Only in Japan: Yuutai (shareholder benefits)

Who doesn’t like free stuff?

One interesting thing about investing in Japan is that many companies give special gifts to their shareholders. These can be something mundane, like a face towel, or something pretty useful, like discounts at department stores or cheap plane tickets.

The gifts are called 株主優待 kabunushi yuutai, but are often abbreviated to just 優待.

According to wikipedia, just over a third of companies listed in Japan provide some kind of yuutai. There is usually a minimum number of shares you need to own to get the gifts, and sadly buying mutual funds or ETFs doesn’t count. You have to be an individual shareholder.

As you can imagine, there are several portal sites that allow you to search for yuutai, like this one that covers both yuutai and dividends.

Most yuutai are in the form of discounts, gift vouchers, or free products.

Yuutai are very popular in Japan, particularly with less sophisticated investors. After all, it is very easy to understand the benefits of getting free stuff every year.

However, as with dividends, it is important to keep total return in mind when considering yuutai. Investing in individual companies can be risky, both in terms of the catastrophic risk of losing all your money if the company should go bankrupt, as well as the risk of underperforming the market as a whole.

In general we recommend investing in low-cost index funds (particularly cheap mutual funds like these ones) within a diversified portfolio. If you can use tax-advantaged accounts like iDeCo or NISA you should invest there first.

If you want to invest in things like individual shares we recommend doing so with just a small part of your portfolio. That way, your potential losses will be limited.

How about you? Are you taking advantage of the yuutai system? Any good gifts out there?

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12 thoughts on “Only in Japan: Yuutai (shareholder benefits)

  1. Each year as a corporate officer I attend a training session by Hideaki Kubori of Hibiya Park Law Offices. Kubori-sensei is an authority on corporate governance in Japan and he really looks down on yuutai as an incentive for the worst aspects of shareholding in Japan (they divert attention from share valuation, encourage small shareholding only to the minimum needed for the yuutai, don’t meaningfully benefit shareholders, etc.) For that reason I feel guilty at my own yuutai-related holdings. McDonalds (2702), which twice a year sends a booklet of meal coupons, was a partial motivator for my initially setting up accounts for my kids (they love the food, we love not having to cook). By dumb luck, that’s turned out to be a good investment for us as well. Other companies which turned out well for my investing as well as for yuutai are the beer and beverage makers (2501, 2502, 2503, 2593), Matsuya foods (9887 similar incentive as McDonalds but for me instead of the kids), Yakult (2267, free Swallows tickets; we live a short walk from the stadium) and Kikkoman (2801). I enjoy the yuutai but have to agree that Kubori-sensei is right on the facts.

      • I don’t know anything about Turkish socks, I’m afraid.

        Our general advice is to buy the world (cheap world equity index funds).

      • I wouldn’t even try to find out if Turkish stocks are a good investment until I had a solid base in index funds for major stock markets like the US and world index funds. The only exception would be if I lived in Turkey and had to match assets to liabilities in that country (although even then I might look and decide not to invest domestically). The problem is that even being right on a smaller volatile market can set one up for mistakes later. You might go all in the Turkish Borsa and see it soar for a year or so, but that doesn’t equip you for knowing when to sell and move to the next hot market and smaller markets like Turkey’s have currency, political and corporate governance risks on top of the usual economic uncertainties individual companies face. Much safer to tie yourself to world economic growth through a broader indexing strategy.

  2. I too am not inclined to buy individual stocks, but some of these stocks offer around 3-5% cashback for grocery expenses which take up a huge portion of my monthly expenses for buying less than 300,000 yen stocks. This seems like an actual tangible income in the amount of 3-5% of your spending in that grocery.
    Wonder what your thoughts are on this.

    • I think if there is a shareholder benefit that is going to be worth a lot to you it may be a good option to acquire it, as long as you keep the entire picture in mind (capital gains, dividends, etc.).

      If it works for you then no reason not to do it 🙂

    • Have you considered that that cashback is encouraging you to be more faithful to their grocery chain and possibly not use a cheaper chain(something like seiyu?)

      It’s not that different from a points card, a lot of people may feel they’re making a good deal getting 5% off everything, but there might be a competing chain that simply sells stuff cheaper even after the discount. People are often blinded by discounts.

  3. Regardless of the form they take, are these freebies taxed? If so, how and when? Maybe back at the company level? If not, how is it that yuutai avoid taxation?

    • The company counting them as an expense doesn’t affect tax treatment (just like the personnel expenses they count for salaries paid to employees are still taxable income to the employees) . Technically they are taxable as miscellaneous income but because there is an exemption for up to 200,000 yen in miscellaneous income in practice I think people are not be assessed taxes. Here is a link in Japanese:

      http://kabunusiyutai.com/kiso/tax.html

      in addition this article on the kabunishi yuutai system in English both explains some of the problems of the yuutai system and tax treatment (see page 2 and its footnotes):

      https://scholarspace.manoa.hawaii.edu/bitstream/10125/100787/Yasutake_Taeko_r.pdf

      Just to point out, there are a number of things (airline miles, hotel loyalty points, etc.) which you can receive and are theoretically taxable but as a practical matter are not taxed and don’t come up in tax audits.

      • Yes, air miles… heh. Never thought about declaring them on a tax form. I tend to buy them rather than earn them, so I’m guessing those would not be taxable.

  4. I generally agree that this is to attract people to buy your stocks but this is not really wise investment method. One that I am considering for a while is Aeon supermarket stock because you can obtain Owner’s card and you are entitled to some cash back on the amount spent based on the number of shares you own. With only 100 shares you can have 3% cash back on all your spending in Aeon supermarkets. If you are living near one that is maybe something to consider.

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