Reporting US investments to Japanese Tax Office

[captainspoke]

Well...

IRS: https://www.irs.gov/faqs/capital-gains- ... -traders-2

Zacks: https://finance.zacks.com/taxation-rein ... -3084.html

Investopedia: https://www.investopedia.com/ask/answer ... axable.asp

Merrill: https://www.merrilledge.com/ask/taxes/a ... ends-taxed

It would seem that, apart from the BDC above, and shares issued in lieu of cash dividends, dividends are taxable in the US, even if there are 'reinvested' dividends.

And if they're taxable there, it's hard to imagine they would not then count here, as part of your worldwide income.

[jeronimoski]

I'll stop in an the tax office next year and see what they say. And I may contact an accountant here that I know to see what he says. I'll keep you posted on that.

[TokyoWart]

Example of choice given for a US stock.

The treatment of those cash or stock dividends from TCG is actually much worse than the usual treatment of cash dividends. These are not "qualified dividends" so they are taxed at the higher tax rates applicable to earned income and that applies even if the dividend is taken in shares. See the following quote from the SEC filing linked below:

"Stockholders receiving dividends in shares of our common stock will be required to include the full amount of the dividend (including the portion payable in stock) as ordinary income (or, in certain circumstances, long-term capital gain) to the extent of our current or accumulated earnings and profits for U.S. federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received."

https://tcgbdc.gcs-web.com/node/8111/ht ... F6C60CD8B8

[eyeswideshut]

Also, while that's a stock/company, OP is talking about robinhood and vanguard. I'm guessing, but likely (mostly?) funds, and not individual stocks.

Are there any ETFs or mutual funds where you can make that kind of selection?

Not American so I have never looked into it in detail but my understanding is that US resident ETFs and mutual funds do not offer internal reinvestment options as US Tax rules do not acknowledge them (I think they deem them as taxable dividends regardless). DRIPS are different as they are just standing instructions to reinvest dividends that are paid to you and thus a taxable event as you technically received a dividend payout.

However most major ETF providers on the major European exchanges offer dividend reinvestment ETFs as these are very tax efficient for European investors. An example is SWDA from IShares https://www.ishares.com/uk/individual/e ... rough=true. There are some options on the Toronto Stock Exchange also. Since these do not pay dividends my understanding in Japan (and consult your own accountant) is that you only need to pay capital gains when you sell. Similar mutual fund products are also available in Japan (再投資型).

[captainspoke]

Also, while that's a stock/company, OP is talking about robinhood and vanguard. I'm guessing, but likely (mostly?) funds, and not individual stocks.

Are there any ETFs or mutual funds where you can make that kind of selection?

Not American so I have never looked into it in detail but my understanding is that US resident ETFs and mutual funds do not offer internal reinvestment options as US Tax rules do not acknowledge them (I think they deem them as taxable dividends regardless). DRIPS are different as they are just standing instructions to reinvest dividends that are paid to you and thus a taxable event as you technically received a dividend payout.

However most major ETF providers on the major European exchanges offer dividend reinvestment ETFs as these are very tax efficient for European investors. An example is SWDA from IShares https://www.ishares.com/uk/individual/e ... rough=true. There are some options on the Toronto Stock Exchange also. Since these do not pay dividends my understanding in Japan (and consult your own accountant) is that you only need to pay capital gains when you sell. Similar mutual fund products are also available in Japan (再投資型).

Sure, I am aware that things happen differently in different parts of the world. But I think the question back in the OP was: As an american with at two brokers there in the US, how will my reinvested dividends there in the US be treated here in japan? (subject to tax, or not?)


It seems pretty clear, above, that the US taxes dividends, whether reinvested or not. OP, as a US person doing their taxes, has undoubtedly listed these dividend payments (reinvested or not, it doesn't matter) as income on their US tax returns. ((On a side note, OP has probably not paid any tax on those dividends since, due to the FEIE, such a person starts with the equivalent of zero earned income, and it's not until there are fairly substantial dividends and/or gains, that such a person gets taxed at all on those--and I'm speaking from experience here.))

Some other things here are side issues. That tax-efficient internal dividend reinvestment is offered in europe or elsewhere, such as singapore, is (IMO) not relevant to how OP's US reinvested dividends will be treated in japan. Sure, it's available in other parts of the world, but clearly not in the US.

The only "maybe" here, is that this type of 'internal' dividend reinvestment is available in japan. Personally, I think it is a real stretch to imagine that japan's tax agency will apply rules for the reinvestment of dividends in domestic funds to funds from another country--and--a country that does not recognize 'internal' reinvestment of dividends, as somehow tax-efficient (exempt from taxes here). Especially when those dividends have already been declared (or will be) as income on foreign tax forms.

So sure, go ahead and ask about it, and see what the tax office or an accountant will say. If I were someone in this situation, and even if someone at the tax office said 'okay, don't worry about it,' I'd want to make doubly sure, so that nothing would come back to bite me (e.g., during an audit).

[jeronimoski]

Also, while that's a stock/company, OP is talking about robinhood and vanguard. I'm guessing, but likely (mostly?) funds, and not individual stocks.

Are there any ETFs or mutual funds where you can make that kind of selection?

Not American so I have never looked into it in detail but my understanding is that US resident ETFs and mutual funds do not offer internal reinvestment options as US Tax rules do not acknowledge them (I think they deem them as taxable dividends regardless). DRIPS are different as they are just standing instructions to reinvest dividends that are paid to you and thus a taxable event as you technically received a dividend payout.

However most major ETF providers on the major European exchanges offer dividend reinvestment ETFs as these are very tax efficient for European investors. An example is SWDA from IShares https://www.ishares.com/uk/individual/e ... rough=true. There are some options on the Toronto Stock Exchange also. Since these do not pay dividends my understanding in Japan (and consult your own accountant) is that you only need to pay capital gains when you sell. Similar mutual fund products are also available in Japan (再投資型).

