Declaring Dividends under 200,000yen

[Moneymatters]

Preface this by saying I want to follow the letter of law.

Say I have Dividend paying stock held outside japan and the total dividends paid between Jan-Dec are under 200,000yen.

a) Don't report this dividend income in my annual tax filing but keep the evidence to hand "just in case".
b) Report the dividend income in my tax filing but I won't need to pay tax on it.
c) Report the income in my tax filing and pay tax 20.315% tax on it.

For what it's worth, I'm obligated/required to file a Japan tax return each year.
(Technically that's been the case for 20 years and I filed my first return this year!
So if I don't respond to replies its probably the limited internet access from prison.)

[captainspoke]

I think the 200k thing is restricted to salaried workers who otherwise don't have to file a return (such as when your employer adjusts/insures that your tax payments are correct).

If you do have to file a return, then I think you have to declare the divs, and of course pay any taxes due.

Also, if you're a tax resident, it makes no difference where the dividends are paid--you're supposed to be reporting worldwide income.

[Tkydon]

Preface this by saying I want to follow the letter of law.

Say I have Dividend paying stock held outside japan and the total dividends paid between Jan-Dec are under 200,000yen.

a) Don't report this dividend income in my annual tax filing but keep the evidence to hand "just in case".
b) Report the dividend income in my tax filing but I won't need to pay tax on it.
c) Report the income in my tax filing and pay tax 20.315% tax on it.

For what it's worth, I'm obligated/required to file a Japan tax return each year.
(Technically that's been the case for 20 years and I filed my first return this year!
So if I don't respond to replies its probably the limited internet access from prison.)

If you have Dividend paying stock held outside japan regardless of whether the total dividends paid between Jan-Dec are under 200,000yen, you must c) Report the income in your tax filing and pay tax 20.315% tax on it.

Please see my other posts on this issue.

1. The only time you can choose not to file a return for Dividend Income is when the Dividend Income is from Japanese Stock held in a Japanese Brokerage Account, the Japanese Broker withholds Japanese Taxes at 20.315% (15% National, 0.315% Reconstruction and 5% Residential Taxes), and the amount of Dividend and Other Income, except regular employment income, is under 200,000 Yen, so your tax obligations have been met in full, and you will have a Statement of Taxes Withheld - Gensenchoshuu - 源泉徴収票 from your broker in early January every year to prove it. If Tax has not been withheld because you elected not to have the broker withhold the taxes, or the amount of the Dividend Income is over 200,000 Yen, then you will need to file.

2. If you have lived in Japan for more that 5 years in the last 10 years, you are treated as a Permanent Resident For Tax Purposes, whether you are actually a Permanent Resident or not, and your Global Income is subject to Japan Tax (Global Taxation), just the same as a Permanent Resident or Japanese Citizen, whether you actually repatriate the income to Japan or not.

3. Dividend Income on your Foreign Stocks held in a Brokerage Account overseas has not been subject to Japanese Withholding Tax, and so you have to declare it and pay Japanese Taxes on it, whether you repatriate the income to Japan or not. It may have been subject to Withholding in the Country where the Dividends were paid. More on that later. See 7 & 8 below.

4. You must report the Dividend Income in your Kakutei Shinkoku - 確定申告.

5. If your Dividend Income is very low and your total taxable income including the dividends is very low, then you can just do the Aggregate Filing Method - Form B - Pages 1&2 and enter your Total Dividend Income in Page 1 - Item 5 - Total Dividend Income, and your Dividends will be taxed at your Marginal Income Tax Rate (X % National, 2.1% of the Tax amount as Reconstruction Tax, and 10% Residential Taxes). There is a Tax Credit for Japanese Dividends, but this does not apply for Foreign Dividends, which makes this method very disadvantageous for Foreign Dividends.

6.Basically, for Foreign Dividend Income, your Marginal Tax Rate will most probably be higher than the 15% required, so you should do the Separate Assessment Method - Form B - Pages 1&2 and Page 3, and your Dividends will be taxed at the Flat Dividend Income Tax Rate (15% National, 0.315% Reconstruction, and 5% Residential Taxes). You need to File this by 14 March every year.

7. Foreign Dividend Income on Foreign Stocks is usually subject to Withholding Tax on the Income in the Country where the Foreign Company is paying the Dividend.
There are Tax Treaties that have been negotiated between Japan and many other countries to avoid or reduce Double Taxation, and many of them allow you to claim a reduced rate of Withholding Tax on Dividend Income in that Country as a Resident of Japan for Tax Purposes.
https://www.mof.go.jp/english/policy/ta ... st_en.html

e.g. If you are a Non-US Citizen, and you hold US Stock which pay a Dividend, your broker will be obliged to withhold US Tax on the US sourced Dividend Income. Without claiming the benefit of the Japan-US Tax Treaty, that Withholding Tax Rate would be 30%. If you submit a W8-BEN Form correctly filled out, claiming Residence in Japan For Tax Purposes and the Reduced Rate of Withholding Tax on Dividends of 10% under Article 10 Paragraph 2(b) of the Japan-US Tax Treaty, then the broker will only withhold 10% in the US. You will receive a Statement of Taxes Withheld - 1042-S from your Overseas Broker, usually in mid-March to early April, in time for US Tax Filing on 14 April, but probably not in time for Japan filing.

