Offshore vs Onshore Investment

[mule96]

Those investments work more under the as long as nobody knows there is not tax structure.

Not sure what you were trying to say here

That is indeed a strange sentence. What I wanted to say is, that the claim of those products that they are tax free is based on, that they investment is unknown to Japanese authorities.

[mule96]

[*]you have limited choice about which underlying asset you can invest with

Nisa generally allows to invest in large variety of stock, etfs and funds (limit is the online broker). As a European the only where I have regret sometimes is the lack of European funds in Japan. The question is what do you need? Stocks? Options? Etfs? If I am wrong, the better, but when I was approached by those financial advisors, the investment products offered where active managed funds with high management fees (in those insurance wrappers). And out of these funds they may invest for you in more risk or less risk approach. I would be very surprised if they offer an "investment experience" like Interactive Broker or even a Japanese Online Broker. But I may be wrong on that.

[*]you are (very) limited in how much you can invest in them

But it is the only mechanism that exists that allows an investment that is tax free, why not use that first? If they say that those offshore investments are tax free - yes they are offshore, but that doesn't mean that they don't create a tax in Japan.
The funds usually offered, are managed in a wrapper (like Ideco) and you can change allocation on you monthly contribution, or switch existing funds. This would definitely be a taxable event (selling and buying) as soon as you are taxed on your foreign investments in Japan.

[*]the tax benefits are not going to last enough, meaning that you are limited to those 5/20 years for NISA. Which makes it kind of difficult to make long term investing plan, right?

There is no mechanism outside Idec/Nisa that has Tax benefits, so better to use that first. 20 years (Tsumitate Nisa) and until pension (Ideco) is pretty long term or not? Ideco (or the corresponding company plan) gives you a tax saving on the year you invest! And the saving on Nisa and Ideco until pension can be pretty huge (if you stick to a long term passive index fund strategy that is prevailing in this forum - of course that is not all the wisdom in long term investment).
It will be easier to compare once you know what their idea of long term investment is.

[*]I am 29 and even though I plan to stay here indefinitely I cannot be sure about it, therefore I have to prepare for the occasion I'll have to leave the country. AFAIK that would be an issue if I am in the middle of investing in NISA/iDeco
[/list]

That is indeed an issue - and if you leave permanently Japan selling and buying again on your new location will be a pain. As a good thing, Nisa and Ideco have no surrender fees. You can stop them any time. Surrender fees should be a question you should ask. At least the investment products I was offered had such large fees, that in case you wanted to stop and cash out, you would have had huge losses. This is not the case with Nisa and Ideco (the argument they will bring then, is that you can pause the product instead of stopping it).

this being said, of course I could invest in NISA/iDeco and also have some other kind of investment, but my point is: because all the above limitations, isn't it better to invest in a single plan that would last till my pension?

Those limitations are questionable, as there is just no better option, and you don't know the limitations of their solution yet. Also from a pure risk management perspective. You really want to put everything into an investment plan, that is managed in an offshore account in so called tax-heaven countries, with lose regulations, and who is more and more under attack from other countries due their dubious role in tax avoidance? Is this really better than investing first in whatever local pension saving is offered? I would at least no put everything on the same horse.

Again, this is my personal experience, and this may be different from you. But when I was invited but two of such companies, it felt cool. I got invited into their chic offices, like you in the first meeting they didn't went into details, but just took the status quo. Then I got the product with three or for possible payment plans over the next 25 years. Off-Shore investment in those tax heaven countries - that sounded great - I had to be important if they offered something like that to me. Fortunately I took the time to understand and read the brochure and especially the fees. The fees were so complicated, that not even the advisor understand it (or pretended to have known it). Some pushing confirmed to me in the end that I was correct. Internet research also found similar warnings and also stories that the companies offering those products (not the advisors in Japan) are actively looking for deleting negative feedback in the internet on their products. At that time I didn't even know the difference between passive and active managed funds, and I had no clue what the influence of 2-3% fund fee etc has on long term investment. In the end I declined, but I am pretty confident that this was the right decision.

Maybe there are people for whom such an offshore investment may be the right thing, but for the average salaryman (including foreigner) with the typical salary something like "unless you are a Japanese that speaks Japanese only, there are far better options than NISA/iDeco to invest with" is just not true. Ideco and Nisa are the best options to start with. If the costs in selling and buying again when moving out of Japan are a fear (like it is for me), you can start investing in an international broker like interactive brokers (that is what I do). This has its own hurdles and limitations (and some may disagree on that), but it gives me the peace of mind I want for the long term.

There has been a lot of comments and advise (also from me ), but in the end, as long as it is unclear what the exact product is, those comments may be moot. I think you got a feeling on what to ask next time and you will get a better feeling what it is. Hopefully we get an update then from you

[LukeTek]

It sounds like you are trying to sell this product to us!...

I fundamentally do not understand someone turns away the prospect of lower taxes and tax-free capital gains in favour of a speculative uninsured product from a non-fiduciary.

