RetireJapan

adamu wrote: ↑Fri Mar 09, 2018 12:26 am Just taking a look at some dividend statements for VT. This is what seems to happen (havn't read the previous Japanese post yet, maybe this is already explained there):

Taxable account: 10% US withholding tax deducted. Then ~20% Japanese withholding tax deducted from the remaining balance. (the ~20% seems to float up and down depending on the dividend, I'm not sure why).
NISA: 10% US witholding tax only.

Wow, that's more tax than I expected. I don't know where I got the idea that only 10% Japanese tax was deducted. It appears the formula is (dividend - 10% US - ~20% JP) = ~28% tax on dividends.

So now I see where the rebate comes in. You ask Japan to give you back the ~8% due to having been double-taxed by two states.

anjin wrote: ↑Sun Mar 18, 2018 3:37 am Ah I didn't realise the discount brokers don't have European exchanges, you're probably right about not enough demand. Yep, Interactive Brokers is where I buy them.

Adding to this: I found out that US withholding tax is ordinarily 30% for non-US residents, lowered to 10% due to a US-Japan tax-treaty. I don't know how the treaties work in Singapore etc. but it looks like the the double US/Japan tax is not actually higher than it would be if you had to pay the 30% rate due to holding in a country that doesn't have a tax treaty with the US. Holding in a tax-protected account in Japan could even be better because only the 10% US rate and no Japanese tax is charged in that case. Still not sure how the rebate works though.

adamu wrote: ↑Mon Apr 23, 2018 1:57 pm Maybe RetireJapan can recruit jcc to summarise it all in a guest post for us. He seems to know what he's talking about.

I've been meaning to gather up my various over-sized posts(which for the most part are just translating and/or summarizing japanese blogs) but haven't gotten around to it yet :/

The biggest issue is that in a lot of cases things are pretty close, so it's hard to come up with general rules. Like using a japanese fund over a US ETF may lose in the short term but come out ahead in the long term due to the advantages of deferring the taxes on dividends(because the fund internally reinvests so for Japanese purposes it's treated as capital gains).

There's certainly some truth to Ben's statement a few pages back that(paraphrasing) "so long as you've got the right gist it's all good". If you're putting your money into low cost funds/etfs, using tax advantaged accounts as much as possible the actual difference is pretty minor ( see for example my comparison of VT ETF with Japanese tawara: in a fully taxable fund with 4/2 growth/dividends the difference is under 1% after 30 years! That's the total difference, not annual. It can be bigger as the dividends rates shift but it's not a big difference). Personally I'm just using low-cost Japanese funds because a) they're competing hard with each other on rates b) no exchange hassles c) no hassle with reinvesting dividends. Honestly, I would really like to throw a bit of pure VOO in there(which is clearly the best for pure US investing) but it would really make a mess of trying to stick to my diversification allocation(afaik there's no ex-us world funds out there?).

This thread gets linked from time to time so I'm just going to post a summary of the results(skipping the reasoning which can be found in the long posts)

For all japanese funds, either use morningstar or http://shintaro-money.com/index-cost/ to find the real calculated costs.

Lately eMaxis have slashed costs and seem very good, but tawara, nissei and others offer very competitive rates too.

Investing in total world:

Use a japanese fund that is NOT a fund of international etfs(e.g. if it is packaging VT inside it that's no good). This is to avoid triple taxation. Nissei or tawara or whatever is fine. Generally these track MSCI kokusai ex. japan so if you want real world coverage you should buy up a japanese fund separately. eMaxis slim works here

Investing in US:

Best option is probably buying straight up VOO or similar. Whether you use a US ETF or japanese fund, you'll be taxed twice, and vanguard has lower costs.

If you can't buy VOO(broker doesn't have it or for iDeco), whatever lowest cost fund you can find will work(fund-of-funds are fine here). For rakuten iDeco the rakuten-voo option would be acceptable. For SBI I believe the equivalent is the i-exe offering(?)

Investing in japan:

Lowest cost domestic fund you can find. Tawara is good

Investing in emerging markets:

again lowest cost domestic. AVOID fund-of-international-funds(e.g. stuff like vanguard emerging markets) which will get triple taxed. eMaxis slim is good


ETF vs traditional funds:

Many low cost index funds reinvest dividends internally. This means they generate zero dividends but their value increases instead. This means you get to effectively defer taxation until you sell. With compounding this means that funds that are somewhat more expensive than ETFs will still come out ahead of the ETF if you are holding for a long time(talking at least 5+ years here, generally decades), making them better for buy and hold strategies. Really, if your holding horizon is years, you should probably be using ETF's, if it's decades, traditional funds.

