NISA, Rakuten Securities, Offshore Accounts
One very welcome result of my talk at the Pan-SIG has been some new visitors and members to the site.
One new Forum member, OkinawaInvestor, sent me a list of interesting questions which I will try to answer here, with the usual proviso that I am not an expert and am answering as to the best of my knowledge. Please do your own research as well before acting on anything you read here.
A question about NISA accounts: “you wrote on the RetireJapan.info homepage that capital gains and dividends are tax-free during the five year limit of the NISA. However, you also wrote, “price falls will also be reset and any subsequent recovery will count as a capital gain.” Does this mean that if a loss in a stock or index fund within one’s NISA, followed by a recovery in price occurs , this will be a taxable capital gain (even if this loss and recovery occurs within the 5 year period of the NISA)?”
Phew, good question, and one that shows my write-up might not be as clear as it should be. Prices of stocks, funds, etc within NISA accounts are reset at the end of the 5-year period. This means that price gains will not be subject to capital gains tax, but price losses will conversely not be eligible to be written off against gains, and any subsequent recovery will be treated as a capital gain.
A NISA/J401k question: “Can one also invest in the bond market with a NISA and J401k? As to the latter, you wrote on your homepage that we cannot pick individual stocks. Can we pick index funds (such as Vanguard) or bond indexes?”
You can buy bond ETFs and funds in a NISA account. My account with Rakuten has a wide selection of US, Asian, and Japan-based stocks and funds. With the J401k you are limited to the funds offered by your provider. I am not eligible for a J401k account at the moment, but my wife’s is through Iwate Bank, and they have about a dozen funds to choose from.
Rakuten Securities: “You mentioned in your Pan-SIG presentation, too, that you like Rakuten as an online brokerage service. Did you open NISA and J401k accounts with them? Could you send me their information link?”
I have a NISA account with Rakuten Securities. I find them easy to use and fairly transparent. They do not currently offer a J401k option. One drawback is that they currently only operate in Japanese, but once you figure out which button does what it’s not too much of a problem 🙂
You can find more information on their website.
My wife’s J401k account is with Iwate Bank.
Overseas accounts: “I also read some forum entries on Andrew Hallam’s homepage that the National Tax Agency in Japan has been asking questions of some foreigners who open brokerage accounts in tax-free havens such as Singapore. I recently opened one up (through a legitimate, well-known bank – not through scammers like Banner) in my home country (Canada), which is not a tax haven – they told me that they won’t deduct taxes on any capital gains earned, but that I must report these capital gains to the tax office in Japan.
Have you heard stories of the Japan tax office going after people who open offshore brokerage accounts? I’m thinking that the NISA and J401k may be the way to go if the tax office in Japan is indeed as strict as I think it is regarding overseas brokerage accounts…”
The main thing to keep in mind is that residents of Japan (including permanent residents and other foreign residents who have been here for more than five years) must pay tax on all income worldwide, regardless of where it was earned. This includes investment income abroad, which must be reported to the tax agency. As long as you do this you will not have any problems with the NTA.
In practice, the most common way for individuals to come to the notice of the NTA is through money transfers into and out of Japan -it seems as though any transfer over 100,000 yen is reported to the NTA and they will call people in to explain large sums moving in or out.
Hope this helps! Would love to hear any other questions people might have. Please post them in the comments below or in the Forum.
Someone commented “not through scammers like Banner” and I was wondering what might lie behind this opinion and what you might know about Banner. I currently invest through Banner, but have been serious second thoughts of late.
Hi Cathy
Welcome to the site! That’s a great question, and I have good news and bad news for you.
The good news is that Banner are not scammers, as in they are not going to steal your money or not do what they said they would.
Unfortunately though, they don’t work for you and are probably not being completely clear with you.
Banner operates as a no-fee financial agent, so they make their money from commissions paid by the companies whose products they promote. This is clearly a conflict of interest from your point of view, as it is in the agent’s best interest to get the biggest commission, and that commission has to come out of your investment.
I actually started this website after a conversation with a friend who had purchased investments through banner -it made me so angry I went home and put the site together that evening!
Regarding the question:
“Have you heard stories of the Japan tax office going after people who open offshore brokerage accounts?”
One of my colleagues in Tokyo “forgot” to pay capital gain taxes (in Japan) on a brokerage account he owned in the US for several years. The Japan tax office came after him, and made him pay a penalty in addition to the taxes he had been owning for years.
Note that it was very easy for them to know about this brokerage account, since it had been opened by our company, which was paying (and declaring) RSUs to the Tax office. So it was extremely easy for taxes to see that the company was declaring a payment in company stock, while this specific employee was not declaring receiving that amount.
As Ben stated, you need to declare capital gain worldwide. I firmly believe that as long as you’re doing it honestly, there’s not specific worry.
Note that Japan requires you to specifically declare the existence of your money outside of Japan if you have more than about $400’000
Hi SB
Thanks for the confirmation! Do you have a link or anything for the need to declare $400,000+ in overseas holdings? I hadn’t heard that rule before.
@RetireJapan:
My taxes were handled by PwC this year and they told me this is something new that started in 2013 or 2014. It is just a checkbox to tick “do you have more than 50 millions in assets outside of Japan?” kind of thing.
I did not go through the regular JP tax paperwork, but through some PwC tools, so I do not know. I only remember that I told them I never had to answer this questions before, and they told me this was a new requirement from Japan
Ah, I see. Thanks again SB. I guess this is to prevent people from pulling the ‘I didn’t know’ card.
I am planning to do a tax return this year for the first time, so I will take a look at the forms and report back.
Thanks for answering my many questions, Ben. I am wondering, regarding the NISA, if you or anyone else on this site knows which banks or brokerages have the lowest management fees (“tesuuryou” in Japanese) for NISAs? My impression from reading this forums on this site is that SBI and Rakuten have pretty reasonable fees. Do they also offer a pretty good choice of stocks, ETFs, and bond funds?
Hi IO
I can only comment about Rakuten, and I am perfectly happy with them. Have also heard good things about SBI.
You could probably ask on the Bogleheads forum, they have quite a few Japan-based investors: http://www.bogleheads.org/