Taxes on Gain and Dividend???

[Tkydon]

Cross Post...

I went through to confirm the Intricate Detail of Dividend Taxation in Japan.

You can select one of three methods for Taxation of Dividends:

1. For Dividends paid on Japanese Securities by Japanese Entities through Japanese Brokers, Tax will be withheld at 20% + Reconstruction Tax 0.315%. Since this is the Dividend Tax Rate, you would not need to file a Tax Return if the total amount of the dividends is less than Y200,000. You will receive a Gensenchosu 源泉徴収票 From the Japanese Broker. You cannot use this for Foreign Stocks as no Japanese Tax will have been withheld.

or

You can 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. You have to file a Tax Return if the total amount of the dividends exceeds than Y200,000.

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
2.1 You would file your Gensenchosu 源泉徴収票 Dividends and they would be taxed at your Marginal Tax Rate, but for qualified Japanese instruments you can claim a Dividend Credit (Page 1- Item 36)
For total Dividends under Y10M the Dividend Credit is 10%, and for any Dividends exceeding Y10M, the Dividend Credit is 5%.

(it doesn't like tabs...)

Marginal Rate --- National (+ve) --- Residential --- Total (Approx) --- Plus Reconstruction Tax
5% ---- 5-10 = 0% --- 0% --- 0%
10% --- 10-10 = 0% --- 0% --- 0%
20% --- 20-10 = 10% --- 10x10/20 = 5% --- 15%
23% --- 23-10 = 13% --- 10x13/23 = 5.6% --- 18.6% (Less than 20%)
33% --- 33-10 = 23% --- 10x23/33 = 6.7% --- 29.7% (More than 20%)
40% --- 40-10 = 30% --- 10x32/40 = 7.5% --- 37.5%
45% --- 45-10 = 35% --- 10x35/45 = 8% --- 43%

As you can see, if you are a Retiree with very little income and your total Taxable Income including the Dividends is somewhere between Y6.95M and Y9M then it would be better to opt for Aggregate Taxation. If over about Y8M, then it would be better to opt for Separate Self Assessment Taxation.

However, Dividend Tax Credit cannot be used for Foreign Dividends and non-qualified Dividends, so the numbers would not be so good.

Marginal Rate --- National --- Residential --- Total (Approx) --- plus Reconstruction Tax
5% --- 5% --- 10% --- 15%
10% --- 10% --- 10% --- 20% (Less than 20%)
20% --- 20% --- 10% --- 30% (More than 20%)
23% --- 23% --- 10% --- 33%
33% --- 33% --- 10% --- 43%
40% --- 40% --- 10% --- 50%
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 Withheld at Source. You should receive a Notification Of Taxes Withheld from your Foreign Broker, such as a US Form 1042-S or 1040. See Tax Treaties below.

Otherwise, it is better to opt for 3. Separate Self Assessment Taxation for Dividends

National --- Residential --- Total
15% --- 5% --- 20% --- plus Reconstruction Tax 0.315%

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 Tax Credit for the Japanese Taxes withheld (Gensenchosu 源泉徴収票 From the Japanese Broker) and take a Foreign Tax Credit for Foreign Taxes Withheld at Source. You should receive a Notification Of Taxes Withheld from your Foreign Broker, such as a US Form 1042-S or 1040. See Tax Treaties below.

These numbers are approximate assuming the Dividend Income does not cause you to move up a tax bracket. You would have to do the exact calculation for your balance of non-Dividend Income and Dividend Income.

Once you have selected the Aggregate or Separate Self Assessment Taxation method for a particular year, you cannot go back and change it in a filing amendment.


Tax Treaties

On Foreign Tax Credit for Foreign Taxes Withheld at Source.

Local Taxation Rules will vary according to Jurisdiction.
The Standard rate of Withholding in the US is 30%.
Yes, If your dividends are earned in the US you are subject to 30% US Tax on those US Earnings..

Dividends may be taxed at source by Withholding in the country where they are paid.
It may be possible to reduce the rate of Withholding Tax if there is a Tax Treaty existing between that country and your country of residence.
e.g. between US and Japan. The Standard rate of Withholding in the US is 30%.
However, Under Article 10, Paragraph 2 (b) of the US-Japan Tax Treaty you can claim a reduced Withholding rate on Dividend Income of 10% in the US. This tax is paid to the US government.
The US-Ireland Tax Treaty allows Irish residents to reduce their US Withholding rate to 15% in the US.
Tax Treaties exist between many nations and you should check on government websites for those countries.

