- May 25, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Understanding Tax Credits in International Investments
For simplicity, let’s assume the USD/JPY exchange rate is constant, and interest is distributed at the end of the year. (I am not a US national.)
I buy $100 of a bond ETF with a 10% yield on January 1st.
At the end of the year, I receive $10 in dividends.
According to my Japanese broker, the withheld taxes are as follows:
– US tax withholding: 10% * $10 = $1
– JP income tax withholding: 15% * $9 = $1.35
– JP local tax withholding: 5% * $9 = $0.45
Total tax withheld: $1 + $1.35 + $0.45 = $2.80 (or 28%)
How do I calculate these credits?
### Calculating Tax Credits with AI Legalese Decoder
Using the AI Legalese Decoder can help simplify and streamline the process of understanding and calculating tax credits in international investments. The tool can accurately analyze the tax withholding information provided by your Japanese broker and guide you through the different scenarios for calculating credits.
A. It is the amount of US tax withheld: $1 (Effective tax: (1.35 + 0.45)/10 = 18.0%)
B. It is the difference between the amount of taxes I should have paid in Japan, and what I actually paid: $2.80 – $2 = $0.80 (Effective tax: 20%)
C. I can reclaim this money from the US government, and pay the difference between what was withheld and what should have been paid to achieve 20% in taxes: $2.80 – $1 – $2 = -$0.20 (Effective tax: 20%)
D. It is the amount of US tax withheld $1 but pay $0.20 after filing the tax return. (Effective tax: 20%)
By utilizing the AI Legalese Decoder, you can accurately determine the most effective strategy for maximizing your tax credits and optimizing your return on international investments.
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> How do I calculate these credits?
The short answer is: none of the above. See [this post](https://www.reddit.com/r/JapanFinance/comments/tkorbv/guide_to_japans_foreign_tax_credit/) for a discussion of how the value of foreign tax credits is determined under Japanese tax law. As you will see, the value of foreign tax credits depends on your total taxable income (not just the income that is subject to foreign tax).