How to handle dividends already paid overseas in this particular case

[kanpanela]

Hi everyone!

I don't have yet 5 years of residency in Japan,
But I have permanent residency from 2020.

Is it correct that from this next tax report I need to start reporting and paying taxes for dividends in investment
account from my country of origin? Or was that supposed to be paid from day one?

Those dividends pay taxes automatically (withheld at source), does that
mean I have to get that tax back? Or am I supposed to report to Japan that I already paid tax, and then I will not be asked to pay that tax again?

The assets are Vanguard's ETFs, and they seem to be paying 25% dividend tax although it
looks like it's taxes paid to the US and not my country of origin (the report sais taxes paid overseas but it doesn't say to whom).
What happens in this case? Am I liable to double taxation?

Also, my investments are through my bank account, and this account is under the name of both me (resident of Japan) and my Mother (resident of my country of origin). The reason for
this is to get better fees on the investment account (the money in there is my salaries from before I moved to Japan). Will this joint ownership on the account cause double taxation?

I just want to know my options, but I don't know where to go to ask these questions.
I already read the double taxation treaty between Japan and my country of origin, and it
doesn't specify the case with this "joint" account.

If you think this should be consulted with a professional, may I please ask for a recommendation? Or perhaps this whole matter should be discussed in the tax office?

I am really confused but the time to report taxes is fast approaching so I am stressed out.

Any attempt to help is greatly appreciated!

[RetireJapan]

Hello and welcome to the forum!

I believe you may not have to declare and pay tax on your overseas dividends if you have been in Japan less than five years (however, this is a bit of a grey area) and you haven't moved any money to Japan in the same tax year.

Anyone else?

[kanpanela]

Hello and welcome to the forum!

I believe you may not have to declare and pay tax on your overseas dividends if you have been in Japan less than five years (however, this is a bit of a grey area) and you haven't moved any money to Japan in the same tax year.

Anyone else?

Thanks!
Glad that such a community exists! Thank you for your work!

That would be great to relieve my stress.
I would still be curious what would happen after 5 years.

I researched and understood that the 25% dividend tax that is withheld at source is tax going to the US directly.
Looking at the Japan US tax treaty here: https://www.irs.gov/pub/irs-trty/japan.pdf

it says in Article 12 (page 13):

(1) Dividends derived from sources within a Contracting State by a resident of the other Contracting State may
be taxed by both Contracting States.

(2) The rate of tax imposed by a Contracting State on dividends derived from sources within that Contracting
State by a resident of the other Contracting State shall not exceed-
(a) 15 percent of the gross amount actually distributed; or
(b) When the recipient is a corporation... (the rest is irrelevant)

Does that mean I will pay tax as usual in Japan and the US tax needs to be reduced from 25% to 15%? If so how would I even contact the US for this?
I am not an American resident, would it be possible to file for tax return in this case?

It doesn't read as if it is the other way around, i.e. Japan will give credit for the extra 10% the US took.

And about capital gain tax:

Gains from the sale, exchange, or other disposition of capital assets derived by a resident of a Contracting State
shall be exempt from tax by the other Contracting State unless- (the rest is irrelevant)

I understand that means I am exempt from paying any more than will be withheld at source at the time of sell.
But does that also mean there is no need to declare it?
If I do need to declare it, do they just not tax me for it? Or they tax and I get credit? Anyone had such experience and can share how it went?

[Tkydon]

If you are not a US Citizen (or Green Card Holder), then you will be taxed in the US on Dividends by Withholding, but not on Capital Gains.

You have to claim the Foreign Tax Credit.

For Dividend Income

If you have been living in Japan for less than 5 years, you are Resident, but not Permanent Resident For Tax Purposes, even though you have PR. 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.

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 Broker 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.