RetireJapan

hi all

I thinking to put more focus on building a passive income from dividends over the next few years.

One way to achieve this would be to invest in a US dividend fund like SPDR Portfolio S&P 500 High Dividend ETF (SPYD) via my Monex account.
To me this would be the simplest way.

Or i could split between investing in a fund like the above + invest in individual Japanese stocks with a good history of dividends.
Which would take a bit more effort in selecting which companies to invest in.

What would be the demerit of going with the first option and just invest in a US fund - outside of the potential exchange rate risks?

appreciate if anyone has any thoughts on this. thanks.

Taxes are slightly higher. 30% for US stocks/dividend funds vs 20% for Japanese dividends.

Depends what you want to do with the dividends, I guess.

I've been investing in US and Japanese dividend stocks for a while. My eventual goal is to get 1.2m yen (net) annually from dividends to boost our retirement income.

In the meantime I use the dividends to buy more stocks.

Another intermediary goal would be to get to 400,000 yen a year in dividends from Japanese companies, so that I could fund tsumitate NISA automatically within my acccount. I would like to do this for both my wife and me.

One advantage of US stocks is that you can buy them in single units, as opposed to Japanese stocks which often require lots of at least 100 or 1,000. A disadvantage is the 10% extra withholding tax from the US (although you can largely claim this back from Japanese taxes). If held in ordinary NISA, you can't claim this tax back.

There is also the hassle of having to change dollars from dividends to yen in order to spend them in Japan.

And at the end of the day, dividends are less tax-efficient than just buying mutual funds that reinvest dividends internally. They are kind of fun though, which makes up for that, at least to me

RetireJapan wrote: ↑Sun Oct 17, 2021 5:35 am A disadvantage is the 10% extra withholding tax from the US (although you can largely claim this back from Japanese taxes).

Thanks for the reminder. I really need to get this sorted out. I guess it's not possible via nenmatsu chousei.

adamu wrote: ↑Sun Oct 17, 2021 8:14 am
Thanks for the reminder. I really need to get this sorted out. I guess it's not possible via nenmatsu chousei.

Kakutei shinkoku.

Instead of individual Japanese stocks you could buy Japanese high dividend ETFs or REIT ETFs. There's a list here.

As a non-US citizen, you need to fill out the US Form W8-BEN and file with your broker to claim the 10% Withholding in the US, under Article 10-2(b) of the Japan US Tax Treaty. Search one of my posts with 'W8-BEN'...

Then you need to file the Dividend Income Gross - Kakutei Shinkoku Form B
You need to select Separate Taxation Method - Page 3 of the Form B, and this will populate to Page 1.
Then they'll charge you 15% National Tax, and the 0.315% Reconstruction Tax.

Then when you receive your US Form 1042-S Statement of Tax Withheld from your broker in April, you need to revisit your Kakutei Shinkoku and enter the value of the 10% Tax Withheld in the US from the Form 1042-S into the Foreign Tax Credit Box - Form B - Page 2 - Item 146
Then they'll only need to charge you the additional 5% National Tax, and the 0.315% Reconstruction Tax, so they will refund 10%.
Then they'll charge you the additional 5% Residential Tax in the next year's Residential Tax assessment.
So you'll end up paying a total 10.315% in Japan (and the 10% in the US).

The Aggregate Tax Method Dividend Tax Allowance does not apply to Overseas Dividends, so this really doesn't apply, but if you total income from all sources is less than about Y3M (maybe after retirement) it may be better to file under the Aggregate Tax Method (If X% National + 2.1% x X% Reconstruction + 10% Residential Taxes is less than the 20.315% total tax under the Separate Taxation Method).

Nenmatsu Chosei only applies to Employment Income.

Tkydon wrote: ↑Sun Oct 17, 2021 2:49 pm As a non-US citizen, you need to fill out the US Form W8-BEN and file with your broker to claim the 10% Withholding in the US, under Article 10-2(b) of the Japan US Tax Treaty. Search one of my posts with 'W8-BEN'...

Is this necessary in Japan? I remember filling these in for brokers overseas (to get a 20% withholding rate instead of 30%), but don't remember doing it here. To be fair it was a long time ago, but it may be automatically applied by Japanese brokers...

Tkydon wrote: ↑Sun Oct 17, 2021 2:49 pm Then when you receive your US Form 1042-S Statement of Tax Withheld from your broker in April, you need to revisit your Kakutei Shinkoku and enter the value of the 10% Tax Withheld in the US from the Form 1042-S into the Foreign Tax Credit Box - Form B - Page 2 - Item 146

For a non-US citizen, they are probably going to be using a Japanese broker. Don't think I have ever received US paperwork -surely you would just use the statements from your Japanese broker for this?

Thanks for the comments everyone.

The 10% withholding tax on US funds is something i will check with my tax accountant on.
I already have some funds that I have been paying this on however the amount has been relatively small.

Will also check out that list of Japan dividend funds.
I remember seeing a youtube video on the リベラルアーツ大学 channel that mentioned unlike the US, Japan did not have a good range of funds for dividends. I accepted that at face value without really checking. For me that would be much more preferable that having to select and manage my own portfolio.

The goal for me is to "semi-retire" in a few years and generate passive income that can go into paying basic living expenses.

tamaplanian wrote: ↑Tue Oct 19, 2021 1:04 am Will also check out that list of Japan dividend funds.
I remember seeing a youtube video on the リベラルアーツ大学 channel that mentioned unlike the US, Japan did not have a good range of funds for dividends. I accepted that at face value without really checking. For me that would be much more preferable that having to select and manage my own portfolio.

The list I linked to is for all themed ETFs. The actual number of dividend funds is pretty small, but they are out there. My wife has some of the ishares one (1478).