Sorry if that's how it seemed! I am just trying to be impartial here and collecting all opinions (on both sides!) before I make a decision.

That said, I really appreciate the advice I am receiving from this forum, really.

Read this thread from the beginning and you should learn that your best (safest!) option is to walk away.

I did it before posting, of course, but what I am looking for is precise reasons why NISA/iDeco are better than the offshore solutions I am being proposed. I understand that I am not giving you enough information to debunk those investments (cause I don't have any yet) and what I am trying to do is collecting general reasons why it's generally not a good idea to invest in them.

There is no way the "products" of your advisor can beat what is available in a NISA account, period. Anything they can sell you will come at a total management cost of 4-5% (most of which hidden behind complicated layers) of your whole capital per year, and that's before taking taxes into account.

This is a good reason why.

And in the case you actually make benefits, well the only way to declare them is to submit a 確定申告 yourself. The structure of these plans make them almost impossible to declare accurately, and what your advisor won't tell you is that they won't provide any help at all for tax purposes. You can "forget" to declare these, but then good luck when the tax office calls you with a few questions...

This is another good reason why.
So I am going to ask for management costs and how they "suggest" to file my tax report to both advisors.

Oh and also ask your advisor about the conditions for stopping contributions and how much you would lose if you end your contract before its term. If you stop a NISA or any regular brokerage account, you don't have to lose anything. With these plans, many people lose north of 50% of their investments after they realized they have been hosed, which is simply outrageous.

Fantastic! Here's another question to be made.

Adding to the comments above, in your position I would not even meet with these people. The underlying financial product they are selling is awful and because it's offshore you have almost none of the usual protections for retail investors.

I appreciate the comment but, frankly, I don't understand why I should not give them the opportunity to answer all my questions.

I don't think every advisor is implicitly bad. I understand that there are a ton which basically gains from the client's ignorance, but I don't think it has to be necessarily always the case.

Also, the concept of a tax wrapper doesn't seem too bad to me: you can invest money in a tax-deferred account, choosing your investment portfolio and you will have to pay taxes once you withdraw money. It's pretty simple and it works, conceptually (like NISA and iDeco but without time/money constraint and with a wider range of assets). It's how they build and all the hidden fees the insert in it that makes it bad, not profitable and a terrible idea to invest in.
I don't know if the 2 investors (or whatever you wanna call them) whom I am dealing with belong to the scammer category but I don't see a valid reason why I should not get information from them. Once I am done I will post everything here so that anyone can benefit from it (which is exactly why I am collecting good questions from you!).

[LukeTek]

There has been a lot of comments and advise (also from me ), but in the end, as long as it is unclear what the exact product is, those comments may be moot. I think you got a feeling on what to ask next time and you will get a better feeling what it is. Hopefully we get an update then from you

Thank you for this comment, once again I really appreciate it.

I approached both advisors explaining my situation and what I had in mind for my investments, which is: NISA + iDeco + personal portfolio to be chosen amongst

• an account at Monex/Rakuten with the whole world found
• an international broker (like IB or Firstrade) with the UCITS equivalent of, basically, an all season portfolio:
  • Global market VTI ⇒ VUSA/GSPX (not equivalent, but close tracking the S&P 500)
  • Treasury 20+ year TLT ⇒ IDTL (equivalent)
  • Treasury 1-3 year IEI / VGIT ⇒ IBTS (equivalent)
  • Gold IAU/GLD ⇒ IAUP / SPGP (gold base companies, seems to perform quite more than pure gold) or SGLN (pure gold like IAU and GLD)
  • Commodities GSG ⇒ EXXY / WCOE (EUR hedged)

the issue with the international broker is the 10% taxation I would have to add to the 20% Japanese one, which I'd like to avoid (if possible, of course).
This is the plan I developed before coming to Japan (borders closed before October 1st due to COVID), and I basically developed it completely (except the UCITS part) with info I found in this forum.

Ah, in case I decide to go with the international brokers I may want to ask you how you do it and how is taxation approved exactly (supposing you have been doing it for more than 5 years which is the initial time since you land in this country when you don't have to declare external revenues)

[captainspoke]

These insurance sales reps (who are not financial advisors) get their big commission when they hook you--when you've signed and start contributing. Once you're hooked, and if you stay, they'll get more, but the big reward for them, is signing someone new.

It's because of that commission that you're locked in--it takes that long for the excessive management fees charged by the wrappers, and the authorized funds to make that back (and they get that money before any goes to you). So look at the surrender fee after five years, and know that the majority of that is what goes into your "advisor's" pocket, right off the bat--their commission for hooking you. That's what they make off you, for selling you a 'plan'.

[captainspoke]

And if you really, really do want to go with these scam artists, how about splitting your money--as a safe way to dip your toes in the water? (i.e., don't put all your eggs in one basket)

Max out your IDECO and NISA first, then put anything above that into the care of your offshore 'plan' of choice. Let five years tick by and see how things are going.

