NISA – The Japan Individual Savings Account

Today let’s take a look at a Japan based investment vehicle that longer term expats may wish to utilise. The Nippon Individual Savings Account Program, or NISA, was launched in January 2014. It has since been expanded to include the Junior NISA. NISA is based on the UK Individual Savings Account. (ISA)

Eligibility – anyone over the age of 20 resident in Japan is eligible to open a NISA account.

Tax Exemption – individuals are eligible for an exemption of the 20% levy on income from capital gains and dividends from annual investments of up to ¥1.2 million made over a five year period, as long as they reside in Japan. In other words, you can contribute up to ¥1.2 million in year one and it is sheltered from tax on gains for 5 years. You can then invest up to ¥1.2 million in year two and that is also tax free for 5 years, and so on. Each annual “slice” qualifies for the 5 year tax exemption. So if you invest every year you can hold one NISA for a total of 10 years. After that you may start a new NISA.

Junior NISA – available since April 2016, Junior NISA allows parents / grandparents / guardians to make contributions on behalf of children under 20. The contribution limit for Junior NISA is ¥800,000 per year.

Investment options – NISA’s are offered by securities companies. This means you are able to invest in direct stocks, bonds, ETFs and mutual funds.

Security – as the account holder directly owns the investment assets in the account, NISA’s are very secure. Of course you are still taking investment risk and there is no protection against the value of investments falling.

Cost – it’s tricky to find information on the actual fees involved in investing in NISA, but they are relatively low. The securities company will charge a brokerage fee of up to 0.15%, usually with a minimum commission fee. ETF management fees are no more than 0.5% p.a.. Mutual funds run around 1.5% p.a. Obviously costs will increase if you employ an adviser to help you with asset allocation.

Drawbacks – one drawback is that capital losses made in a NISA cannot be used to offset against capital gains made in other accounts, but this seems fair enough on a non-taxable account. The main drawback with NISA is that if the value of your investment falls over the 5 year investment period, the price is effectively reset and any recovery then counts as a taxable capital gain.

Let me illustrate that so it’s clear: Say you invest ¥1.2 million in your NISA and leave it there for 5 years. Over the 5 years the value falls to ¥800,000. You don’t want to sell the asset and realise the loss, so you continue to hold it. However, it is now outside the 5 year tax exempt period. If the value then returns to ¥1.2 million you will be taxed on the ¥400,000 “increase” as a capital gain.

Account Opening – the account opening process is a little convoluted and you are going to need some skill / help in Japanese language to complete it. Typically the flow is something like this:

1. On your chosen securities company website, request the account opening documents for NISA – this will require inputting some personal information.
2. Account application documents will be mailed to you.
3. Complete account application documents and return along with a copy of your residence card and tax ID number. (My Number)
4. The securities company will then apply on your behalf to the tax office.
5. The tax office approves the application and notifies the securities company.
6. The securities company then notifies you that the account is open, either by mail, or via login to their website.

Some well known securities companies offering NISA are Rakuten Securities, SBI Securities and Matsui Securities. As far as I’m aware, the online interface for applying for accounts, depositing money, and buying / trading investments is all in Japanese.

This article suggests that, even for Japanese people, setting up Junior NISA is rather complicated.

Overall, NISA seems like a very cost-effective way to save and invest in Japan. However, I do feel that the major hurdle for expats is the lack of an English interface. Also for expats and Japanese alike, operating a securities account without professional advice, whether tax exempt or not, means managing your own investments. Some people will relish this level of control, while for others it can be rather daunting. Hopefully that’s where this blog will come in useful! You may want to go back and  work on your financial profile and read up on the investment basics in earlier posts.

Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.