Investing through Interactive Brokers and taxes

[Faxingberlin_]

Hello Everyone,

Lots of really really useful info on here.

Was hoping to get some advice as to the most simple/straight forward investing plan being a temporary worker in Japan with the potential to be leaving in 1 to 2 years.

I have set up SBI and NISA, aswell as Interactive brokers, as the question to whether I should invest in Japan in Yen or internationally in USD is one that is impossible to answer, if a move out of Japan may happen in the next few years. I have decided against NISA and buying etfs/mutual funds through SBI and instead buy Vanguard funds in USD with Interactive Brokers and just eat the currency fluctuation risk, its unavoidable. If I had to leave Japan during a market downturn I would also be forced to sell my assets in SBI and NISA, the risk of which in my mind is more than currency fluctuation with USD. I also don’t know where I could end up next after Japan, or where I will retire, so all of this combined makes things endlessly complicated.

Initially it seemed simple though, buy VTI in USD regularly through IB however then I learned of the dividends paid out which are taxed by the US government which is withheld, and on top of that you have to declare and file a tax return in Japan also, then claim a foreign tax credit to claim back the 10% WT.

I am wondering, to people who are investing through IB, what are you buying? In terms of tax simplicity are you buying a fund or etf or mutual fund that doesn’t pay out a dividend through IB or are you buying a non US fund through IB to avoid the US withholding tax and thus the tax return? Are you converting to the currency of the location where you think you will retire and buying a fund in that currency?

Is it more hassle to deal with the notional tax of a self-reinvesting mutual fund as opposed to the withholding taxes of the dividend distributing etfs?

Is there any way to make it as simple as possible investing through IB, where I just continuously add and not touch until retirement?

Would love to hear what people are doing and get some opinions

[zeroshiki]

This doesn't answer your question but what prevents you from investing in NISA and then liquidating your assets when you're about to leave? If its NISA, its tax free anyways so you don't get dinged on the capital gains. You can then take that money and transfer it to wherever you are going and then buy the MFs or ETFs there.

[Telebroker]

Try using non-dividend paying (accumulating) ETFs/index funds. I buy into ishares MSCI World ETF (ticker IWDA).

[Faxingberlin_]

This doesn't answer your question but what prevents you from investing in NISA and then liquidating your assets when you're about to leave? If its NISA, its tax free anyways so you don't get dinged on the capital gains. You can then take that money and transfer it to wherever you are going and then buy the MFs or ETFs there.

If I have to leave and liquidate during a market downturn and potentially be forced to sell for much less than I originally paid.

[zeroshiki]

This doesn't answer your question but what prevents you from investing in NISA and then liquidating your assets when you're about to leave? If its NISA, its tax free anyways so you don't get dinged on the capital gains. You can then take that money and transfer it to wherever you are going and then buy the MFs or ETFs there.

If I have to leave and liquidate during a market downturn and potentially be forced to sell for much less than I originally paid.

Wouldn't it still be the same? If you bought the same funds on IB, it would be worth exactly the same. You liquidate from your tax free account then you buy it when you're in your new home country.

[Established]

This doesn't answer your question but what prevents you from investing in NISA and then liquidating your assets when you're about to leave? If its NISA, its tax free anyways so you don't get dinged on the capital gains. You can then take that money and transfer it to wherever you are going and then buy the MFs or ETFs there.

If I have to leave and liquidate during a market downturn and potentially be forced to sell for much less than I originally paid.

Wouldn't it still be the same? If you bought the same funds on IB, it would be worth exactly the same. You liquidate from your tax free account then you buy it when you're in your new home country.

With IBKR you could theoretically transfer the shares from say IBKR Japan -> IBKR Canada when you return home. That is the advantage.

Japanese brokers do not allow international share transfers. Full stop.

[zeroshiki]

If I have to leave and liquidate during a market downturn and potentially be forced to sell for much less than I originally paid.

Wouldn't it still be the same? If you bought the same funds on IB, it would be worth exactly the same. You liquidate from your tax free account then you buy it when you're in your new home country.

With IBKR you could theoretically transfer the shares from say IBKR Japan -> IBKR Canada when you return home. That is the advantage.

Japanese brokers do not allow international share transfers. Full stop.

I understand that. I'm asking what hurts if you use NISA, which is fully tax-free, and then liquidate if you have to leave? I mean, there must be a reason why its not good, right? I just can't see it.

If you're investing in MFs only on NISA, you could liquidate when you're about to leave and then buy the EXACT same funds in the UK or wherever. Unless the only issue you have is the hassle of rebuying the MFs?

[Established]

Wouldn't it still be the same? If you bought the same funds on IB, it would be worth exactly the same. You liquidate from your tax free account then you buy it when you're in your new home country.

With IBKR you could theoretically transfer the shares from say IBKR Japan -> IBKR Canada when you return home. That is the advantage.

Japanese brokers do not allow international share transfers. Full stop.

I understand that. I'm asking what hurts if you use NISA, which is fully tax-free, and then liquidate if you have to leave? I mean, there must be a reason why its not good, right? I just can't see it.

If you're investing in MFs only on NISA, you could liquidate when you're about to leave and then buy the EXACT same funds in the UK or wherever. Unless the only issue you have is the hassle of rebuying the MFs?

Because the stock market does not only go up....

If OP needs to leave during a recession or downturn he does not want to have to sell at a loss.

[zeroshiki]

Because the stock market does not only go up....

If OP needs to leave during a recession or downturn he does not want to have to sell at a loss.

But if its a mutual fund, you sell and you get money that you then use to buy another mutual fund that's exactly the same (or close enough). There is no loss there except for maybe currency or minor fees. There is no capital gains tax since its NISA so you get the full amount that you can then reinvest in your foreign country.

I would understand if the argument is they don't want to go through the hassle of selling then rebuying but I would think the tax free capital gains from NISA would offset that.

[fools_gold]

I would understand if the argument is they don't want to go through the hassle of selling then rebuying but I would think the tax free capital gains from NISA would offset that.

If the OP doesn't sell the funds while in Japan, there would be no capital gains tax to pay anyway, so I guess it's bit of a moot point.