RetireJapan

Hello, I’m a complete newbie and would really appreciate any help you can give about investing and tax filings in Japan.

I’m looking to invest in ETFs for retirement/nest egg.

Some details-
Aged 35, British, resident in Japan for tax purposes.
Plan to spend the next 5 years here- hope to retire in Europe.
Have initial lump sum of around ¥1 million to invest -to be added to each year.
Would like to invest passively-leave it alone for 10 years min.
No other assets/pensions etc except state.
I pay tax directly through my employer.
Next to no Japanese ability-but can navigate Rakuten website with Chrome translator.
Possible portfolio: 34 %Global ETF, 33 % UK ETFS 33 %Bonds

Questions:

OPTION 1:make use of a NISA using Rakuten to buy ETFs.


1. What are the tax implications of buying ETFs from Rakuten? Most ETFs on Rakuten seem to be sold on U.S stock exchanges, so does that mean I would be subject to U.S and Japanese taxes?

2. Would I be liable to American Estate tax if I bought ETFs on American stock exchanges through Rakuten? Does that tax only apply if you have $60,000 amount in your account when you die? So, if you close your account and move your money abroad would U.S govt still tax you?

3. What do I have to do with respect to paying tax on dividends? Do I have to declare them to the Japanese government? Or does Rakuten do that?

4. Have you found any ETFs on Rakuten that are sold on EU or London stock exchanges?

With that in mind:
OPTION 2
Would it be better to open an Interactive Brokers account in the U.S and buy EFTs on the LSE?
However if I do this:

5) Is there a minimum amount you can earn in dividends/capital gains before you have to report to Japanese government?
6) How would I report this income? Is it straight forward? (Bearing in mind I don’t have any Japanese ability.) I don’t have vast sums of money but would hiring a tax accountant be needed?


If you were in my shoes what would you recommend?

Thank you!

Plan to spend the next 5 years here- hope to retire in Europe.

Your investing options might be better in your native country. The only advantage of the NISA wrapper on your investments in Japan is not having to pay taxes on dividends and capital gains. On balance my US-based investments have done much better than even similar funds I own through brokerages in Japan.

2. Would I be liable to American Estate tax if I bought ETFs on American stock exchanges through Rakuten? Does that tax only apply if you have $60,000 amount in your account when you die? So, if you close your account and move your money abroad would U.S govt still tax you?

US estate taxes start for estates of over 5 million dollars (twice that if you are married) so that is not going to be a problem. The US will withhold some of any dividends or capital gains for non-resident aliens (i.e. non-US citizens who live outside the US). Closing the account could generate capital gains and they would be taxed that way.

3. What do I have to do with respect to paying tax on dividends? Do I have to declare them to the Japanese government? Or does Rakuten do that?

You wrote that you are a tax resident in Japan so you will have to report those foreign dividends but my guess would be that Rakuten already will do so. My experience was that brokerages (Nomura and SMBC/Nikko) reported and took out the Japanese tax on dividends and capital gains before they even reached me, but that an investment owned through a bank did not so I declared the capital gains when I sold through my tax return (I don't know if the bank also reported the gain to the Japanese government or not).

5) Is there a minimum amount you can earn in dividends/capital gains before you have to report to Japanese government?

There is a minimum amount before you have to include reporting on those foreign accounts but my understanding is you are liable for paying taxes on your worldwide income (given that you are a Japan tax resident) even if the total foreign holdings have not met that threshold.

6) How would I report this income? Is it straight forward?

You have to do it when filing taxes as "kakuteishinkoku" (確定申告） which means you can't do the filing through your company. For small amounts it should be fine to bring your paperwork to the local tax office and have them help walk you through the tax filing.

TokyoWart wrote: ↑Mon Nov 11, 2019 6:07 am

2. Would I be liable to American Estate tax if I bought ETFs on American stock exchanges through Rakuten? Does that tax only apply if you have $60,000 amount in your account when you die? So, if you close your account and move your money abroad would U.S govt still tax you?

US estate taxes start for estates of over 5 million dollars (twice that if you are married) so that is not going to be a problem. The US will withhold some of any dividends or capital gains for non-resident aliens (i.e. non-US citizens who live outside the US). Closing the account could generate capital gains and they would be taxed that way.

This is a bit unclear. Estate taxes for non-citizens start at $60,000 and it seems that any US-listed securities are taxable, regardless of whether the owner is a US citizen or not, or where they live.

