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 a general rule that ties the occurrence of income not to the receipt of money, but to the fact that it "should be received." In transactions spanning multiple points in time, such as stock options involving grant, exercise, and transfer, this provision serves as the starting point for determining which economic benefit at which point in time is tied to taxation. Below, the timing of when income should be received is divided into three categories—grant, exercise, and transfer—and the location of the provisions operating in each case is confirmed.

Overview

How is it explained at the time of granting?

The Q&A of the National Tax Agency explains gratuitous and advantageous issuance as follows (this preamble is common to Questions 1, 2, 3, and 6. For details on income classifications, Taxation of non-qualified stock options see ). Regarding "In-kind salary provided by an employer is subject to income tax as employment income at the time of provision, but if such in-kind salary is a stock option with transfer restrictions (non-tax-qualified stock option), income cannot be realized by transferring the stock option. Therefore, income is not recognized at the time the stock option is granted, and it is subject to income tax as employment income for the year in which the stock option is exercised (Article 84, Paragraph 3 of the Income Tax Enforcement Order)." The paid-in type states: "Non-tax-qualified stock options (paid-in type) do not generate economic benefits because the stock options are purchased at an appropriate fair market value, and therefore no tax implications arise." The trust type states at the time of purchase: "If the trust company purchases the stock options at an appropriate fair market value (50), no economic benefits are generated, and therefore no tax implications arise," and at the time of grant: "No tax implications arise regarding the economic benefits when the issuing company grants stock options managed as trust property by designating officers and employees as beneficiaries (Article 67-3, Paragraph 2 of the Income Tax Act)." Tax-qualified status states: "Economic benefits at the time of grant are not subject to tax implications because transfer restrictions are attached and income cannot be realized" (Article 29-2 of the Act on Special Measures Concerning Taxation).

Which provision applies upon exercise?

The rule that applies at the time of exercise is Article 84 of the Income Tax Enforcement Order. For the gratuitous and favorable issuance type, the Q&A (Question 1) states: "The amount of economic benefit shall be 600, which is the stock price at the time of exercise (800) minus the exercise price (200)." For the trust type, the Q&A (Question 3) states: "The amount of economic benefit shall be 550, which is the stock price at the time of exercise (800) minus the total amount (250) of the amount carried over as the acquisition cost (50) and the exercise price (200)," and further states that "it constitutes employment income (Article 28 and Article 36, Paragraph 2 of the Income Tax Act; Article 84, Paragraph 3 of the Income Tax Enforcement Order)." For the taxable type, Question 2 of the Q&A explains that economic benefits at the time of exercise are not recognized for income tax purposes in cases where the individual purchased them at an appropriate fair market value (Article 36, Paragraph 2 of the Income Tax Act; Article 109, Paragraph 1, Item 1 of the Income Tax Enforcement Order). Regarding tax-qualified options, Article 29-2 of the Special Taxation Measures Act stipulates that "...in the event that shares pertaining to the said specified stock acquisition rights are acquired by exercising them in accordance with the said contract, income tax shall not be imposed on the economic benefits pertaining to the acquisition of the said shares." The National Tax Agency's Q&A explains this effect as follows: "The income taxation at the time of acquiring shares by exercising the said stock option is deferred, and it is subject to income tax as capital gains on shares for the year that includes the date on which the shares are transferred" (Q&A Question 6).

How the "time to be earned" is determined

When the "amount to be received" referred to in Article 36 of the Income Tax Act is deemed to have accrued is stipulated in Income Tax Basic Directive 23 to 35-6-2. The directive states that the acquisition of shares through the exercise of such rights shall be based on "the day on which the application for the acquisition of shares acquired through the exercise of the right was made," and notes that "if the right is forfeited because the person granted the right to acquire shares did not apply for the acquisition of the shares, canceled the application, or failed to make the payment, no taxation shall be imposed." Details regarding the income classification are Taxation of non-qualified stock options Please refer to.

Compare four types on a single page

The National Tax Agency's Q&A explains the taxation relationship at the time of grant, exercise, and transfer for each of the four types (Questions 1, 2, 3, and 6). When those explanations are arranged by these three points in time, they are as follows. In the table, the paid-in type refers to the case where the individual purchases at fair market value, and the trust type refers to the non-tax-qualified example in Question 3.

Regarding the time of transfer, the Act on Special Measures Concerning Taxation provides special provisions for the taxation of capital gains and other income from general shares, etc. (Article 37-10) and listed shares, etc. (Article 37-11). For the taxation-type (paid-in type), it states that "the capital gain on the share transfer will be 750, which is calculated by subtracting the total amount (250) of the purchase price of the stock option (50) and the exercise price (200) from the stock price at the time of transfer (1,000)" (Q&A Question 2). Both the taxation-type (paid-in type) and trust-type involve a purchase at an appropriate fair market value (Q&A Question 2-1 and Question 3-2).

Why is the economic benefit at the time of exercise of a trust-type stock option considered employment income?

Trust-type stock options involve a mechanism where the issuing company or a similar entity places money in a trust with a trust company, and the trust company purchases restricted stock options of the issuing company at an appropriate fair market value, and then designates and grants them to contributing officers and employees as beneficiaries. The National Tax Agency's Q&A presents the following two viewpoints regarding whether the economic benefits at the time of exercise constitute employment income, and adopts the latter.

• There is a view that, due to reasons such as the trust granting stock options to officers and employees, and the trust acquiring stock options for value, the above-mentioned economic benefits do not constitute consideration for labor and are "not taxed as salary," but
• Essentially, because the issuing company grants stock options to its officers and employees, and those officers and employees bear no financial burden, the aforementioned economic benefit corresponds to compensation for services and is "taxed as employment income."

