restrictions on transfer of specified restricted shares, etc. lapse) / Quoted wording: “Where specified restricted shares, etc. are found to have been delivered by reason of an employment contract or similar relationship with the delivering corporation, the income shall be employment income. However, where restrictions are found to have lapsed by reason of the recipient's retirement, it shall be retirement income.”
• Supreme Court, Third Petty Bench, judgment of January 25, 2005 (2004 (Gyo-Hi) No. 141) / Quoted summary: “The gains realized by the representative director of a Japanese subsidiary of a U.S. corporation ... upon exercising those rights constitute employment income under Article 28(1) of the Income Tax Act.”

Additional Authorities and Sources

• Ministry of Economy, Trade and Industry, “Use of Incentive Compensation Systems According to Growth Stage,” page 8
• Financial Services Agency, materials published November 26, 2024 (terminology for deferred-delivery shares, RSUs)
• Income Tax Act (e-Gov)

Sources checked September 7, 2026.