[RetireJapan]

I'm very glad you found this forum though (after all, the reason I started this site was to protect people from the 'offshore advisor' mob).

Here's a quick summary:

iDeCo: reduces your income tax, tax-free investing, no paperwork, can invest in low-cost mutual funds (annual fee 0.2% or less)
NISA: tax-free investing, no paperwork, can invest in wide range of shares/ETFs/mutual funds (ordinary) or low-cost mutual funds (tsumitate)
Taxable account in Japan: no paperwork if choose tax-reporting version, can invest in wide range of products, if you choose mutual funds that reinvest dividends can invest in a tax-efficient manner

Offshore insurance wrapped plans: very high fees (4-5%+ in annual charges), restrictive redemption penalties, onerous tax reporting paperwork

At the very least I would consider using your iDeCo and NISA accounts before investing in anything else.

Let us know how you get on and if you manage to get them to tell you which products (the actual product/company name) they are trying to sell you. Most of these salesmen don't have a background in investing and don't know much beyond the script they were taught. Keep asking questions and see if they can answer in a manner you can understand (I predict they will keep spouting jargon in order to make you feel confused and shut up).

Good luck!

[mule96]

Also, the concept of a tax wrapper doesn't seem too bad to me: you can invest money in a tax-deferred account, choosing your investment portfolio and you will have to pay taxes once you withdraw money.

I would really ask here, if this is a tax wrapper approved by the MoF. I didn't get a clear answer on this question.

the issue with the international broker is the 10% taxation I would have to add to the 20% Japanese one, which I'd like to avoid (if possible, of course).

There have been some discussions on when you can reclaim the 10% tax from US Dividends and when not, but in the end, the same should happen with IB, Japanese Brokers and every serious Broker. If you want to avoid it, the best would be to invest in Japanese Mutual funds. I take the disadvantage of just buying ETFs on IB in comparison to Mutual Funds in Japan for reasons stated above.

Ah, in case I decide to go with the international brokers I may want to ask you how you do it and how is taxation approved exactly (supposing you have been doing it for more than 5 years which is the initial time since you land in this country when you don't have to declare external revenues)

Setting up the account is not more complicated than opening an account on a Japanese Broker. The larger issue is to move money from a Japanese ban account to the Japanese IB account. There is a whole thread for it. I currently only buy ETFs, so I just have to declare dividends. This is a simple excel I file and attach a dividend report from IB. It may be different If you start trading and selling and buying a lot of stocks, but as long as you just buy into the same ETF imo its manageable (but still more work that a account with source taxation at a Japanese broker.

[captainspoke]

...
the issue with the international broker is the 10% taxation I would have to add to the 20% Japanese one, which I'd like to avoid (if possible, of course).

...in case I decide to go with the international brokers...

Several things. First, an offshore account is by definition not-US. So you will lose that 10% (withholding) for any US product--for any dividends from bonds/stocks/ETFs. And with the offshore thing good luck applying that towards your taxes here. To do that you will have to reveal your 'investment' to claim the foreign tax credit. The difference is that your insurance policy wrapper will not detail that that 10% has been withheld--it will look like nothing untoward happened--while any normal investment account will give the exact details. It will look like there wasn't any tax, but the US folks are not so dull-witted. If you are not able to prove to their satisfaction that you are a US person filing yearly returns, they will withhold any tax they want.

Second, it will not be "10% taxation that you add to the 20% japanese one." The japanese side will remain at 20%, but you can claim any foreign tax paid against that. So if the US has held 10%, you will pay the balance up to 20 to japan. ((In the past I've held US ADRs from the eurozone, and those countries have varying taxes on dividends for foreigners. I list those taxes on my return here, and do not pay twice.)) Eg., if I receive a $100 dividend from a euro country, and $15 is withheld there (at source), I can claim that and only pay a further $5 to japan.

And, a minor point--by 'international broker' do you mean Interactive Brokers (IB)?

**

Whatever 'bond' or offshore thing they're selling you, it's easy to google reviews. Here's one: https://www.aesinternational.com/wealth ... d-analysis

That one is pretty neutral, as reviews go, but you should thoroughly google reviews of any product/plan/bond you're thinking of buying/investing in. Look before you leap. Not after.

[N00bster]

Fantastic! Here's another question to be made.

Asking them about the redemption penalties is akin to waving garlic in front of a vampire (which is a pretty adequate comparison in that case). They are going to love that one.

Please also don't forget to ask for a complete breakdown of all the fees, in percentage of your capital. I bet the explanation will never include concrete numbers (and if it does, it will be either a lie or an insult to your intelligence).

Here is another question worth asking for you: "Since I am not paying you directly for your services, how are you compensated?"

I wish I could be here to see your salesperson getting defensive (some even get angry!) while trying to explain in a way that is not too obvious that their income increases the more they hose you.

Please let us know how it goes.