NISA, Rakuten Securities, Offshore Accounts
One very welcome result of my talk at the Pan-SIG has been some new visitors and members to the site.
One new Forum member, OkinawaInvestor, sent me a list of interesting questions which I will try to answer here, with the usual proviso that I am not an expert and am answering as to the best of my knowledge. Please do your own research as well before acting on anything you read here.
A question about NISA accounts: "you wrote on the RetireJapan.info homepage that capital gains and dividends are tax-free during the five year limit of the NISA. However, you also wrote, "price falls will also be reset and any subsequent recovery will count as a capital gain." Does this mean that if a loss in a stock or index fund within one's NISA, followed by a recovery in price occurs , this will be a taxable capital gain (even if this loss and recovery occurs within the 5 year period of the NISA)?"
Phew, good question, and one that shows my write-up might not be as clear as it should be. Prices of stocks, funds, etc within NISA accounts are reset at the end of the 5-year period. This means that price gains will not be subject to capital gains tax, but price losses will conversely not be eligible to be written off against gains, and any subsequent recovery will be treated as a capital gain.
A NISA/J401k question: "Can one also invest in the bond market with a NISA and J401k? As to the latter, you wrote on your homepage that we cannot pick individual stocks. Can we pick index funds (such as Vanguard) or bond indexes?"
You can buy bond ETFs and funds in a NISA account. My account with Rakuten has a wide selection of US, Asian, and Japan-based stocks and funds. With the J401k you are limited to the funds offered by your provider. I am not eligible for a J401k account at the moment, but my wife's is through Iwate Bank, and they have about a dozen funds to choose from.
Rakuten Securities: "You mentioned in your Pan-SIG presentation, too, that you like Rakuten as an online brokerage service. Did you open NISA and J401k accounts with them? Could you send me their information link?"
I have a NISA account with Rakuten Securities. I find them easy to use and fairly transparent. They do not currently offer a J401k option. One drawback is that they currently only operate in Japanese, but once you figure out which button does what it's not too much of a problem :)
You can find more information on their website.
My wife's J401k account is with Iwate Bank.
Overseas accounts: "I also read some forum entries on Andrew Hallam's homepage that the National Tax Agency in Japan has been asking questions of some foreigners who open brokerage accounts in tax-free havens such as Singapore. I recently opened one up (through a legitimate, well-known bank - not through scammers like Banner) in my home country (Canada), which is not a tax haven - they told me that they won't deduct taxes on any capital gains earned, but that I must report these capital gains to the tax office in Japan.
Have you heard stories of the Japan tax office going after people who open offshore brokerage accounts? I'm thinking that the NISA and J401k may be the way to go if the tax office in Japan is indeed as strict as I think it is regarding overseas brokerage accounts..."
The main thing to keep in mind is that residents of Japan (including permanent residents and other foreign residents who have been here for more than five years) must pay tax on all income worldwide, regardless of where it was earned. This includes investment income abroad, which must be reported to the tax agency. As long as you do this you will not have any problems with the NTA.
In practice, the most common way for individuals to come to the notice of the NTA is through money transfers into and out of Japan -it seems as though any transfer over 100,000 yen is reported to the NTA and they will call people in to explain large sums moving in or out.
Hope this helps! Would love to hear any other questions people might have. Please post them in the comments below or in the Forum.