Options for US citizens in Japan

[randomguyinjapan]

Thank you! I just tried to change the address to Japan through their website but it said I need to call. Hopefully it doesn’t require too many forms to change it.

[randomguyinjapan]

4. I use the December 31 statement from my US brokerage firms to show what the end-of-year account value is on the asset form the Japanese authorities want, and the 1099 form to show dividends and capital losses/gains.

Tokyowart,

What tax rate do you have to pay to Japanese authorities on capital gains you made in your US brokerage? Is it double-taxed from the US and Japan? Does the tax rate from Japan change for these trades if they are short term versus long term?

Thanks!

[TokyoWart]

4. I use the December 31 statement from my US brokerage firms to show what the end-of-year account value is on the asset form the Japanese authorities want, and the 1099 form to show dividends and capital losses/gains.

Tokyowart,

What tax rate do you have to pay to Japanese authorities on capital gains you made in your US brokerage? Is it double-taxed from the US and Japan? Does the tax rate from Japan change for these trades if they are short term versus long term?

Thanks!

There is no difference between short and long term capital gains in Japan and dividends and capital gains get the same tax treatment. You will have to pay roughly 10% tax on your US dividends when filing your national taxes and then you'll be charged around 5% for local taxes over the following year on that amount. I basically never sell stocks except to tax loss harvest so I can only give you figures for my dividend experience for 2019 to show you how it works out on your tax forms:

9,731,047 yen in dividends from the US
1,459,650 tax applied to those dividends
502,000 yen in foreign tax credit due to those dividends so the net tax added was really 957,650 yen
equivalent to a 9.8% tax rate

The numbers don't work out the same each year because of how they calculate the foreign tax credit. There is also an additional 2.1% added to that tax amount for the recovery tax for the Tohoku earthquake (I mean (added 2.1%) x 957,650 = 977,760 yen in tax).
Throughout that Japan ignores the actual taxes you have paid in the US on those dividends. It is assuming a 10% tax rate per the tax treaty. My actual tax rate is around 24% on long term capital gains or qualified dividends for the US so there is a lot of double taxation here, but if you are in the 0% US tax bracket for dividends and capital gains you've avoided that added tax.

[captainspoke]

...
There is no difference between short and long term capital gains in Japan and dividends and capital gains get the same tax treatment. You will have to pay roughly 10% tax on your US dividends when filing your national taxes and then you'll be charged around 5% for local taxes over the following year on that amount. ...

The first sentence there, okay--that's been my understanding/experience.

But then the second sentence... (and the the numbers that follow below that). I've pulled my japanese tax return for 2019 and have been trying to find where national tax on dividends/配当金 might be listed. I can't.

On the first page, about halfway down on line 5 my dividends (all US) are properly listed (2,914,692), and that figure appears in a few other places on the following pages of the form. But when tax figures appear, that dividend figure is rolled in with other positive items, such as pensions, capital gains, other income, etc., so finding a specific percentage for my dividend figure seems impossible (as the numbers are listed). So first, no specific tax on dividends is specified on my return--or am I missing something?

Actually, the 10% that you've used surprised me since I thought it was more, which is why I went looking for confirmation--wondering if I'd been wrong, or if that was a typo in your post? (Leaving the local tax out of this.)

For example, the KPMG guide lists withholding rates of just over 15/20% (p. 16), but I think that relates to a Japan-domiciled account. Later (p. 24), it gives a lower 10% treaty rate percentages for US dividends (and qualified divs), but that table is headed up (p. 17) by the 15/20% figures.

**

I guess I had thought dividends were taxed at the ~20% rate, but that that was the effective rate after local taxes had been added on. I'm now confused, perhaps also a little embarrassed that I don't know what I thought I did.


Can anyone offer any clarity? (thanks in advance)

[TokyoWart]

captainspoke

This gets complicated and I don’t completely understand the system but there are basically two ways of reporting investing income. One is on page 1 of your return on line 5 配当 under 所得金額. My accountants don’t use that field at all (it’s always blank) and instead on the page 第三表 report under “separate taxation” (分離課税). The actual amounts of dividends are entered under lines テ, 66 and 77 (for my form all of those entries are exactly the same and amount to the US dividends) then line 82 gives the tax based on the entry on line 77 and that is added to the tax for other income to give total tax on line 86 which then goes back on line 27 of the first page of the tax return (you might notice that line refers to 第三表) and becomes the total amount before deductions for foreign tax credit. At that point the tax is close to 15%.

