Questions regarding investing in Japan or US for US citizens / GC holders

[Teru]

I am a US citizen with JP permanent residence married to a JP national with a Green Card. We are in our early 60s and are looking at a 5- to 10-year time frame. We pay taxes in JP and file US returns. I’d like to summarize what I think I know with regard to future investment as pertains to our case. I’d greatly appreciate comments / revisions / confirmation / recommendations.

1. NISA is not appropriate for us due partly to age (?) and with respect to tax reporting / payment. From what I understand, for US citizens / GC holders, the paperwork and tax liability are complicated, and the benefits outweigh the hassle. I assume that both JP and US reporting are necessary; are taxes due both places? What is the most messy part of this? Is it the reporting or the payment?
2. For the same reasons, Japanese mutual funds toshi shintaku are also not advisable for us. Same for ETFs. Are the same ramifications of NISA applicable to mutual funds?
3. For investing in Japan, does this mean that we should focus on single stocks of JP enterprises? Should we handle these accounts ourselves or is there a company we should engage to help? We have a Rakuten shoken account, bank account, credit cards.
4. I have seen RJ members using US brokers—International Brokers, TD Ameritrade, Vangard—to buy mutual funds in Japan. Does doing so bypass the complications of purchasing mutual funds for a US person in Japan? I guess that these products and fees are paid from US funds?
5. Switching gears to investing in the US: A couple of years ago, we received some money and opened a Wells Fargo account. They accepted a PO Box address for our checking account but could not help with purchase of a mutual fund because we had no “physical address” in the US. If we can find a US broker that will help us with only a JP address (as mentioned in other posts: International Brokers, TD Ameritrade / Vangard, other?), would we be better off purchasing US products (mutual funds / individual stocks?) and refrain from investing in JP? (This is what I can gather from the post from “captainspoke” on April 7, 2020 under “More dumb investment questions for Americans.” That post is extremely valuable; thank you very much. I am afraid that I am repeating some things here, but I’d be grateful to be re-directed or to be told I’m on the right track.)
6. The problem with not investing in Japan is that we have yen that needs a place to go. I understand that investing in the US market means that we have report for US taxes; what form does reporting take for Japanese taxes? Without other ideas at the moment, we have found “campaign” accounts like this: https://www.jibunbank.co.jp/products/ye ... id=tplistu at “au jibun ginko” where, after one year, the account receives a “present” of 15,000 yen. What do you all think of this? Are there others that are better?

Thank you for reading this long missive and for any information or advice.

[RetireJapan]

I am not a US citizen and thankfully do not have to deal with the IRS beyond them stealing my dividends and royalties

But I think some of what you write is not quite true:

NISA does not have an age restriction, iDeCo does. NISA can be used by US citizens, but is not recognised at tax-free by the US.
You have to declare taxes in both Japan and US.
The main problems in terms of investing in Japan: you can't buy Japan-listed mutual funds or ETFs (well, you can, but the IRS paperwork is soul-destroying). Many brokers won't let you buy US-listed shares? So you might be stuck with individual Japanese stocks.

All of these problems are caused by the IRS and the insistence on taxing non-resident citizens.

If you invest in the US with a US broker, your IRS paperwork will be smoother and reporting in Japan is fairly simple.
I believe you can't buy US mutual funds as a non-resident, but ETFs do a similar job and you can buy those.

Anyone else?

[captainspoke]

First, thanks for the compliment, but keep in mind that I'm just some guy on the internet, not a tax/investment pro!

4. I have seen RJ members using US brokers—International Brokers, TD Ameritrade, Vangard—to buy mutual funds in Japan. Does doing so bypass the complications of purchasing mutual funds for a US person in Japan? I guess that these products and fees are paid from US funds?

