RetireJapan x Millionaire Teacher = Sweet As
Just a quick post today to announce that I have written a guest post for Andrew Hallam’s blog.
Andrew Hallam is the bestselling author of Millionaire Teacher and The Global Expatriate’s Guide to Investing.
He’s a great guy who has done a lot to help people all over the world learn more about personal finance and take control of their lives through his books and blog.
Andrew also helped me a lot as I was writing the post. Check out the final product 🙂
So, that was the catch with Nutmeg that I missed! Nice article.
Ha ha, yes. We asked a UK expat tax specialist, and he was horrified by the (possible) implications.
Worst case scenario would be being deemed resident for tax purposes in both the UK and Japan, although I get the feeling this is more something that would be worrying to very wealthy people.
Still, THEO is very user-friendly and probably does the same thing, albeit for a slightly higher price (but maybe not cheaper once you factor in exchange rates and money transfers).
If you don’t have a J401k account though, that might be a good place to start. Unbelievably good deal, especially for the self-employed 🙂
Upon reading the responses from 8 Now and THEO, one immediate question came to mind.
Since these Japan-based robo advisers use US listed ETFs to construct portfolios, does it mean that investors will be double taxed on dividends and capital gains?
From personal experience, that would mean paying a 30% dividends withholding tax to the US IRS, and a further 20% dividends withholding tax to the Japanese NTA on the remaining 70%. In total effective tax rate on dividends alone will be 44%. Ouch!
If that scenario is true, then the potential of robo advisers will take a serious hit.l
That is a very interesting question. I believe US dividends in Japan are taxed at 10% by the US under the tax treaty, but as you say 20% by the NTA.
Capital gains would not be taxed by the US authorities.
The ETFs in question (in my THEO account) are these, and I guess it depends if they are income or accumulation ETFs in terms of dividend taxes in Japan:
IWS
VTV
IWN
VPL
EWH
EWY
EWC
IWP
EWG
Indeed the fact is that US dividends are taxed at 10% withholding rate in Japan under their tax treaty, but only when the stocks are legally held under an individual investor’s name, or through specific custodians (specifically Japanese Depositary Receipts). Else it will be 30% withholding on the US side, followed by another 20% on the Japanese.
This was the situation for the iShares series of listed ETFs before the major brokerages started using JDR services so as to enforce the tax treaty.
Let’s ask the robo adviser companies directly and see what their replies are on this.
Damn, that is harsh! And definitely a question that needs to be asked.
At least one of the ETFs in my account pays out dividends, so I will drop THEO and 8 Now! an email and see what they say.
Thanks for bringing this up!
That was super quick. Got responses back from both of them.
Basically the US withholds 10% at source (this can be claimed back on the Japanese tax form) and Japan withholds 20.315 (which is also the tax rate on capital gains). The rest of the dividends are then deposited into your dollar account (for 8 Now!) and I’m not sure what happens with the dividends for THEO (have asked them in another mail).
So I think that seems reasonable.
That is a huge relief to hear. Think it implies that 8 Now had thoroughly thought through the tax issue. Hopefully THEO will give a reply along the same vein.
Would be a huge waste for either of them to lose their luster because of tax, and also because I am still anticipating a drop in their management fees!
Sorry, I wasn’t clear. THEO gave the same answer on tax, but didn’t specify what happens to the dividends. That is the follow-up question I asked them 🙂
Hi Desmond
Just heard back from THEO. They reinvest the dividends and let you know through the site mailbox. So all is well with the robos (was slightly worried when you asked as I had no idea how they were treating dividends).
I have a related question connected to Japanese tax on dividends and capital gains. When I talked to someone at my local tax office years ago they said I didn’t have to add my stocks when I filed my taxes but that if I chose to add them I had to do so for a few years. At that time I wasn’t earning much dividend income for it to matter but now I am and I’d like to know more about the comment above, which says I should be able to claim back the 10% withheld by the US government for dividends on US stocks. Could you tell me a little more about that please?
Hi Sophia
Thanks for stopping by! You can claim back the Japanese tax equivalent to the 10% US withholding tax (under the tax treaty you shouldn’t be double taxed).
You can’t do this with stocks held in a NISA account as you are not paying the Japanese taxes on those.
To claim you will have to file a tax return (確定申告). I recommend talking to the tax office or an accountant for advice on your specific situation.
If you pop back and let us know what you learn that would be great too 🙂
I am embarrassed to admit even though I sub to this blog, this is still so over my head. I guess this is directed to Sophia or RetireJapan.
So lets say I want to open up my NISA account and buy some stocks. Do I need to report those to my Japanese tax office? My employer does my taxes, so do I need to fill out a separate tax form?
As far dividends and capital gains go, how do I go about reporting those on my Japanese tax. And I am assuming I would simply list my dividends and capital gains under “foreign earned income” when filing my IRS taxes to the USA.
Sorry. Another question. Everyone here seems to be worried about the 10% tax dividends for US stocks. If we have a NISA account, does that cover only Japanese stocks or also US stocks?
Hi Bob
Absolutely no need for embarrassment: I think I am about a week ahead of you in terms of knowledge.
That’s the point of this site: to share what we know with each other, thus creating a more powerful uber-mind 😀
Let’s have a go at answering your questions:
1. When you open your share dealing account, the easiest thing is to open a 特定口座源泉徴収あり (reporting account?) so that your broker will do your taxes and send you a slip of paper like your employer does. You can submit this to the tax office to do your taxes effortlessly.
2. NISA accounts are Japanese tax free for five years. The US withholding tax is taken out at source so is unaffected by NISA.
3. If you receive dividends outside of a NISA account, you would pay the US 10% tax plus Japanese 20% tax. This is double taxation, so you can claim back 10% from the Japanese tax to make up for the US tax you paid. This requires you to make a tax declaration (an accountant or the tax office can help with this).
4. I can’t say anything about US taxes other than ‘sorry’. You would have to consult a US accountant or the IRS.
I hope that helps. I am still learning about this myself. If the above is incorrect feel free to chime in!
I just asked Rakuten Securities about changing shares from a normal account to a 特定 account and they said it was not possible, so it might be best to set it up that way from the beginning unless you have some tax ninjutsu you are planning (in which case you should be giving me advice here).
This probably needs an article (or a book!) once I figure out what I am talking about.
Thanks for the great feedback RetireJapan!
In your reply to Bob you just answered my second question, which was about changing from a normal account to a 特定account (incidentally at Rakuten).
So my third question would be, do you know how to file the taxes based on a normal account (which is where I have all my US stocks, other than the ones in my NISA)?
Hi Sophia
Sadly I do not know that yet, but will be asking accountant/tax office about it for next year.
It’ll probably get written up in either book or blog form 😉