The tax treaty recognition of dividend taxes is all on the foreign tax credit page “外国税額控除に関する明細書”. In the first table on that page the foreign dividends are entered along with 10% of the amount as the foreign tax that’s recognized. On the next page of the form there is a calculation of the actual credit under 所得税の控除限度額の計算 and as that name implies there is a limit which varies for me each year based on other foreign taxes. Last year the part of the credit due to dividend taxes was close to 5%. The final amount calculated here is going on line 43 of the first page of the tax form as a negative number.

Why are these numbers “close to” and not exactly 15% or 5%? One factor is that some of the dividends in the US account are being taxed by other countries based on the securities in my account (e.g. France taxing dividends from Sanofi and Accenture, Germany taxing Bayer, various countries taking their cuts from a Vanguard ETF like VWO or VSS) and the 1099 form which is giving the dividends paid includes the amount before those taxes have been paid but also shows the amount paid in foreign taxes. Those numbers are getting deducted somehow as well but don't seem to help the tax credit.

[mule96]

One is on page 1 of your return on line 5 配当 under 所得金額. My accountants don’t use that field at all (it’s always blank) and instead on the page 第三表 report under “separate taxation” (分離課税).

My understanding is, that under 5, you would pay the normal income tax rate (which can become way higher than 20%. While the other option (分離課税) lets you apply the tax rate for capital gains/dividends which is roughly 20%. So basically if you income tax rate is below 20%, it makes sense to declare dividends as income. But if you have a higher income tax rate, you choose the separate way (分離課税). The Japanese e-tax site guides through the process, if you do it by yourself you can fill in both versions and look at the endresult.

[captainspoke]

Thanks for the answers and things to think about. And since this thread is "options for US citizens in japan", I guess I should opt to use an accountant instead of going to the tax office myself...?

[mule96]

What I did is that I used a tax-accountant to understand what has to be filled in, and since then I do it by myself again. If I would have a new thing, I would go to a professional again. But once you get a little bit the hang of using the website, it is quite straight forward.

[randomguyinjapan]

Thank you! I just tried to change the address to Japan through their website but it said I need to call. Hopefully it doesn’t require too many forms to change it.

Just to provide an update, I was able to get them to change my address through TD Ameritrade's chat service. I requested a live agent and they were able to change my address on my account to a Japanese address. It was very fast. I tried calling first and there was a 1.5 hour hold time. I read somewhere else on the web that someone tried opening a TD Ameritrade account from Japan and was denied sometime in 2020, so I recommend people try to make the account before they move to Japan.

[vapid]

I have a Schwab and Fidelity account, both of which I was able to open after I had already been living in Japan for 5 years (circa 2016-2017). Usually, you cannot do this, but since I still have a valid US driver's license and therefore 'residence' in my home state (ie my parent's house), they didn't have a problem in either case.

In addition, I have been able to open a Robinhood and M1 Finance account from Japan (also just using US driver's license as the ID format). I have never looked into WeBull or some of the other investment/fintech tools.

I personally just use Schwab and Robinhood; the Schwab debit card is great, and I also have the 2 Schwab credit cards (Amex Platinum version and the free version). The Platinum card was much more valuable back when I was flying every month for work, using the hotel credits, etc ... now not so much. But I keep it since any Amex points I earn can be converted in cash at a 1.25% rate.

Overall, highly recommend Schwab for the investment level or long term trader. Robinhood is more of a fad (maybe?) - but I enjoy it for option trading purposes.

Related to taxes, I also find dividends to be around 10% too.

Here in Japan, I do have a Rakuten Securities account since I was planning on using their Rakuten point to investment feature, except it only seems to work on mutual funds (for fractional purposes) or for full domestic stock. I had hoped to buy the S&P 500 (1557 is the code to find it in Rakuten). But I don't have 36,050 points to buy one share.