Need to declare overseas dividends if living in Japan for less than 5 years?

[kanpanela]

I am not familiar with the Australia-Japan double taxation treaty, but are you sure you have worked out to enter everything correctly through e-tax to claim the foreign tax credit? It's US-specifc, but this nice walkthrough for claiming dividend foreign tax credits was shared on reddit recently.

Thanks for the walkthrough guide.
I followed it but nothing really changed, it is still having to pay about 7.5% in addition to the 25% that went to the US

[Tkydon]

Assuming you are Not a US Citizen,
If you have been living in Japan for less than 5 years, you are Resident, but not Permanent Resident For Tax Purposes. Then your Overseas Income is not taxable in Japan unless you send the money to Japan, and then it becomes taxable.
If you do not send it to Japan, it is not subject to Japanese Tax, so you cannot claim the benefit of the US-Japan Tax Treaty, and you will be subject to US Withholding Tax of 30%.
As soon as you have been in Japan for 5 years, you become a Permanent Resident For Tax Purposes, and all of your global income becomes liable to Japanese Taxes, whether you bring the money to Japan or not.
If you are not a US Citizen, you need to file a W8-BEN Form with your broker to claim the benefit of the US-Japan Tax Treaty.
If you do not file a W8-BEN correctly, then you will be subject to US Withholding Tax at 30%.
If you correctly file the W8-BEN, under the US-Japan Tax Treaty you will only be subject to US Withholding Tax at 10%. This tax is payable to Uncle Sam for US derived income.

Any Foreign National (non-US Citizen), including Japanese, who is filing a W8-BEN should in Part II state:

Part II Claim of Tax Treaty Benefits (for chapter 3 purposes only) (see instructions)
9. I certify that the beneficial owner is a resident of ___JAPAN___ within the meaning of the income tax treaty between the United States and that country.
10. Special rates and conditions (if applicable—see instructions): The beneficial owner is claiming the provisions of Article and paragraph
_10 2(b), 11 2(b)_ of the treaty identified on line 9 above to claim a ___10___ % rate of withholding on (specify type of income):
___Dividend and Interest Income___
Explain the additional conditions in the Article and paragraph the beneficial owner meets to be eligible for the rate of withholding:
___As A Resident Of Japan for Tax Purposes.___

The US Government will then withhold US Tax due to Uncle Sam at 10%

In Japan, you need to file a Kakutei Shinkoku by Mar 15, and you need to select the Separate Self-Assessment Taxation method (Form B - Pages 1&2 And Page 3).
Under the Separate Self-Assessment Taxation method, you will be liable to 20.315% Dividend Tax (15% National, 0.315% Reconstruction, and 5% Residential Taxes).

You should then receive a 1042-S Statement of US Taxes Withheld from your broker, around the beginning of April, in time for US Tax Filing (Apr 15).

You can then revisit and amend your Kakutei Shinkoku and claim the Foreign Tax Credit for the 10% Tax paid in the US - Form B Page 1 - Item 46.
So then your taxes become 10% US Withholding, 5% National, 0.315% Reconstruction, and 5% Residential Taxes.

[Tkydon]

I stand corrected. After much searching I finally found the reference on the MOF website.

[TBS]

Just going to add a further note of clarification here as tax law changes in 2017 widened the taxation scope on non-permanent tax residents. They now have to pay capital gains tax on listed overseas stocks bought and sold while a non-permanent tax resident after April 1 2017. This applies even if they do not remit the proceeds to Japan. See more here. This is because, in an incredibly bad use of language, the law no longer classifies these capital gains as "foreign source income" (国外源泉所得), but as "non foreign source income" (国外源泉所得以外の所得 or 非国外源泉所得).

Fortunately overseas stock dividends were not subject to the change and still count as "foreign source income", thus non-permanent do not have to pay taxes on them unless they are remitted. More details in these blog posts.

I do not agree with these Tax Companies' interpretation of the law.
...

@Tkydon, it looks like you are linking to and quoting from the law as it stood back in 2008, so before the new rules came into effect.

The income tax act and the regulation for its enforcement as it stands now are here & here. After quickly checking these, I think it is unlikely that the interpretations I linked to above are incorrect.

[Tkydon]

I stand corrected. After much searching, I finally found the reference on the MOF website.

[TBS]

I stand corrected. After much searching, I finally found the reference on the MOF website.

That's something I often find too. You try your hardest to read all the government documents. You can think you've got something down. Then months later you find from another incidental search or a forum posting that what you thought was wrong, and it is because the xyz.go.jp website is a decade out of date and old info is still live.

The Japanese web is so

[kanpanela]

Yea, the date you become a permanent tax resident is important. If it is part way through the tax year, you do not have to pay taxes on the dividends received before this date (assuming no remittances during the tax year). You can claim periods of non-permanent tax residence by attaching this form and the evidence it requests to your tax return.

Sorry for asking this so long after the original reply, but regarding that form you kindly gave me a link to, when am I supposed to fill it? Do I do it voluntarily? Or when I am asked to?
I have overseas assets on which I receive dividends. Next year I will become a permanent tax resident at some part of the year, so I will report dividend gains on that part of the year. Do I submit the form in that case?

Thanks for the help!

[TBS]

Sorry for asking this so long after the original reply, but regarding that form you kindly gave me a link to, when am I supposed to fill it? Do I do it voluntarily? Or when I am asked to?
I have overseas assets on which I receive dividends. Next year I will become a permanent tax resident at some part of the year, so I will report dividend gains on that part of the year. Do I submit the form in that case?

Thanks for the help!

If you become a permanent tax resident next year, you'll likely need to attach the form and passport scans for the tax return you'll submit in early 2024. Sometimes tax offices ask for it in earlier years as well. For subsequent tax years when you are fully a permanent tax resident, there is no need - it serves no purpose.

Note the NTA updates the dates on the form each year, so remember to download the right one when the time comes.

[Tkydon]

My understanding is that the US taxes dividends at source but not capital gains.

That is an interesting point! Is this true? Anyone here can share their experiences?

So when a non-US citizen overseas holds some assets and sells them and gains, does he declare taxes to the US? To his home country? To both?

For Non-US Citizens, US Sourced Dividends and Interest are taxable in the US, and Tax will be withheld by the Broker (Withholding Agent).
For Non-US Citizens, US Sourced Capital Gains are Not taxable in the US.

For US Citizens, US Sourced Dividends and Interest are taxable in the US, subject to limits of FEIE, etc., and the US Citizen has to File.
For US Citizens, US Sourced Capital Gains are taxable in the US, subject to limits of FEIE, etc., and the US Citizen has to File.

Most Countries (except the US), operate on a Residence-Based-Taxation model.

https://www.americansabroad.org/residen ... s-it-mean/

There is an ongoing discussion in the US that the US may become an RBT country in the (distant) future.

In the majority of countries with Tax Treaties with Japan, Dividends and Interest sourced in a country other than the country of residence are taxable in the source country, but those taxes can be claimed back as a Foreign Tax Credit in the country of residence.

However, the US reserves the right to tax its citizens.

As an RBT country, Japan has first call on taxes on the income of its residents, especially after you become a Resident other than a Non-Permanent Resident (for Tax Purposes) (i.e. a Permanent Resident for Tax Purposes, after residing in Japan for more than 5 years in the last 10 years).

So when a non-US citizen overseas holds some assets and sells them and gains, assuming he is a Resident other than a Non-Permanent Resident (for Tax Purposes), and assuming he has no tax obligation to his country of citizenship, then he declares the gains and pays taxes to Japan only.