Taxes on Dividends & Capital Gains…

[TimVest21]

Hi all,
Quick question…do capital gains and/or dividends from stocks in taxable accounts have an impact on things like local tax, kokumin hoken, income tax, etc. or is it limited to the 20.315% tax on stock market investments?
Take care,
Tim

[adamu]

Not normally.

But if you declare it on the tax return, which is optional, it does affect some things, like income-based pension/insurance bands etc.

[Tkydon]

Hi all,
Quick question…do capital gains and/or dividends from stocks in taxable accounts have an impact on things like local tax, kokumin hoken, income tax, etc. or is it limited to the 20.315% tax on stock market investments?
Take care,
Tim

The Short Answer is Yes.


It is not as simple as "20.315% tax on stock market investments".

These are all categorized as Income, and that 20.315% already includes National, Reconstruction and Residents' Taxes.

Realised Capital Gains (on sale of assets) are taxed at the fixed Capital Gains Tax Rate of 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes). If in a Tokutei Account, they will withhold the tax. If in a Regular Account, you would need to file a Tax Return - Kakutei Shinkoku to declare the Capital Gains Income and pay the taxes.

Unrealised Capital Gains (no sale of assets) are not subject to taxation, as there is no taxable event.

Dividends in taxable accounts, whether Tokutei or Regular Accounts, may be subject to Withholding Tax of 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes). If they are not subject to Withholding, you would need to file a Tax Return - Kakutei Shinkoku to declare the income and pay the taxes.

There are two options that you can select for taxation of Dividends:

1. You can select to have dividends taxed under the Separate Taxation Method at the Flat Dividend Taxation Rate of 20.315% (15% National, 0.315% Reconstruction, and 5% Residents' Taxes), in which case you don't need to do anything if the taxes were already withheld. If they are not subject to Withholding, you would need to file a Tax Return - Kakutei Shinkoku to declare the income and pay the taxes.
This Separate Taxation Method is the more advantageous Taxation Rate if your Total Taxable Income after all Allowances and Deductions is greater than about Y3M if you receive Foreign Dividends, or about double that, Total Taxable Income after all Allowances and Deductions greater than about Y6M if you receive Dividends from Japanese Companies.

or

2. You can select to have dividends taxed under the Aggregate Taxation Method, at your Marginal Income Tax Rate, in which case you would need to file a Tax Return - Kakutei Shinkoku, either to declare the Dividend Income, or to claim the lower tax rate and a tax refund of taxes withheld.
This is the more advantageous Taxation Rate if your Total Taxable Income after all Allowances and Deductions is less than about Y3M if you receive Foreign Dividends, or about double that, Total Taxable Income after all Allowances and Deductions less than about Y6M if you receive dividends from Japanese Companies.

For Total Taxable Income after all Deductions and Allowances less than about Y1.95M, the Marginal Tax Rate of 15.105% (5% National, 0.105% Reconstruction, and 10% Residents' Taxes) or 10.105% (5% National, 0.105% Reconstruction, and 5% Separate Method Residents' Taxes) is less than the 20.315% Withholding Dividend Taxation Rate. You should file a Kakutei Shinkoku, either to declare the Dividend Income, or for a refund of taxes withheld.

For Total Taxable Income after all Deductions and Allowances less than about Y3.3M, the Marginal Tax Rate of 20.21% (10% National, 0.21% Reconstruction, and 10% Residents' Taxes) or 15.21% (10% National, 0.21% Reconstruction, and 5% Separate Method Residents' Taxes) is less than the 20.315% Withholding Dividend Taxation Rate. You should file a Kakutei Shinkoku, either to declare the Dividend Income, or for a refund of taxes withheld.

Dividends paid by Japanese Companies are eligible for the Japanese Dividend Credit of 5% of the Dividends if under Y10M, or 10% of the Dividends if over Y10M, which would compensate somewhat for the next levels of Marginal Tax Rate, 30.42% (20% National, 0.42% Reconstruction, and 10% Residents' Taxes) or 25.42% (20% National, 0.42% Reconstruction, and 5% Separate Method Residents' Taxes), and 33.483% (23% National, 0.483% Reconstruction, and 10% Residents' Taxes) or 28.483% (23% National, 0.483% Reconstruction, and 5% Separate Method Residents' Taxes), again bringing the taxation on the Dividends paid by Japanese Companies below the 20.315% Withholding Dividend Taxation Rate. You should file a Kakutei Shinkoku, either to declare the Dividend Income, or for a refund of taxes withheld.

The Japanese Dividend Credit does not apply to Foreign Dividends, hence the lower income threshold for switching from the Aggregate Taxation Method to the Separate Taxation Method.

Foreign Stock Dividends are probably subject to Withholding Tax in the country of Listing, and you can claim a Foreign Tax Credit for the taxes paid overseas, subject to limitations documented in the Tax Treaty between Japan and the country of Listing.
However, you may not be able to claim full Foreign Tax Credits for Dividends paid out through a Foreign ETF or Mutual Fund.

You should do the actual calculations for your case to determine your actual threshold between the Aggregate Taxation Method and Separate Taxation Method, based on your sources of dividends, other sources of Income, and all Deductions and Allowances.

The National and Reconstruction Taxes will be payable either through withholding or in the following April (2025) after Tax Filing.
The Residents' Taxes will be payable either through withholding or incorporated into you Residents' Tax Payments from the following July (2025) through to June of the year after that (2026).

If you are on National Health Insurance, Kokumin Kenkou Hoken, the Premiums in the following year will be based on your final reported Total Taxable Income, including the Capital Gain and Dividend Income, with the Household Income Related Portion of the Premiums calculated accordingly (around 11% of Total Taxable Income below the Premium Caps), divided into 10 payments payable from the following May (2025) through to February of the year after that (2026).


Please correct if I made any mistakes...

[Seasider4374]

Thanks to the OP for the question as I'm in a similar position - first year recieving dividends - and so was about to write a similiar query...
But HUGE thanks to

For such an expansive and detailed answer! A great help to some of the queries I have floating around in the back of my mind, and so many thanks!

[TimVest21]

Wow!! Thank you very much

[TimVest21]

Thank you all for your replies/comments, much appreciated.
Happy new year to all and a toast to prosperity