If you have US securities and they are subject to Withholding Tax in the US, you should receive a For 1042-S or 1040 Statement Of Taxes Withheld from your Broker before April 15th.. This is the US equivalent of Gensenchosu 源泉徴収票.

If you file a W8-BEN claiming the reduced rate of Withholding on Dividends under the relevant Tax Treaty, they will reduce the rate withheld.
You can use this 1042-S as proof of Foreign Taxes paid, and claim a Foreign Tax Credit (Page 1 - Item 46)

Unfortunately it arrives too late for the Japan Filing Deadline of March 14th., so unless you can download it directly from your Broker's website, you will have to submit your Japanese Taxes with the Dividend Gross Value, and then go back and amend the Form, and enter Page 1 - Item 46 - Foreign Tax Credit after you receive the documents from your broker.

[Hárbarðr]

Dear Tkydon

Thank you for this amazing post. Honestly, I don't understand most of it, but will study it... It seems like a lot of pain to do this.
And it is even more complicated cause I have stocks in the US but those stocks are from other countries like Canada, UK and France.
So holy moly, how do I figure this all out....

I think I managed to figure out that the Canadian stock, I was deducted, 10% US taxes, 20.315% Japanese Tax and 5% Canadian tax.
I don't own any Japanese stocks as of today.

This will be a headach.

Anyway, what I need to do first, is wait for the Gensenchosu 源泉徴収票 from my Japanese broker, and take it from there, right?

[Hárbarðr]

Hi again,

I'm starting to understand it. I think I'll be getting the hang of it soon.

Thank you so much for all the help.

[Tkydon]

You said you don't own any Japanese Stocks. Therefore, you won't get a Notice of Withholding from your Japanese Broker...


The Short Version.

To get the best Japanese tax rate for Dividends on Foreign Stocks you have to file your Kakutei Shinkoku by 14 March Every Year

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

The Tax Rate on the Dividends will be

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

15.315% Payable in April
5% Payable in the next residential Tax Cycle July to following June.

After Filing and Paying the above:

You will receive notification of your Foreign Taxes Paid on those Dividends
If you are non-US Citizen, will be in the form of a 1042-S Statement of Taxes Withheld.
If US Citizen you will have to File your US Taxes and get your 1040
If US Citizen, and US Taxes were withheld at source, you should receive these
1099-DIV Taxes withheld from Dividend distributions
1099-B Taxes Withheld from Capital Gains
1099-INT Taxes Withheld from Interest on bank deposits.

Other countries... Please check...

Then, after you have all that paperwork

Go back to your Japanese Kakutei Shinkoku again and Amend it.

Enter the value of all Foreign Taxes paid on those Dividends on Page 1 - Item 46 of the Form B

They will then give you a refund for those taxes paid overseas.

So the total including the taxes paid overseas will amount to 20.315%

You can go back three years and claim the Foreign Tax Credit Refunds...

[Hárbarðr]

THANK YOU SO MUCH.

Those are some serious important information, I will make sure to apply those next year.

If I can ask something else, about taxes. So we can get back the US taxes cause of the treaty between the US and Japan. How about the 5% extra taxes from Canadian stocks? Or the 12.8% taxes from the French stocks? I own both Canadian and French stocks.

Thank you so much

[Tkydon]

https://www.mof.go.jp/english/policy/ta ... st_en.html

French Withholding under the Treaty is 5% - See Article 10 Paragraph 2(b)

Canadian Withholding under the Treaty is 15% - See Article 10 Paragraph 2(b)

Therefore, it seems you are already claiming the rates dictated by the respective treaties.

With French Withholding at 5%, after claiming the Foreign Tax Credit, you would still be liable for 10% National Tax in Japan.
With Canadian Withholding at 15%, after claiming the Foreign Tax Credit, you would be liable for 0% National Tax in Japan.
0.315 % Restructuring And 5% Residential Taxes still apply.


If you have documentary evidence of Withholding like a US 1042-S, then you can amend your Form B - Page 1 - Item 46 of your Kakutei Shinkoku to claim the Foreign Tax Credit
Sum up all Foreign Taxes Paid on the Dividends; US, French, Canadian and enter the value in JPY in Item 46.
They will deduct that amount from the Dividend Tax due and if you have already paid it, issue you a refund.
You can go back 3 years to amend your filings, if necessary.

[Hárbarðr]

THANK YOU SO MUCH.

You are god sent!!!

This will truly help me in the future. I can't thank you enough...