Additionally, using funds instead of ETF's allows you to "expand" your tax free bracket inside your nisa/iDeco accounts.


If I missed anything important I'll try to update it here.

Finally, I'm in no way a professional, this is all just what I figured out from research, translating blogs etc. I can't take responsibility for any losses from this advice, but my personal investments are entirely in line with it

Fantastic! Thanks jcc

jcc wrote: ↑Tue Jun 05, 2018 6:07 am Use a japanese fund that is NOT a fund of international etfs(e.g. if it is packaging VT inside it that's no good). This is to avoid triple taxation. Nissei or tawara or whatever is fine. Generally these track MSCI kokusai ex. japan so if you want real world coverage you should buy up a japanese fund separately. eMaxis slim works here

Although that seems to be the most sensible solution, if you want a single fund that includes Japan, the SBI or Rakuten US ETF wrappers are the only options. Maybe I'm being too dogmatic to stick to that rule but I don't want to have to keep track of the Japan asset allocation.

Thanks for the summary, jcc! I've read through the entire thread before but a lot of points that I couldn't really grasp, particularly the triple tax bit.

One question. Are the Tawara funds limited to Rakuten or something? I don't see them on SBI besides a whole bunch named Ｏｎｅ－たわらノーロード like these

- https://site0.sbisec.co.jp/marble/fund/ ... rch_result

adamu wrote: ↑Tue Jun 05, 2018 12:48 pm

jcc wrote: ↑Tue Jun 05, 2018 6:07 am Use a japanese fund that is NOT a fund of international etfs(e.g. if it is packaging VT inside it that's no good). This is to avoid triple taxation. Nissei or tawara or whatever is fine. Generally these track MSCI kokusai ex. japan so if you want real world coverage you should buy up a japanese fund separately. eMaxis slim works here

Although that seems to be the most sensible solution, if you want a single fund that includes Japan, the SBI or Rakuten US ETF wrappers are the only options. Maybe I'm being too dogmatic to stick to that rule but I don't want to have to keep track of the Japan asset allocation.

You're right those are the only options as far as I'm aware. The US taking a slice out of all your non-us holdings in between hurts, but VT is ~50% US so it's actually only about half the portfolio that gets triple taxed, so it's not *that* bad and it does simplify stuff. Personally I wanted a larger allocation in japan anyway(currency risk safety) so I was happy enough to have my JP stocks separate from US, but that's going to be a personal decision.

Jansen wrote: ↑Tue Jun 05, 2018 1:38 pm Thanks for the summary, jcc! I've read through the entire thread before but a lot of points that I couldn't really grasp, particularly the triple tax bit.

One question. Are the Tawara funds limited to Rakuten or something? I don't see them on SBI besides a whole bunch named Ｏｎｅ－たわらノーロード like these

- https://site0.sbisec.co.jp/marble/fund/ ... rch_result

It's easiest to demonstrate triple tax with an example. Let's say you buy VT.

For a share of BNP inside VT, it generates dividends. These get taxed by France because VT is based in the US and France wants its tax money.
VT itself then generates dividends. Since VT is based in the US the US wants its share
Finally the dividends go to you in japan but of course japan wants its cut too. Boom, you've now payed tax on dividends three times.

BUT for the microsoft shares inside VT(which are US domiciled) the US wont tax dividends twice(the tax code is smart/fair enough) so that part of the VT portfolio gets taxed once in the US once in japan.

Since no part of emerging markets is US domiciled those will get fully triple taxed which is why I'd strongly avoid rakuten-vanguard emerging markets wrappers and the like.

The reason why I recommend VOO if you want S&P500 or similar is that everything in it is already in the US so it all just gets taxed once in the US and once in Japan(which is the exact same as would happen if you used a domestic fund but with lower costs).

Finally the reason I discourage domestic fund-of-funds is that inside them they just have have US ETF's and as a result suffer from the same triple taxation that buying those ETF's directly would result in.

I don't know about SBI as I personally use rakuten. Even if they don't have tawara they should have something else very close in cost from nissei/emaxis slim or similar

That makes everything so much clearer! Thanks jcc!

SBI has Asset Management One’s Tawara fund lineup

https://site0.sbisec.co.jp/marble/fund/ ... 2%ED%82%E7