American in Japan - Can I buy individual stocks?

[japanlifer]

I was under the impression that Americans could buy individual stocks through a Japanese broker just not ETFs. When I talked to the operator at Rakuten she said to just try to buy what you want and see if it goes through. An American friend here thinks we cannot buy US stocks without a US residence.

Can someone tell me what is available to me?

[zeroshiki]

My understanding is you can buy Japanese stocks just fine as long as they're not PFICs. I assume the idea is similar for US stocks.

[captainspoke]

I was under the impression that Americans could buy individual stocks through a Japanese broker just not ETFs. When I talked to the operator at Rakuten she said to just try to buy what you want and see if it goes through. An American friend here thinks we cannot buy US stocks without a US residence.

Can someone tell me what is available to me?

american here, but I invest back in the US. From what I've read, J-brokers don't want to sell you US stocks--I don't think it's a legal issue, but some kind of huge compliance (liability? reporting?) headache for such a broker.

Also, be careful what japanese stocks you buy, since some stocks that look like individual companies are in fact PFICs. One mentioned here/elsewhere was softbank. I think there are others (no, I don't have a list).

The analogy would be berkshire hathaway (BRK). If japanese, that would count as a PFIC. Some companies here do somehow count as that kind of holding company.

"An American friend here thinks we cannot buy US stocks without a US residence."

I haven't heard it put that way. My residence is here (and my broker knows that), but I do buy US stocks/ETFs via a US broker.

[Teflon]

Also, be careful what japanese stocks you buy, since some stocks that look like individual companies are in fact PFICs. One mentioned here/elsewhere was softbank. I think there are others (no, I don't have a list).

This is good advice. Always check the annual report for the firms whose shares you are thinking of purchasing. Personally, I have a regular NISA that is maxed out with 100 share block purchases in 9 individual Japanese companies. One of them happens to be Softbank (9434) which is a telecom company that is a subsidiary of Sofbank Group (9984) which is an investment company that owns the massive Softbank Vision Funds. Softbank (9434) is not a PFIC but Softbank Group (9984) is definitely a PFIC and they say so in their 2021 Consolidated Financial Statement (bottom of page 1, "Notice Regarding PFIC Status"). It's important to understand that distinction.

[captainspoke]

... One of them happens to be Softbank (9434) which is a telecom company that is a subsidiary of Sofbank Group (9984) which is an investment company that owns the massive Softbank Vision Funds. Softbank (9434) is not a PFIC but Softbank Group (9984) is definitely a PFIC and they say so in their 2021 Consolidated Financial Statement (bottom of page 1, "Notice Regarding PFIC Status"). It's important to understand that distinction.

Thanks for the clarification.

[SleighRide]

As a fellow American citizen living in Japan who owns Japanese stocks, I am also weary of purchasing shares of a company that may be considered to be a passive foreign investment company (PFIC). I have received advice from both my U.S. based financial planner and U.S. tax advisor to avoid purchasing any PFICs.

In addition to Softbank Group (9984), I have heard that Orix (8591) is considered to be a PFIC.

Does anybody have a list of other Japanese stocks that are treated as a PFIC? If so, please share.

[Established]

As a fellow American citizen living in Japan who owns Japanese stocks, I am also weary of purchasing shares of a company that may be considered to be a passive foreign investment company (PFIC). I have received advice from both my U.S. based financial planner and U.S. tax advisor to avoid purchasing any PFICs.

In addition to Softbank Group (9984), I have heard that Orix (8591) is considered to be a PFIC.

Does anybody have a list of other Japanese stocks that are treated as a PFIC? If so, please share.

I suppose the issue is the company does not have an obligation to know or state that they are a PFIC, so of they do so it is only out of courtesy. Also the US authorities can decide at their leisure. A bit of a minefield.

How do you select companies? By reading annual reports? Any high level of investment or dividend income would be a red flag.

[SleighRide]

@Established -- Thanks for your advice. Yes, it seems like the onus would be on me to review the company's annual report to confirm whether either of the following criteria apply:

At least 75% of the corporation's gross income is "passive"—that is, derived investments or other sources not related to regular business operations.

and/or

At least 50% of the company's assets are investments, which produce income in the form of earned interest, dividends, or capital gains.

This should not be the case for most companies that are publicly traded in Japan, but it certainly would be convenient if there were a regularly updated list.