Permanent Residency and being taxed on US assets/rental income

[captainspoke]

...
Dividends. As a US Citizen, you would incur US Withholding Tax at 30%. ...

My experience: As a US citizen/longtime expat, I have never, ever, had the US withhold anything, let alone 30%, on dividends.

[TJKansai]

My US-based Vanguard account withholds 10% from my dividends from OLYMPUS CORP SPON ADR. I think I get it back as a foreign tax credit when I file (pretty small money so I am not sure).

My wife has an Australian Westpac account and they withhold 10% of the interest (which is practically nothing these days).

[TJKansai]

My experience: As a US citizen/longtime expat, I have never, ever, had the US withhold anything, let alone 30%, on dividends.

My US-based Vanguard account withholds 10% from my dividends from OLYMPUS CORP SPON ADR. I think I get it back as a foreign tax credit when I file (pretty small money so I am not sure).

My wife has an Australian Westpac account and they withhold 10% of the interest (which is practically nothing these days).

[captainspoke]

...My US-based Vanguard account withholds 10% from my dividends from OLYMPUS CORP SPON ADR. I think I get it back as a foreign tax credit when I file (pretty small money so I am not sure).

My wife has an Australian Westpac account and they withhold 10% of the interest (which is practically nothing these days).

For an ADR on the US mkt that's withholding by the country of origin, and the withheld amount never even gets to the US or vanguard (for them to withhold).

[TokyoWart]

...
Dividends. As a US Citizen, you would incur US Withholding Tax at 30%. ...

My experience: As a US citizen/longtime expat, I have never, ever, had the US withhold anything, let alone 30%, on dividends.

This is also my experience. I think the general rule is that the US will withhold that tax on "foreign persons" (non-resident aliens) but a US citizen living overseas doesn't count as a foreign person so the tax is not withheld from dividends in our US brokerage accounts.

[Tkydon]

OK, I stand corrected on that point. I was subject to 30% withholding until I correctly filed a W8-BEN, when the rate was reduced to 10%

https://www.irs.gov/individuals/interna ... fic-income

As a US Citizen are you subject to tax on Dividends when you file your tax return?

[TokyoWart]

As a US Citizen are you subject to tax on Dividends when you file your tax return?

We certainly have to report them. The extent to which we wind up paying taxes depends upon other things in the return (total income, exemptions, FTC, etc.). My estimate is that I am paying US taxes of over 20% but under 30% each year on US-sourced dividends. On my kids' US tax returns they wind up paying 0 taxes on dividends because they are in a lower tax bracket.

[captainspoke]

Of course you report the dividends when you file (and they're reported to the IRS by brokers, so this is a kind of cross-check). But as TW indicates, lower levels of dividend income do not get taxed.

For the US: before the turmp tax law change, and before I retired (when I had 'earned' income), using the FEIE (foreign earned income exclusion) my taxable earned income was effectively zero. At that time dividends (and gains) totaling about $30k/yr would not be taxed by the US. (I think the threshold is higher, but this is my experience.) On the US side, this was very similar to having a tax-free account (IRA), but without the lockup of those funds till retirement, and no required distributions coming after age 70.

Since I'm now retired and also the tax law change, I've switched from using the FEIE to the FTC (foreign tax credit) (pension is unearned income, and is not excludable), and I'm still kind of feeling out how the system now treats me. But for 2020 I reported a little less in dividends (25k?), and still no tax due to the IRS.

Sure, there are taxes on it here--I do report everything meticulously. Japan has been really good to me (and my family), and I have no worries about paying what's due.

[TokyoWart]

Sure, there are taxes on it here--I do report everything meticulously.

Just curious because I will be in a similar situation someday, how much tax do you find you're paying in Japan on the $25,000 of US dividends?

[Tkydon]

by TokyoWart » Tue Jun 22, 2021 1:52 pm

Sure, there are taxes on it here--I do report everything meticulously.

Just curious because I will be in a similar situation someday, how much tax do you find you're paying in Japan on the $25,000 of US dividends?

Cross posted...

For Foreign Dividends you will have to File a Year End Tax Return (Kakutei Shinkoku 確定申告).

For Dividends paid on Japanese Securities by Japanese Entities through Japanese Brokers, Tax will be withheld at 20.315% (15% National, 5% Residential, and 0.315% Reconstruction Tax). You will receive a Gensenchosu 源泉徴収票 From the Japanese Broker, which you will enter into the Kakutei Shinkoku 確定申告 for credit. If the total amount is less than Y200,000 and taxes have been withheld, you do not need to file.

You can choose to File either 2. or 3. below. See the Benefit Analysis Below (2.1)


2. Aggregate Taxation - Form-B Pages 1&2

or

3. Separate Self Assessment Taxation - Form-B Pages 1&2 & Page 3


2. Aggregate Taxation - Form-B Pages 1&2

Dividend Tax Credit cannot be used for Foreign Dividends, so under Aggregate Taxation the numbers would look like this.

Total Income Under --- Marginal Tax Rate --- National --- Residential --- Total (Approx) --- plus Reconstruction Tax (2.1% of National Tax Amount)
1,950,000 --- 5% --- 5% --- 10% --- 15%
3,300,000 --- 10% --- 10% --- 10% --- 20% (Less than 20%) plus Reconstruction Tax...
6,950,000 --- 20% --- 20% --- 10% --- 30% (More than 20%)
9,000,000 --- 23% --- 23% --- 10% --- 33%
18,000,000 --- 33% --- 33% --- 10% --- 43%
40,000,000 --- 40% --- 40% --- 10% --- 50%
> 40,000,000 --- 45% --- 45% --- 10% --- 55%

As you can see, if you are a Retiree with very little income and your total Taxable Income including the Dividends is somewhere between Y3.3M and Y6.95M then it would probably be better to opt for Aggregate Taxation. If over about Y6M, then it would be better to opt for Separate Self Assessment Taxation.
Against this, you can take a Foreign Tax Credit for Foreign Taxes Paid.

With just Dividend Income of 2,750,000, with other pensions etc, you will exceed 3,300,000, and so Aggregate Tax would be total 30%. So you should elect for 3. Separate Self Assessment Taxation for Dividends (Blue Return)

National ---Reconstruction --- Residential --- Total
15% --- 0.315% --- 5% --- 20.315%

As you can see, if you are a Retiree with income other than this Dividend Income of more than a little over Y3.3M, then this is the more tax effective option.
Against this, you can claim the Foreign Tax Credit for Foreign Taxes paid.


Therefore, you should expect to pay 15% National Tax, 0.315% Reconstruction Tax, and 5% Residential Tax on your $25,000 dividend income, converted to Yen.

Say Yen Exchange Rate 110

25,000 x 110 = 2,750,000
2,750,000 x 0.15 = 412,500 National Income Tax
2,750,000 x 0.00315 = 8,663 Reconstruction Tax
2,750,000 x 0.05 = 137,500 Residential Tax

Total Taxes = 558,663 ($5,080)

You can then take a Foreign Tax Credit for taxes paid on the Dividend Income in the US.