To my knowledge, US expats (and green card holders) cannot buy mutual funds, or maybe it would be better to say that financial orgs are not supposed to sell them to non-residents. (Result: your WFC situation with the PO box--and they cannot assure themselves that you are a US resident.) There is some arcane rule/law to that effect from the late 1940s that has come into play in the last ~20yrs or so. Earlier, and it wasn't really enforced, and you could buy mutual funds as an expat. But then, 9/11 and all the changes that followed (and some things are continuing to evolve), and along the way ETFs were introduced and became popular. Bottom line is that you should now switch your thinking to "buy ETFs" rather than 'buy mutual funds'. The important point is that ETFs are allowed--they can be sold to non-residents. (Some US brokers will allow you to continue to hold mutual funds that you bought before you left, but not add to them.)

If we can find a US broker that will help us with only a JP address (as mentioned in other posts: International Brokers, TD Ameritrade / Vangard, other?), would we be better off purchasing US products (ETFs / individual stocks?) and refrain from investing in JP?

Yes, this is what I'd suggest, and I think this is what you'll end up with. (It's what I do, and I think some other US people here.) I think IB and TD ameritrade will open an account for a US expat, but I think Vanguard won't, so unless you already have a vanguard acct I think you're out of luck there.

6. The problem with not investing in Japan is that we have yen that needs a place to go. I understand that investing in the US market means that we have report for US taxes; what form does reporting take for Japanese taxes?

As a US citizen (and I think as long as someone retains a green card) you are required to file/report your worldwide income, dividends, capital gains, interest for..., well, forever! (And someone will have to file a final tax return for you after your death.) Even US residents have to declare their world income, but most don't have any, so it doesn't come up.

So, you'll have to convert your yen to US$, send it off, and buy ETFs or stocks, or something listed on US markets. On the plus side, you then have the SEC (and US laws and accounting standards) as referee for your investing. On the negative, you'll lose some fractions on currency exchange.

Another plus is that for your US taxes, with a US broker you'll get 1099s and so on, making it easy to file there. I use turbotax, and that software allows me to log in to my broker and that relevant data (gains/losses, dividends, interest, etc) to flow correctly into my turbotax return in about 15-20 seconds. Totally painless, and accurately done. The downside is that prepping the same stuff for reporting that here in japan will not be painless. It's not too hard, a couple spreadsheets to keep track, and it depends a little on how much activity you have (how much trading you do). One of the quirks is that for anything paid (or bought), you need to convert the US$ for that to yen on the date(s) concerned. A little tedious to do sometimes, but I try to update my sheets every month or few rather than leaving it all for tax season. (I find that this is actually helpful--it keeps what you own and what's happening right there in front of you, rather than 'out of sight, out of mind'. ((Sometimes I embarrass myself by what I've done, but thankfully I don't have to reveal that to the world. )))

And RJ says: All of these problems are caused by the IRS and the insistence on taxing non-resident citizens.

While the IRS is one aspect, I think it's the Dept of the Treasury (and Homeland Security) that are the powers behind the IRS.

Connected to this, you should look up/google "FBAR" and do that report, too. It's much easier than a tax return, you do it online (and get a confirmation), but as you will read, it's an important thing to do.

[Teru]

Thank you both for replies. Tomorrow we will discuss them and try to get on track.

[bushidobryan]

You post probably requires some discussion in more detail.
Generally I would say you are better off investing in the USA and not Japan.
Try Charles Schwab or even Vanguard. Wells Fargo I find does not generally give great guidance.

[Teru]

Ohisashi buri. I thought I should follow up with our findings.

Of Schwab, TD Ameritrade, and Interactive Brokers, only IB let me open an account with a Japanese address.
But at least I could open one account. After I filled out an application form, sent in photo id images and address verification by email, I waited about 10 days before receiving notice of approval by email. While waiting, it is possible to fund the account. I'd like to thank Ben, captainspoke, and bushidobryan for your advice. I'll be reading the forum and looking for your posts on other topics from now on.★

[RetireJapan]

I thought I should follow up with our findings.

Thanks for the update! It should prove useful for others