What happens to your investments?

I had a great question this week from a reader by email. When I started thinking about it I realised it would probably take me a couple of hours to answer it properly, so I decided to write a blog post instead.

That way we get to share the information with more people, and you can all tell me which bits I got wrong 🙂

The question was “what happens to my investments if I leave Japan for good?” and the answer is… complicated.

There are various things to consider, from bank rules to government policy and practical matters. Let’s look at each thing in turn. We’ll cover taxes, pension, investments, and bank accounts.

This is probably a good place to point out that I am some random guy on the internet and this is not legal or tax advice. I am probably wrong on various things, and if you are unclear about anything you should consult a professional or talk to the government directly.

Taxes

There are two main taxes that might apply when you leave Japan for good. The exit tax applies to people with over 100 million yen’s worth of investments worldwide (only things that can have unrealised capital gains count towards this, and real estate is excluded). What happens is, when you leave, your unrealised capital gains are calculated and you are taxed accordingly. This tax will begin in 2020, so you still have time to get out of Japan to avoid it 😉

Inheritance taxes (update/correction here) can apply for several years after you leave Japan, but this system seems somewhat poorly thought-out, and it is not at all clear whether the Japanese government will want to or even be able to go after people after they have left Japan.

Pension

Recently the pension rules changed, so if you have paid in at least ten years (120 months) you will receive a pension in old age, regardless of where you are living at the time. Make sure you don’t forget about this and file to receive your pension when it’s due.

If you have paid less than ten years, you can apply for a refund of up to three years or contributions (this cancels all your contributions to date so is not a good idea if you are likely to return to Japan in the future).

Investments

Most brokers will ask you to close your accounts if you leave Japan. If you don’t, they will probably find out when they send you things by post, unless you have an address to receive mail at. This means that if you know you will be leaving Japan in the near future you may want to make your investments through an overseas broker like Interactive Brokers.

NISA

You can sell your NISA investments at any time, so would probably be expected to sell and close the account when you leave.

It seems that you would be forced to close Junior NISA accounts and pay any taxes due on the account (for capital gains/dividends).

iDeCo

You cannot cash out your account early in the case of iDeCo. I have been told by three separate providers that the following will happen if someone leaves Japan:

Bank Accounts

Most banks will also ask you to close your accounts, although there is much less chance of them noticing that you have left. Having open accounts may influence whether you are deemed as residing in Japan for tax purposes though, so if you are wealthy enough to be worth the tax office’s attention I would recommend getting advice from a professional before doing this.

Overall

I think most people probably won’t have to worry about the financial consequences of leaving Japan. Exceptions would be people with considerable investments abroad (which you should have been declaring to the tax office) or who are likely to receive a large inheritance in the near future.

If this applies, or you are worried, I recommend talking to a professional or consulting with the tax office directly.

Did I miss anything or get anything wrong?

17 Responses

  1. Hi Ben, thanks for another great post.
    Do you have any experience whether I can still continue my investment account (using rakuten atm) and keep investing in NISA after I leave Japan?

  2. How can I find out if I’m elidgible for a pension? I did 12 years in Japan, but perhaps I didn’t pay pension on all 12?

  3. I’ve been investing with my brokerage account in Europe and I haven’t reported my earnings through dividends. I haven’t earned much in dividends in the last 6 years. I think I might have earned about 1,000,000 Yen, roughly. I will go to the local ward office and ask them how to report my taxes. Can anyone confirm that it is the city hall that can help me with this?

    1. You need to talk to the tax office. I would do so very soon or after the tax reporting deadline. The tax office gets pretty busy in late February/early March.

    1. Great point. That info is in the linked post, but I should have included it in the main text too 🙂

      Interesting that Junior NISA is treated differently to iDeCo.

  4. Just want to add something about this “If you have paid less than ten years, you can apply for a refund of up to three years or contributions (this cancels all your contributions to date so is not a good idea if you are likely to return to Japan in the future).”

    If you are a US citizen, my understanding is that you can combine SS and Nenkin. For example if you only paid 9 years into nenkin and then go back to USA your Japanese Nenkin will count towards your SS now. Or visa versa, if for exampled you want to retire for whatever reason and only paid 9 years into nenkin. For example I worked in the USA before coming to Japan so that SS will be added to my nenkin if and when I retire in Japan probably raising it like 10 yen per payment. My understanding is you take a big hit, I really don’t even know to hazard a guess, but your retirement in the USA or Japan does not get totally thrown down the drain. And you can not claim both. My understanding the tax systems are so well tied together, that if you move back to the USA and ask for your nenkin to be sent to the USA they contact the USA to make sure you are not getting SS too.

    Its been a few years since I looked into this in any detail so I may be remembering a few things incorrectly, but if you are a US citizen and worried about this, it would behoove you to do more research on it.

    1. Some details of the interaction between the US Social Security and Japanese Nenkin systems are available at the link below (which still uses the prior 25 year Japanese availability for Nenkin):
      https://www.ssa.gov/international/Agreement_Pamphlets/japan.html

      Note that you can collect both SS and Nenkin at the same time if you qualify under both systems but usually SS benefits will be reduced by the Windfall Elimination provisions in the US. From my perspective the main benefit of the totalization agreement is that US citizens don’t have to pay both SS and nenkin at the same time (there are many ways in which the taxes we pay for passive investment income and salary can be applied twice by the two countries).

  5. The thing that worries me most is having to sell my NISA investments at a loss if by chance I leave the country during a downturn. Is it possible to have my investments moved into a different brokerage account overseas without having to sell?

    1. In theory this may be possible, but I am not aware of any options. Selling at a loss, provided you then buy the same investments again in your new broker, shouldn’t be too big of a problem. You will be out of the market for a week or two, and will incur transaction costs, but that shouldn’t put you off investing altogether.

      On the other hand, if you know you will be leaving Japan in the near future or think it is likely you will, you may want to invest through an overseas broker like Interactive Brokers.

  6. Was very surprised to discover that I may be forced to close Junior NISA accounts and pay any taxes due on the account. Do you know if this is also true for Japanese nationals? It may be worth considering putting my kids accounts under my wife’s name (if that’s possible).

    1. If it’s closed prematurely the same rules apply regardless of citizenship. The small print on this for my kids Nomura accounts’ information seems to apply to everyone. At age 18 you can start to remove funds so if they can make it to that age in Japan you could liquidate without penalty.

    2. If you have an address in Japan you wouldn’t have to close them. Only people leaving for good.

      1. Would it be possible to keep them open if I use my parent in laws address for correspondence but (as a consequence of being out the country) I am no longer contributing tax and pensions?

        Sorry about the detailed hypothetical questions but just want to make sure in advance.

        1. This is at best a grey solution. I wouldn’t ask your provider about it!

          Basically if you leave for good I am not sure it’s worth doing this. If you leave temporarily this may give you a way to keep the accounts open until you get back.

          Junior NISA has no tax or pension requirements/conditions, so you should be fine with regards to that.