How the trust-type system works What is a trust-type stock option? Please refer to.

Points that require care in practice

• Nonrecognition of an economic benefit upon exercise of paid options presupposes purchase by the individual at fair market value. Distinguish this from nonqualified trust-based options purchased at market value by a trust company and granted to officers and employees without their paying cash or other consideration.
• The statutory basis for taxation upon sale differs depending on whether Article 37-10 (general shares, etc.) or Article 37-11 (listed shares, etc.) of the Act on Special Measures Concerning Taxation applies. Check at transfer whether the shares acquired through exercise qualify as listed shares, etc.
• For trust-based arrangements, the National Tax Agency concludes that the economic benefit at exercise is employment income. Whether the result may differ with a particular trust agreement must be assessed after examining the actual contractual arrangement.

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 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(3) (Value of restricted shares, etc.) / Quoted wording: “Where the issuing corporation grants rights listed in the following items that carry transfer restrictions or other special conditions ... the value under Article 36(2) of the Act relating to those rights shall be the value of the shares acquired through exercise on the exercise date ... less the amount specified in the relevant item.”
• Act on Special Measures Concerning Taxation, Article 29-2(1) (Exemption, etc. for economic benefits relating to acquisition of shares through exercise of share acquisition rights received by specified directors, etc.) / Quoted wording: “...Where shares relating to the specified share acquisition rights are acquired by exercise in accordance with the contract, the economic benefit relating to that acquisition shall be exempt from income tax.”
• Act on Special Measures Concerning Taxation, Article 37-10(1) (Special taxation of capital gains, etc. on general shares, etc.) / Quoted wording: “Where a resident or a nonresident with a permanent establishment transfers ... general shares, etc. (shares, etc. other than listed shares, etc. prescribed in paragraph (2) of the following Article; hereinafter the same in this Article) on or after January 1, 2016, business income, capital gains and miscellaneous income ... from the transfer shall, notwithstanding Articles 22, 89 and 165 of the Income Tax Act, be taxed separately from other income ...”
• Act on Special Measures Concerning Taxation, Article 37-11(1) (Special taxation of capital gains, etc. on listed shares, etc.) / Quoted wording: “Where a resident or a nonresident with a permanent establishment transfers listed shares, etc. on or after January 1, 2016, business income, capital gains and miscellaneous income ... from the transfer shall, notwithstanding Articles 22, 89 and 165 of the Income Tax Act, be taxed separately from other income ...”

Relevant administrative guidance, Q&A, and cases

• Income Tax Basic Circular 23–35 Common-6-2 (Timing of revenue from rights to acquire shares, etc.) / Quoted wording: “The time revenue is receivable for income relating to rights granted by an issuing corporation under the items of Article 84(3) of the Order shall be the date an application was made to acquire the shares obtained through exercise ...” (Note) “No tax shall be imposed where a grantee forfeits the rights by not applying to acquire the shares, withdrawing the application, or not making payment.”
• National Tax Agency, “Taxation of Stock Options (Q&A),” last revised November 2024, Question 1 / Quoted wording: “Salary in kind received from an employer is subject to income tax as employment income upon receipt. However, if it consists of transfer-restricted stock options (nonqualified stock options), income cannot be realized by transferring them, so income is not recognized at grant; it is taxed as employment income (note) for the year of exercise (income tax Order, Article 84(3)).” / “The economic benefit is 600: the share price at exercise (800) less the exercise price (200).”
• National Tax Agency, “Taxation of Stock Options (Q&A),” last revised November 2024, Question 2 / Quoted wording: “Because nonqualified stock options (paid type) are purchased at fair market value, no economic benefit arises and no tax consequences arise.” / “The share transfer gain is 750: the share price at transfer (1,000) less the sum (250) of the option purchase price (50) and exercise price (200).”
• National Tax Agency, “Taxation of Stock Options (Q&A),” last revised November 2024, Question 3 / Quoted wording: “Where a trust company purchases the options at fair market value (50), no economic benefit arises and no tax consequences arise.” / “No tax consequences arise for the economic benefit where the issuer grants options held as trust assets by designating officers or employees as beneficiaries (Income Tax Act, Article 67-3(2)).” / “The economic benefit is 550: the share price at exercise (800) less the sum (250) of the carried-over acquisition cost (50) and exercise price (200).” / “It is employment income (Income Tax Act, Articles 28 and 36(2); Order, Article 84(3)).” / “There is a view that the benefit is not consideration for labor and ‘is not taxed as salary’ because the trust grants the options to officers and employees and acquired them for consideration, but” / “because in substance the issuer grants the options and the officers and employees bear no cash or other cost, the benefit is consideration for labor and ‘is taxed as salary.’”
• National Tax Agency, “Taxation of Stock Options (Q&A),” last revised November 2024, Question 6 / Quoted wording: “No tax consequences arise for the economic benefit at grant because transfer restrictions prevent realization of income.” / “For options satisfying the following requirements (tax-qualified stock options), salary taxation on the date shares are acquired through exercise is deferred, and the benefit is subject to income tax as share transfer gains for the year in which those shares are transferred (Act on Special Measures Concerning Taxation, Article 29-2).”

Additional Authorities and Sources

• National Tax Agency, “Taxation of Stock Options (Q&A),” last revised November 2024, Questions 2 and 3
• Income Tax Act (e-Gov)
• Order for Enforcement of the Income Tax Act (e-Gov)

Sources checked September 7, 2026.