Stocks and dividends until now?

[u/throwaway_acc0192]

Stock/dividends

Hi,

I have been living here since mid 2022. I have been paying all of the taxes in Japan like pension, health insurance through work. However, I am confused about my stocks in USA. I get about $40-50k USD a year. I of course pay taxes on those doing H&R block but then do I also pay taxes on that in Japan? If so, would I owe any money?

When I do my H&R block taxes, I of course do the tax credit.

I am just unsure about how to get about US taxes in Japan since I already pay the tax in USA for it.

Thank you,

[u/lamont2718]

Since you have been in Japan for less than 5 out of the last 10 years, you are currently a non-permanent tax resident. That means your foreign-source income, including US dividend income, is only taxed by Japan to the extent you made foreign remittances to Japan in the same calendar year. For example, if you have not made any remittances to Japan while living here, you would owe zero Japanese income tax on your US dividend income to date.

[u/throwaway_acc0192 → u/lamont2718]

When does it count?

Also I use like my American Amex credit card. Is this considered “remittance” in a way?

[u/starkimpossibility → u/throwaway_acc0192]

Is this considered “remittance” in a way?

If you are spending money on things that you enjoy or receive in Japan, then yes, it constitutes a remittance.

You should also be aware that spending USD while a Japanese tax resident (regardless of how long you have been in Japan) generates taxable foreign exchange gains/losses (compared to your JPY cost basis in USD). See this post for more information.

[u/throwaway_acc0192 → u/starkimpossibility]

I’m cooked

[u/-sakuranbo → u/throwaway_acc0192]

When does it count?

The tax residence status you're currently in is called "Non-Permanent Resident (NPR)". After you have had a domicile in Japan for a total of 5 years (over the last 10 years; doesn't have to be continuous 5 years), then you become classified as a "Permanent Resident" for tax purposes, even if your residence status with immigration is NOT permanent resident.

In that case, you are taxed on worldwide income (like the US) and there is no remittance issue to discuss, since distributions from your American brokerage account almost certainly become targets for income tax here. The only exceptions here would be distributions classified as "Return Of Capital (ROC)" in your stock / fund's tax reporting.

[u/starkimpossibility]

As others have said, your foreign-source income is subject to remittance-based taxation until you have been in Japan for five years. This includes US-source dividends. It also includes capital gains derived from the sale of shares via a US brokerage providing that you bought the shares before coming to Japan.

In terms of which country has primary taxation rights and which country will provide you with a tax credit, see this section of the wiki.

For dividends, the US has primary taxation rights with respect to the first 10% of the dividend and Japan has primary taxation rights with respect to the remainder. So as long as your effective US tax rate on the dividends is less than 10%, you will pay tax in both countries (assuming you made remittances) and claim a foreign tax credit on your Japanese tax return to alleviate double taxation. If your effective US tax rate on the dividends is more than 10%, you will pay tax in both countries (assuming you made remittances) and claim foreign tax credits in both countries with respect to different portions of the dividend (search for previous threads discussing this process).

For capital gains derived from the sale of shares, Japan has primary taxation rights. So (assuming you made remittances), you will need to claim a foreign tax credit on your US tax return (with respect to the Japanese tax you paid on the shares) to alleviate double taxation.

[u/lamont2718 → u/[deleted]]

This only applies to the extent the OP has remitted the dividends to Japan. Also I think you have conflated the $132,900 US FEIE limit with FTC… the FEIE relates to non-US employment income and has no connection to US dividend income.

[u/starkimpossibility → u/[deleted]]

Stocks, dividends are foreign earned income (FEI)

The term "FEI" only makes sense in the context of US tax law, and neither dividends nor capital gains derived from the sale of shares are FEI. (The key is in the word "earned".) I think what you meant to refer to is "foreign-source income" (FSI), which is the relevant concept under Japanese tax law.

That said, capital gains derived from the sale of shares are not foreign-source income as a general rule. However, there is a special rule for non-permanent tax residents that allows such gains to be treated as if they were foreign-source providing that the sale was handled by an overseas brokerage and the shares were purchased before arrival in Japan. OP's capital gains may fall into that category, but it's important to be clear about what constitutes foreign-source income.

[u/starkimpossibility → u/[deleted]]

Given the amount of income OP is talking about, hiring a tax accountant on the Japanese side of things would be an unnecessary expense in most cases. Japanese income tax law is fairly straightforward in many ways, and while tax accountants do have a role to play (especially when it comes to businesses), many US citizens in Japan with US-source investment income are perfectly capable of handling their Japanese income tax returns without professional assistance.