RSUs and stock options when you move to Japan: the vesting period decides who taxes what

The short version. Equity compensation is taxed by where you worked while you earned it — grant date to vest (for RSUs) or grant to exercise (for options) — not where you live when it pays out. A 4-year RSU grant earned half in the US and half in Japan gets split, and both the IRS and Japan’s tax office (NTA) claim their slice. RSUs are taxed at vest in both countries; non-qualified options are taxed at exercise, and the two countries measure the split differently — which is how you get taxed twice even with a treaty in place. Your US employer will almost certainly withhold wrong. This is the one situation in a US↔Japan move where a cross-border tax preparer pays for itself many times over.

I did not have RSUs or stock options during my four years in the US, so I’ll be upfront: this article is what I found when I researched the mechanics for readers who do — not a personal war story. But I did live through the Japanese side of cross-border tax (the NISA and PFIC mess forced me to liquidate funds before I left Japan), so I know how fast “the company handles it” turns into “wait, nobody handled this.” Equity across a border is the sharpest version of that trap. I’m not a licensed advisor — confirm everything here against official pages and a professional.

The sourcing rule: where you worked, not where you live

Both the US and Japan tax equity compensation based on where the work was performed during the earning period, not where you live when the shares land in your account. For an RSU, that earning period runs from grant date to vest date. For a stock option, it runs from grant to exercise.

Japan applies this as a literal day-count:

Days physically worked in Japan ÷ total days in the earning window = the Japan-source percentage.

Overseas business trips and home leave are typically subtracted from the Japan side — verify this with your preparer.

Worked example. Say you’re granted RSUs that vest over 4 years. You spend the first 2 years working in the US, then transfer to Japan for the last 2. Roughly half the value is US-source and half is Japan-source. When those shares vest, the US taxes its half and Japan taxes its half — on the same vesting event, in the same year. Neither country cares that you were physically elsewhere for the other half; they only care about the days you worked in their jurisdiction during the window.

One brutal carve-out: if you become a director of a Japanese company, remuneration tied to that role is treated as 100% Japan-source with no apportionment at all. Executives who get promoted onto a board mid-grant are the people who get surprised hardest here.

The timing trap: RSUs vest, options exercise — and Japan measures differently

Here’s where “there’s a treaty, I’m fine” quietly breaks.

	Taxable event (US)	Taxable event (Japan)	Earning window US uses	Earning window Japan uses
RSUs	Vest	Vest	Grant → vest	Grant → vest
Non-qualified options	Exercise	Exercise	Grant → vest	Grant → exercise

For RSUs, both countries tax at vest and measure the same window, so the split usually lines up cleanly. The gap opens with options. The US treaty position measures the allocation period as grant-to-vest; Japan measures it grant-to-exercise. If you exercise a year or two after vesting, those windows are different lengths — so the two countries compute different percentages on the same grant.

One Japanese CPA firm’s worked example puts it starkly: the same option grant apportions as 3/5 US-source under US rules but 4/5 Japan-source under Japan’s rules. That adds up to more than 100% of the income — which is exactly what double taxation means. The treaty has a “Competent Authority” process meant to sort this out, but it’s slow, expensive, and not guaranteed to give you full relief. It’s a fix you hope never to need.

Your employer’s withholding will be wrong — and reconciling it is on you

This is the part that catches people who assume payroll “just handles” taxes.

• The US side over-withholds. Your US employer’s payroll system usually keeps treating you as a full US resident and withholds US tax on the entire vest or exercise value — including the part that’s now Japan-source.
• The Japan side often withholds nothing. Stock delivered by a foreign parent to a Japan-based employee is typically treated as a payment made outside Japan, so there’s no Japanese payroll withholding on it at all.

So you end up over-withheld by the US and under-withheld by Japan on the same income, and you are the one who has to reconcile both on your own filings. As of my research, your Japanese employer is separately required to file an annual report to the NTA disclosing your vest/exercise dates, values, share counts, award type, and the grantor — so Japan knows the income exists even though nothing was withheld. Assuming “no Japanese tax came out, so there’s no Japanese tax” is exactly how people end up with a bill plus penalties.

The foreign tax credit timing mismatch that strands your credit

Even when the treaty and the foreign tax credit should prevent double taxation, timing can sabotage it. This connects directly to how the foreign tax credit works versus the FEIE — worth reading if you haven’t sorted out which one you’re using.