However, it also seems as though the US-Japan tax treaty addresses this for residents of Japan, as does a similar UK-US treaty. I'm finding it very difficult to find actual sources for all of this though

Thank you for this correction. I stand corrected. It is $60,000 for non-resident aliens according to

https://www2.deloitte.com/content/dam/D ... aliens.pdf

I found the US-UK treaty but I think it means you would pay whichever tax is higher

https://uniset.ca/misc/us-uk1980.html

I think this means people can get the US tax free allowance:

Article 10. NON-DISCRIMINATION

Paragraph (1)(a) states that nationals of a Contracting State shall not be subjected in the other State to taxation or any other requirement connected therewith which is other or more burdensome than the taxation or requirements connected therewith to which nationals of the other Contracting State in the same circumstances are or may be subjected. Paragraph (1)(b), however, recognizes that a nonresident alien is not in the same circumstances as a U.S. national, who is taxed by the United States on a worldwide basis regardless of his domicile. Paragraph (1)(b) provides that paragraph (1)(a) shall not prevent the United States from taxing a national of the United Kingdom who is not domiciled in the United States as a nonresident alien in accordance with U.S. internal law. Paragraph (3) further points out that this Article does not require either Contracting State to grant to individuals not domiciled in that Contracting State any personal allowances, reliefs, or tax reductions which are granted to its domiciliaries. Paragraphs (1) and (3), however, must be read in conjunction with paragraph (5) of Article 8 (Deductions, Exemptions, Etc.) which specifically limits the U.S. tax imposed on the property of a U.K. national not domiciled in the United States to the tax that would have been imposed had the decedent been domiciled in the United States at the time of death.

Thank you so much for your replies! They’ve been really helpful.

Hi Sparky, a belated welcome to the forum and here are some answers

Sparky123 wrote: ↑Mon Nov 11, 2019 1:35 am Hello, I’m a complete newbie and would really appreciate any help you can give about investing and tax filings in Japan.

I’m looking to invest in ETFs for retirement/nest egg.

Some details-
Aged 35, British, resident in Japan for tax purposes.
Plan to spend the next 5 years here- hope to retire in Europe.
Have initial lump sum of around ¥1 million to invest -to be added to each year.
Would like to invest passively-leave it alone for 10 years min.
No other assets/pensions etc except state.
I pay tax directly through my employer.
Next to no Japanese ability-but can navigate Rakuten website with Chrome translator.
Possible portfolio: 34 %Global ETF, 33 % UK ETFS 33 %Bonds

Questions:

OPTION 1:make use of a NISA using Rakuten to buy ETFs.

1. What are the tax implications of buying ETFs from Rakuten? Most ETFs on Rakuten seem to be sold on U.S stock exchanges, so does that mean I would be subject to U.S and Japanese taxes?
2. Would I be liable to American Estate tax if I bought ETFs on American stock exchanges through Rakuten? Does that tax only apply if you have $60,000 amount in your account when you die? So, if you close your account and move your money abroad would U.S govt still tax you?
3. What do I have to do with respect to paying tax on dividends? Do I have to declare them to the Japanese government? Or does Rakuten do that?
4. Have you found any ETFs on Rakuten that are sold on EU or London stock exchanges?

With that in mind:
OPTION 2
Would it be better to open an Interactive Brokers account in the U.S and buy EFTs on the LSE?
However if I do this:

5) Is there a minimum amount you can earn in dividends/capital gains before you have to report to Japanese government?
6) How would I report this income? Is it straight forward? (Bearing in mind I don’t have any Japanese ability.) I don’t have vast sums of money but would hiring a tax accountant be needed?

If you were in my shoes what would you recommend?

Thank you!

Well, the main factor is going to be when/if you leave Japan. You will be expected to close all invesment accounts, which typically is going to involve selling everything. This is not ideal.

However, investing in Japan is much easier in terms of transferring funds and doing taxes.

If you use a NISA account in Japan, I would recommend looking at mutual funds. The fees are very low now and you can automate your investing.
In a NISA account, no Japanese taxes are due on dividends or capital gains.
We looked at US estate taxes above, but if you sell the assets before you die there would be no US tax.
Rakuten has many ETFs and stocks from US markets, none from European ones.

The benefits of using IB would be that you could keep your account when you leave Japan.
I believe you can earn up to 200,000 yen in random income before you have to declare it in Japan.
If you buy ETFs that don't pay dividends (search for Accumulation versions of them) you would not receive dividends and thus would have nothing to declare/pay in Japan.

The Japanese tax office is very helpful and will help you prepare your tax return/do it for you.

Basically if you are likely to leave in five years time I would probably recommend IB, if not I would recommend a Japanese broker and NISA account.