8. With this 1042-S (or any Statement of Taxes Withheld from any other country), you can go back and amend your Kakutei Shinkoku Form B - Page 1 - Item 46 - Foreign Tax Credit. You input the total amount of Taxes Withheld in Foreign Countries into this box, and they will give you credit for those taxes paid, and a refund the value, up to the 15% paid in Japan.

e.g. If you are a Non-US Citizen, and you hold US Stock which pay a Dividend, and you have filed your W8-BEN correctly, your broker will be obliged to withhold US Tax at 10%. (This is Uncle Sam collecting US Tax on US Sourced Income.) If you put this value in Form B - Page 1 - Item 46 - Foreign Tax Credit, you will then get a refund from the Japanese Tax Office for the 10% paid in withholding to the US Government, which you would have double paid to the Japanese Government in April, so your total taxes on the Dividend Income will become 10% US Withholding Tax, and in Japan, 5% National, 0.315% Reconstruction and 5% Residential Taxes.

9. If they decide to audit you, the Japanese Tax Authorities can go back 5 years and charge you back taxes with heavy penalties at a very high interest rate. If this amount is only very small, and you are above board on everything else... ... ...

10. If you decide to go back and file previous years' Dividend Income and/or Foreign Tax Credits, and come clean, they will probably be lenient on you. You can amend your previous filings for Dividend Income and Foreign Tax Credits at any time during the year, and for up to the last three years' filings.
However, if you selected Aggregate Taxation Method for Dividend and Other Income at the original filing, you cannot go back and change that choice to select Separate Assessment Filing at a later date, so your Dividend Income would then be taxed at Your Marginal Tax Rate for that Year minus the Foreign Tax Credit (e.g. X % minus US 10% Withheld National, 2.1% of the Tax Amount as Recontruction Tax, and 10% Residential Taxes), as you would get the 10% credit or refund for the Foreign Tax Credit.

[Moneymatters]

I think the 200k thing is restricted to salaried workers who otherwise don't have to file a return

Thanks. That's all I wanted to confirm to avoid a school boy error.

Which interestingly I've made far more of since leaving school!

[RetireJapan]

1. The only time you can choose not to file a return for Dividend Income is when the Dividend Income is from Japanese Stock held in a Japanese Brokerage Account, the Japanese Broker withholds Japanese Taxes at 20.315% (15% National, 0.315% Reconstruction and 5% Residential Taxes), and the amount of Dividend Income is under 200,000 Yen, so your tax obligations have been met in full, and you will have a Statement of Taxes Withheld - Gensenchoshuu - 源泉徴収票 from your broker in early January every year to prove it. If Tax has not been withheld because you elected not to have the broker withhold the taxes, or the amount of the Dividend Income is over 200,000 Yen, then you will need to file.

I'm not sure this is correct. I think you are mixing up two different things here: miscellaneous income, and tax-deducting investment accounts.

If you are a salaried worker and your company handles your income taxes, you can make up to 200,000 yen a year in miscellaneous income (including dividends) and not report it to the tax office (although you are supposed to report it to your local government for the purpose of resident tax).

If you invest in a tax-deducting account (特定口座源泉徴収あり) your broker will handle your capital gains and dividend taxes, so you don't need to report or pay them yourself. This is also true if they go over 200,000 yen a year. You do need to report them if your income is high enough (I forget how high because I took one look at the number and said 'yep, never going to reach that') but not otherwise, although you can choose to report them and pay income tax instead.

Happy to be corrected if I am misunderstanding this though!

[Tkydon]

Hi Ben,

The devil, as always, is in the detail.

There is no Y200,000 Allowance on which you do not need to pay tax. It's just that you don't need to file a return for up to Y200,000 in Income other than Employment Salary Income So Long As Japanese Tax has been Withheld at Source. Any Income that was not subject to Japanese Tax Withholding at source must be filed and taxes must be paid.


In Japanese Tax Law, Miscellaneous Income is actually a category of income that is not covered by the other classifications of Income.
However, in your mail, I think you mean to use 'miscellaneous' to mean any/all kinds of Income except employment salary income.

