- May 25, 2024
- Posted by: legaleseblogger
- Category: Related News
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### Investing in Japanese Yen-Denominated ETFs as a Non-Tax Resident
Hi, I currently reside in Hong Kong and hold citizenship there. I have never lived in Japan in the past, and I do not have any plans to move there in the foreseeable future. I am considering investing some cash that I have deposited in Japanese Yen in my Hong Kong bank account into Japan-listed ETFs, such as the 2563 JP or 2845 JP (Yen-denominated S&P 500 and Nasdaq 100 index ETFs).
### Concerns about Capital Gain Tax as a Non-Tax Resident
Before proceeding with my investment, I have some concerns regarding the capital gain tax implications of investing in Japanese stocks and ETFs as a non-tax resident. I am wondering if, as an overseas-resided non-tax resident, I am liable to pay the 20% capital gain tax on Japan-listed ETFs. If so, I am unsure about the process for filing tax returns in this scenario.
### How AI Legalese Decoder Can Help
The AI Legalese Decoder could be of assistance in navigating this complex tax situation. By using the AI tool, I can easily interpret and understand the legal language surrounding capital gain tax requirements for non-tax residents investing in Japan-listed ETFs. This could help me make informed decisions about my investments and ensure compliance with tax regulations.
### Seeking Advice and Shared Experiences
I have been informed by IBHK that they will not withhold any capital gain tax for trading Japan stocks, unlike with investing in US stocks. However, I am concerned about the potential complexities of filing tax returns in Japan due to the language barrier. I do not speak Japanese, and I am not interested in ETFs tracking the Japanese stock market. If anyone has been in a similar situation and can share their experience or advice on navigating this tax issue, I would greatly appreciate it. Thank you in advance for any insights or guidance.
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****** just grabbed a
> am i liable to paying the 20% capital gain tax on the Japan -listed ETFs?
Japan does not generally tax capital gains derived from the sale of Japan-listed ETFs unless the seller is a tax resident of Japan. There is a minor exception for very large shareholdings and shares in things like real-estate holding companies, but otherwise, as a non-resident of Japan, you won’t owe Japanese tax on any gains you derive from the sale of Japan-listed ETFs.
> have been told by IBHK that it wont withhold any capital gain tax for trading Japan stocks like it does with investing in the US stocks
As you acknowledged elsewhere in your post, IBHK doesn’t withhold US tax from capital gains derived from the sale of US stock. The situation for Japan is the same.
Note that the rules for dividends are very different to the rules for capital gains. As a non-resident of Japan, you will have 15.315% Japanese income tax automatically withheld from any dividends you derive from Japanese ETFs, unless you assert your treaty rights to a lower rate of withholding.
As a tax resident of Hong Kong, Article 10(2) of the HK-Japan tax treaty gives you the right to have only 10% Japanese income tax withheld from Japan-source dividends, instead of 15.315%. However, it is possible that IBHK will not provide you with the ability to assert those treaty rights, in which case you will be stuck paying 15.315% unless you find a broker that will enable you to assert your treaty rights.
> Otherwise i would switch to buy Yen-denominated ETFs listed elsewhere
I’m concerned that you’re misunderstanding the significance of the currency an ETF is denominated in. If you buy an ETF that tracks the S&P500, for example, it will have the same value regardless of whether you buy it using JPY, USD, or any other currency. The fact that you currently hold JPY cash is not a good reason to buy a JPY-denominated ETF.
If you think the S&P500 is a good investment (i.e., its value will increase, as measured in the currency you care about, such as HKD), then you should buy it, but it doesn’t matter what currency you use to buy it. Aside from currency exchange commissions, etc., you are buying the same underlying assets (shares in S&P500 companies).
Your plan is not sensible. The currency you use to buy an asset in a deep liquid global market doesn’t matter.
Let’s say that you have ¥10,000 to invest, and that the market cap of the US stock market is $1,000,000. Then the market cap of the US stock market is also simultaneously ¥156,000,000.
When you buy a yen-denominated fund, you’ll get ¥10,000 / ¥156,000,000 = 0.0064% of the stock market.
Or you can convert to dollars first, giving you $64, and then you can buy a dollar-denominated fund, and you’ll end up with $64 / $1,000,000 = 0.0064% of the stock market.
The stock market will go up or down in value, and when you come back to the market to sell, you can trade your 0.0064% ownership of the stock market into whatever currency you want, at whatever the prevailing prices and exchange rates are at at that time.
So, tl;dr, just convert your yen to your preferred currency and buy in now. It sucks that the yen went down, but there’s no cute hack to get around that. Everyone holding yen got poorer when the yen depreciated, and that’s just the fall. You’re poorer now, I’m poorer now. There’s no point in pretending that you didn’t get poorer by avoiding conversion.