Dividend Reinvestment taxation

[ayetobee]

I am trying to find out how ETF dividend DRPs are taxed in Japan.
I have found some confusing information and in some cases omitted information.
It seems the dividends are taxed if they are distributed, as per the below taken from the 2020 Income Tax Guide, distributed by the Tax Office.
Dividends on listed stocks etc.
Dividends on listed stocks, etc. refers to interest from specified bonds, distribution of profit from publicly offered stock securities investment trusts, dividend on listed stocks, and distributions of profit from public offering stock investment trusts.
Based on the above if I have selected the DRP option on the dividend payout I still pay tax on the dividend, is that correct (this is common and what I expected)? The reason I ask is that I had read on a consultancy site that you do not have to (one of the big four)) which I found surprising but I cannot find any information on how DRPs are taxed in Japan.

However, I could find information on accumulative ETFs, their dividends are not distributed, and by definition, I should not have to pay tax.

Any insight appreciated.

[Haystack]

Yes, you will pay tax on distributed dividends. DRIPs in Japan are mainly setup through a few brokers like Monex. They are broker side, not fund side.
(Experts, feel free to correct this if wrong).

Accumulating features are in funds (mutual funds) not ETFs. They advertise this in the perspecti, but you can simply check Yahoo etc to see the dividend history is zero.

Best Mutual fund companies w/ Accumulating products?

Emaxis Slim Series
Rakuten Vanguard Series
Tawara No-load series.

They are ideal for the passive investor, and are why Mutual Fund>ETFs in Japan still.

[Tkydon]

If the Dividends are reinvested within the instrument, there is no distribution and no taxable event.
If the Dividends are distributed from the instrument; iDECO, 401k, NISA, Mutual Fund, ETF, etc., then there is a taxable event.
If the Dividends are distributed from the instrument; iDECO, 401k, NISA, Mutual Fund, ETF, etc., and then reinvested outside the wrapper, then there is still a taxable event.

[adamu]

If the Dividends are distribution from the instrument; iDECO... then there is a taxable event.

Not possible for iDeCo - dividends are not taxed and are automatically re-invested along with the monthly contribution according to the asset allocation specified.

[ayetobee]

If the Dividends are reinvested within the instrument, there is no distribution and no taxable event.

That's curious.
I have looked into what ETFs provide this and have not found any. If anyone could set me straight here I would welcome the feedback.

I am Australian, so I looked into which Australian LICs provide this and found a few. AFIC, for example, provides a DSSP option. Whitefield provides a BSP option (same thing, different name). Both of these purchases the shares back within the fund and have a special ruling from the ATO to do this.

So my next question is, does the special ruling from the ATO hold up in Japan within the tax treaty? I browsed through the tax treaty (enthralling) and couldn't find a reference. If anyone has any insight here I would appreciate it.

I did find a reference on the AFIC site to New Zealand - https://www.afi.com.au/shareholders#Div ... rePlanDSSP which says the DSSP purchased shares are viewed as distributed, so tax is payable. Which is discouraging.
I also looked up their Class Ruling from the ATO and one of the conditions they have to participate in the DSSP is to be an Australian resident for Taxation Purposes. So I will find out what happens if you're not, it does make me believe it is an ATO ruling and applicable to Australian RFTP only.

[Tkydon]

I also looked up their Class Ruling from the ATO and one of the conditions they have to participate in the DSSP is to be an Australian resident for Taxation Purposes. So I will find out what happens if you're not, it does make me believe it is an ATO ruling and applicable to Australian RFTP only.

ATO rulings do not apply to Japan.
If you are not an Australian resident for Taxation Purposes and cannot participate in the DSSP, then any Dividend Distributions will be subject to Aus Withholding and Japan Dividend Tax, with a Tax Credit for Tax withheld in Aus

In Aus, as a non-resident for tax purposes, you can claim reduced rates of Withholding on various types of income in Australia under the Japan Australia Tax Treaty.

The Text of the Japan - Australia Tax Treaty is here
https://www.mof.go.jp/tax_policy/summar ... 00131b.pdf

Article 10 - Dividends
According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you should be able to claim a reduced amount of Withholding Tax on Dividend Income in Australia of 10%, instead of the standard 30%.

These sites in Aus refer:

https://www.ato.gov.au/business/payg-wi ... ts/?page=5

https://www.ato.gov.au/individuals/work ... variations

https://www.ato.gov.au/Forms/PAYG-withh ... plication/

You should submit PAYG Withholding Variation Application (Online or Paper NAT 2036) every year to reduce the amount of any pay as you go (PAYG) tax withheld from income paid to you in the application year, and the payer (Aus Broker, etc.) can't vary the withholding rate until they receive an official variation notice from the ATO. You can submit the application in April for the following Tax Year starting in July.

The Gross Dividends will then be subject to Japan Taxes, either as Aggregate Income, taxed at your Marginal National and Reconstruction Tax Rates and 10% Residents' Taxes (Kakutei Shinkoku Form B Pages 1&2), or Separate Method Dividend Taxes at 15% National, 0.315% Reconstruction, and 5% Residents' Taxes (Kakutei Shinkoku Form B Pages 1&2 and Page 3 第三表).
You can then take the 10% withheld in Aus as a Foreign Tax Credit (Kakutei Shinkoku Form B Pages 1 Item 46)

[Deep Blue]

I’m also seeking this information. I hold a number of UK mutual funds (OEIC’s) in the UK, all accumulation units so no dividends are distributed to me - they are used to buy additional units automatically.

I am assuming no tax is levied here in Japan on this but I have not found any confirmation.