Please see the 2020 INCOME TAX AND SPECIAL INCOME TAX FOR RECONSTRUCTION GUIDE

https://www.nta.go.jp/english/taxes/ind ... x_2020.htm

My comments in ALL CAPS or on line Don>

Page 11

1. Persons with the Employment Income
*For most people, the income tax etc. is settled by the “year-end adjustment” of employers, so the final return is NOT necessary. If you file a final return, it is required to include salary income that received year-end adjustment in the return.

You ARE required to file a final return if;

(1) Your total amount of the earnings of salary etc. exceeds 20,000,000 yen.

(2) Your total amount of income (except for the employment income and the retirement income) exceeds 200,000 yen when the salary etc. (INCOME OF ALL KINDS) is received from one source only and ALL of the salary etc. (INCOME) is subject to the Japanese withholding.

Don> 'Subject to Japanese Withholding' excludes Foreign derived income which has not been subject to Japanese Withholding. See 5 below
Don> Note that US or other country's withholding is for that country's tax liability and not for Japan's Tax Liability.

(3) The sum of your total amount of income (except for the employment income and the retirement income) and the total amount of earnings from the salary etc. not subject to the year-end adjustment exceeds 200,000 yen when the salary etc. is received from two or more sources and all of the salary, etc. is subject to the Japanese withholding.
*However, you need not file a final return if the remaining amount after subtracting the total amount of deductions for income (except for deductions for casualty losses, medical expenses and donations and basic exemption) from your total amount of earnings from salary etc. is 1,500,000 yen or less as well as your total amount of income (except for the employment income and the retirement income) is 200,000 yen or less when all of the salary etc. is subject to the Japanese withholding.

Don> 'Subject to Japanese Withholding' excludes Foreign derived income which has not been subject to Japanese Withholding. See 5 below
Don> i.e. All of these statements assume Japanese Sourced Income such as Japanese Dividends on Japanese Stock against which
Don> Japanese Taxes have been withheld, as the Tax liability has been fully met through withholding.
Don> Even Japan Sourced Income other than primary employment income against which Japan Taxes has been withheld still needs to be declared
Don> if totaling more than 200,000.

(4) You are employee of foreign diplomatic establishment located in Japan or a domestic worker and the salary etc. is not subject to the Japanese withholding when receiving payment of salary etc.

(5) You receive salaries, etc. abroad.

Don> All Foreign Sourced Income of any kind must be declared, as it has not been subject to Japanese Withholding, IF the Tax Payer
Don> is Permanent Resident for Tax Purposes, and liable for Japan Taxes on Global Income. i.e. in Japan for more than 5 years.

(6) You are a director of a family company or a relative of the director, and receive payments such as interest on loans, rent for a store, office and factory, and charges for the use of machines and tools besides salary etc. from the company concerned.

(7) The withholding of income tax etc. from your employment income was postponed or you received a tax refund, under the provisions of the “Law Relating to Exemptions, Deductions and Deferment of Tax Collection for Disaster Victims.”

Note: Even when you fall under any of the above, you are NOT required to file a final return if the amount of tax calculated based on your total amount of income after subtracting all of your deductions including the basic exemption is EQUAL TO, OR LESS THAN the sum or less of your Credit for Dividends and Special Credit for Loans etc. related to a dwelling (specific additions or improvements, etc.), applied in your year-end adjustment.

Don> i.e. If you enter the Income amounts and then apply the Credit Allowances, the net Taxable value is Zero, then you do Not need to file.
Don> Credit for Dividends is specifically not applicable to Foreign Sourced Dividends. Therefore, the Foreign Sourced Dividends will need
Don> to be reported.

Don> So, the 200,000 figure is only applicable to Japan Sourced Income that has already been subjected to Japanese Tax Withholding at Source.


Page 56 of the same document details that

3. Dividends, etc. NOT eligible to Credit for Dividends
Dividends, etc. that are eligible to Credit include dividends from surplus and profits, and distribution of surplus, money and revenues of securities investment trusts earnings, which come from a corporation that is headquartered in Japan, and are limited to dividend income that is subject to the Aggregate Taxation Method in filing a final return. Therefore, dividends, etc. received from foreign corporations are NOT eligible to credit for dividends.
In addition, the following dividends, etc. are NOT eligible to Credit for Dividends.
...
((4) Dividends, etc. related to distribution of revenues of management investment trusts, such as private offerings and public corporation bonds
(5) Dividends, etc. related to distribution of revenues of management investment trusts, such as overseas private offerings and public corporation
bonds
(6) Dividends, etc. related to distribution of revenues of specified stock investment trusts that trace overseas stock index
(7) Dividends, etc. related to distribution of revenues of securities investment trusts, such as securities in specified foreign currency
(8) Dividends, etc. that will be received from investment trusts by public offering by qualified institutional investors
(9) Dividends, etc. that will be received from specified trusts.
(10) Dividends, etc. that will be received from specified-purpose companies
(11) Dividends, etc. that will be received from investment corporations


Don> Therefore, Investors with any of the above types of Dividends, including Foreign Dividends, would have to file, and would not benefit from
Don> using the Aggregate Taxation Method, so should therefore elect the Separate Self-Assessment Taxation Method to claim the lower rate of
Don> Dividend Tax (15% National, 0.312% Reconstruction, and 5% Residential Taxes. i.e. Form B Pages 1&2 AND Page 3


HTH.