The problem: a US foreign tax credit (Form 1116) is claimed either in the year the foreign tax accrues or the year it’s paid, and as of my research you must apply your chosen method consistently. Japan’s tax on the same RSU doesn’t all land in one tidy year:

• Japanese national income tax on a Year-N vest is due in Year N’s return.
• Japanese inhabitant/residence tax (jūminzei) on that same Year-N income isn’t assessed until Year N+1, then collected over 12 monthly installments (June–May).

If the Japanese tax on one vest splits across two different US tax years, the credit may not fully offset the US tax in the year it’s owed — leaving part of the credit stranded. The pain is worst in transition years (your first and last year in Japan), when income can hit both countries’ top brackets with no clean offset. The dollars here aren’t trivial: a mistimed credit on a large vest can mean thousands of dollars of tax you technically shouldn’t owe but can’t recover in the same year.

The reporting obligations most people never hear about

Two Japanese filings routinely blindside equity-holders:

Obligation	Trigger	Deadline	Who’s exempt
Overseas Assets Report (国外財産調書)	Overseas assets over ¥50 million on Dec 31	June 30 next year	Non-permanent residents (in Japan ≤5 of last 10 years)
Exit tax (国外転出時課税)	Financial assets ≥¥100 million and resident >5 of last 10 years, at departure	Final return by March 15 after departure	Shorter-term residents below the threshold

The exit tax is the one equity-holders underestimate. It taxes unrealized gains on a deemed sale of your portfolio at departure-date value — 20.315% (15% national income tax + 0.315% reconstruction surtax + 5% local inhabitants’ tax) on the paper gain. In scope: shares, bonds, fund units, derivatives, crypto. Real estate and cash are excluded. Crucially, as of my research, unvested RSUs and unexercised options count toward the ¥100 million threshold and toward the taxed gain — see japan-dev.com’s exit-tax overview for more detail. As of my research, you can apply to defer payment up to 5 years (extendable to 10) if you post collateral and appoint a Japan-resident tax agent. If you also hold a green card, the exit-tax picture on the US side is its own separate problem — don’t assume Japan’s exit tax and any US expatriation rules cancel out.

What to actually do — decision guide

• If you hold RSUs and moved mid-vesting → track your exact US vs Japan workdays for every open grant now, before vest. The day-count is your tax split, and reconstructing it later from memory is where errors creep in.
• If you hold non-qualified options and moved → assume the grant-to-vest vs grant-to-exercise mismatch applies and that the percentages won’t add to 100%. Do not exercise a large tranche without modeling both countries first.
• If your US employer is still withholding as if you’re a US resident → expect to reconcile it yourself; the withholding number on your payslip is not your final tax.
• If your financial assets are anywhere near ¥100 million and you’ve been in Japan 5+ years → get the exit-tax question answered before you set a departure date, because unvested equity counts.
• If your overseas assets top ¥50 million and you’re a permanent-resident-status taxpayer → calendar the June 30 Overseas Assets Report.

Honestly, equity spanning a relocation is the single most complex individual situation in a US↔Japan move — in my research, both Japanese CPAs and US cross-border preparers name it as such. This is the case where a specialist earns their fee several times over, purely by getting the sourcing split and the credit timing right. Taxes for Expats is one place to start — a US–Japan expat firm, and that link takes $25 off a first filing. (Full disclosure: that’s a referral link. It doesn’t change what you pay beyond the discount, and it’s one option among several — the point is to use someone who handles both sides of the border, whoever that ends up being.)

FAQ

Do I get taxed twice on the same RSU?

Potentially, yes — but not because the system intends it. RSUs are taxed at vest in both countries, and the treaty plus the foreign tax credit are designed to prevent genuine double taxation. Where people actually get double-taxed is the timing mismatch: when Japan’s income tax and inhabitant tax on one vest fall in different US tax years, part of your foreign tax credit can be stranded.

My company said they’d handle my taxes. Isn’t that enough?

Employer-arranged tax help usually covers your regular salary, and the payroll system typically keeps withholding US tax as if you never left. Equity is exactly where that breaks — split sourcing and reconciliation land on you personally. Confirm in writing whether your equity is actually inside the scope of whatever the company provides.

Do my unvested shares matter for Japan’s exit tax?

As of my research, yes. Unvested RSUs and unexercised options are financial assets for exit-tax purposes, so their value counts toward the ¥100 million threshold and toward the deemed gain taxed on departure — japan-dev.com’s exit-tax overview covers this in more detail. If you’re a long-term resident with a large equity position, pin down that number before you set a departure date.