Sure, I am aware that things happen differently in different parts of the world. But I think the question back in the OP was: As an american with at two brokers there in the US, how will my reinvested dividends there in the US be treated here in japan? (subject to tax, or not?)


It seems pretty clear, above, that the US taxes dividends, whether reinvested or not. OP, as a US person doing their taxes, has undoubtedly listed these dividend payments (reinvested or not, it doesn't matter) as income on their US tax returns. ((On a side note, OP has probably not paid any tax on those dividends since, due to the FEIE, such a person starts with the equivalent of zero earned income, and it's not until there are fairly substantial dividends and/or gains, that such a person gets taxed at all on those--and I'm speaking from experience here.))

Some other things here are side issues. That tax-efficient internal dividend reinvestment is offered in europe or elsewhere, such as singapore, is (IMO) not relevant to how OP's US reinvested dividends will be treated in japan. Sure, it's available in other parts of the world, but clearly not in the US.

The only "maybe" here, is that this type of 'internal' dividend reinvestment is available in japan. Personally, I think it is a real stretch to imagine that japan's tax agency will apply rules for the reinvestment of dividends in domestic funds to funds from another country--and--a country that does not recognize 'internal' reinvestment of dividends, as somehow tax-efficient (exempt from taxes here). Especially when those dividends have already been declared (or will be) as income on foreign tax forms.

So sure, go ahead and ask about it, and see what the tax office or an accountant will say. If I were someone in this situation, and even if someone at the tax office said 'okay, don't worry about it,' I'd want to make doubly sure, so that nothing would come back to bite me (e.g., during an audit).

Glad you cleared up the bizarre and unclear "bring any of the dividends/gains/distributions into japan" comment cause people might have been confused by it.

I did ask at the tax office and nobody seemed to know. They just said to report it for this year. But I'm still going to check with an accountant on that just to be safe.

So US people here...are you reporting stuff from your 1099 DIV and 1099 INT on your Japanese tax forms???

Thanks all.

[jeronimoski]

Found this online.

https://home.kpmg/xx/en/home/insights/2 ... %20percent.

[captainspoke]

...
a) Glad you cleared up the bizarre and unclear "bring any of the dividends/gains/distributions into japan" comment cause people might have been confused by it.

b) I did ask at the tax office and nobody seemed to know. They just said to report it for this year. But I'm still going to check with an accountant on that just to be safe.

c) So US people here...are you reporting stuff from your 1099 DIV and 1099 INT on your Japanese tax forms???

Thanks all.

As for (a), was this the bizarre one?

If you are a tax resident (here for five years or longer), or if you bring any of the dividends/gains/distributions into japan in any year prior to that, then yes, you have to file a tax return and report your worldwide income.

Until corrected by RetireJapan, I think that's the way it worked. If you were not yet a tax resident (less than five years), gains and dividends overseas was not subject to tax--if you didn't bring any of it into japan. If you did bring it in, then the entire amount would be subject to tax. Eg, if you were paid $5k in dividends, and brought in $1k of that, the entire $5k (and any other gains) would be taxable; but if you left it overseas and didn't repatriate any of it, then no taxes.

As per RetireJapan's comment above, it seems that dividends and gains (from 2017) are subject to tax before that previous 5yr threshold, from the beginning (repatriated or not). I asked about this over on reddit, but got an answer that didn't seem clear.

(b) So they said to report it. I think reporting it, paying any tax, is certainly the safest way to go.

(c) I'm US and have been declaring/reporting dividends, gains, interest, and any other type of distribution for quite a few years. I passed that 5yr threshold back in the 90s. I've yet to repatriate any of it (apart from some minor credit card use), but will likely do that a few years from now. But since it has all been declared all along (and appropriately taxed), no worries.

Oh, and I have been audited here, and then was checked again 3-4yrs after that. The folks are really good, and they knew exactly what was on my US tax returns (they even knew what was on my US returns beyond the five years they went back). The first time, there were some corrections (and penalties and interest) but it was a learning experience--I'd been using the IRS's yearly average to convert various things into yen, and that conversion needs to be done using the TTM rate on the specific date that something occurred. The second time, when they rechecked me, they found in my favor (there was a small tax payment to the US that I hadn't included on my return here).

Good luck!

[inaka_rob]

((On a side note, OP has probably not paid any tax on those dividends since, due to the FEIE, such a person starts with the equivalent of zero earned income, and it's not until there are fairly substantial dividends and/or gains, that such a person gets taxed at all on those--and I'm speaking from experience here.))

Not true. I just learned this myself. You Japanese income gets included into your US income to figure out your tax bracket, THEN is deducted from your total income with the foreign tax exclusion.
I just learned this today, to my horror. Lucukly, I am still under the 104k or whatever, even with my dividends, so not over the limit.

So the Capital gains bracket in the USA is 0% up to 80k. For us living Japan, that does not mean we can just get 0% all the way up to 80k. For example. if I make 5 million yen in Japan, now about 50,000 USD. And I cash out 50k in stocks that year. Then I do not start at zero, 20k of that will be taxed at 15%. I put that on my form and pay the taxes for that, THEN I deduct 50k for the foreign earned income break.

[YokohamaGeezer]

This is so complicated.

Is there a good (English speaking) tax accountant here in Japan that anyone can recommend... or company.... that understands overseas stock issues? Particularly IBKR

That would be great.

Also - what happens if one makes a loss overseas? Can you file that and claim it against future (hopefully) gains?

Anyway, any recommendations in the Yokohama/Tokyo area for an English speaking tax professional would be great

Thank you
Julian