[Tkydon]

I would point out that as previously quoted,

Page 56 of the same document details that:

3. Dividends, etc. not eligible to Credit For Dividends
Dividends, etc. that are eligible to credit include dividends from surplus and profits, and distribution of surplus, money and revenues of securities investment trusts earnings, which come from a corporation that is headquartered in Japan, and are limited to dividend income that is subject to the aggregate taxation in filing a final return. Therefore, dividends, etc. received from foreign corporations are not eligible to credit for dividends.

Don>
The point of the Credit For Dividends is to compensate for the Increasing Marginal Tax Rate when filing under the Aggregate Tax Method, and can only be claimed under the Aggregate Tax Method.
Under this system, you aggregate together ALL income from all sources; Employment Salary Income, Capital Gains, Dividend Income, etc., and are taxed on Total Taxable Income at the Marginal Tax Rate:
Total Taxable Income --- National Marginal Tax Rate
First 1,950,000 --- 5%
1,950k to 3,300k --- 10%
3,300k to 6,950k --- 20% <
6,950k to 9M --- 23% <
9M to 18M --- 33%
>18M --- 40%

< The Dividend Tax Credit would compensate the recipient of Japanese Dividends for the Marginal Tax Rate under Aggregate Taxation being higher than the 15% under Separate Self-Assessment Taxation, thereby reducing the need to file at all or reducing the amount of paperwork required, and actually providing a lower tax rate than 15% for lower earners on the lower marginal tax rates.
But with a total taxable income including the Japanese Dividend Income of somewhere between 7M and 9M, the marginal tax rate even with the Dividend Tax Credit on Japanese Dividends would be higher than 15%, and it becomes more advantageous to claim the 15% rate through Separate Self-Assessment Taxation. Of course the Dividend Tax Credit does not apply to Foreign Dividends, and so Aggregate Taxation would not be advantageous for total income levels somewhere between 3M and 7M. Separate Self-Assessment Taxation is the only real option, and I assume the National Tax Authority (NTA) specifically set it up that way to promote Japanese share ownership, and to gain visibility into the Overseas Holdings of Japanese Citizens.


There is clearly a level of income at the low end, where your Income other than from Employment or Pension is less than Y200,000, AND on which Japanese Tax has been withheld, for which you do not need to file, but below which the Aggregate Taxation Method using your Marginal Tax Rate is better than using the Dividend Tax Rate or Capital Gains Tax Rate, for which you would want to file for the lower tax rate.
(X % Marginal Rate National, 2.1% on that X% Reconstruction, and 10% Residential Taxes)

There is the income level where your Income other than from Employment or Pension is greater than Y200,000, AND on which Japanese Tax has been withheld, or greater than Y0, AND on which Japanese Tax has NOT been withheld (including Foreign held assets) for which you Must file, but which is still low enough to benefit from using the Aggregate Taxation Method using your Marginal Tax Rate better than using the Dividend Tax Rate or Capital Gains Tax Rate, for which you would want to file using the Aggregate Taxation Method for the lower tax rate.
(X % Marginal Rate National, 2.1% on that X% Reconstruction, and 10% Residential Taxes)

There is then a band of income level where if you Income other than from Employment or Pension is less than Y200,000, AND on which Japanese Tax has been withheld, that you would choose not to file to save yourself the effort.
(15% National, 0.315% (i.e.2.1% of the 15%) Reconstruction, and 5% Residential Taxes)

And finally, there is the income level where your Income other than from Employment or Pension is greater than Y200,000, AND on which Japanese Tax has been withheld, or greater than Y0, AND on which Japanese Tax has NOT been withheld (including Foreign held assets) for which you Must file, and it makes sense to select the Separate Self-Assessment Taxation Method using the Dividend Tax Rate or Capital Gains Tax Rate, rather than using the Aggregate Taxation Method and your Marginal Tax Rate for the lower tax rate.
(15% National, 0.315% (i.e.2.1% of the 15%) Reconstruction, and 5% Residential Taxes)

You would have to calculate which one of these four bands is most beneficial for you. Once you select either the Aggregate or Separate Self-Assessment Taxation Method in a particular year, you cannot go back and change the decision for that year's return.