Questions about NISA for US citizen with Permanent Residence

[randomguyinjapan]

I'm trying to figure out the best options regarding making a brokerage account and it all seems pretty confusing. I am a US citizen and have permanent residence in Japan and will most likely stay here forever. My wife is Japanese and was previously a US green card holder but gave it up. We currently file Jointly to the US, but it seems possible for me to change that and then no longer have to worry about my wife having to deal with the IRS.

We are interested in opening a NISA account as well as a regular brokerage account. Probably at Monex. We would like to invest in US individual stocks and maybe ETFs.

I have a few questions regarding this.

If the accounts are in my name do we have to report it for both Japanese and US tax purposes? Would there be double taxation on the regular account? Would the US still tax the NISA account?

If my income is below a threshold and the capital gains are long term would the tax rate be effectively 0%, but I'd still have to report?

If the accounts are in my wife's name does it make sense to drop filing as joint status in the US?

If the account is in my name can I buy individual US stocks?

If it is all too difficult to open an account in Japan, are things simplified by opening a US taxable brokerage account like Interactive Brokers? Does that get double taxes by Japan and the US?

Thank you for your assistance.

[TokyoWart]

Some of the answers to your questions get in the area of opinions but here is my take:

If the accounts are in my name do we have to report it for both Japanese and US tax purposes? Would there be double taxation on the regular account? Would the US still tax the NISA account?

Yes, for accounts in your name you will need to report in both the US and Japan. Japan will not tax the NISA account but the US will. Both Japan and the US will tax your non-NISA account but there are ways to get part of the double taxation reduced when you file taxes. If you have US stocks in your NISA account (or any account that is based in Japan) the US will also tax you on dividends (but not capital gains) before they even reach you because the account is foreign domiciled.

If my income is below a threshold and the capital gains are long term would the tax rate be effectively 0%, but I'd still have to report?

Japan doesn't have a 0% bracket for capital gains or dividends but the US does for qualified dividends and long term capital gains regardless of where the account is located. The threshold for when the 0% bracket ends is higher ($80,000 for 2020) for married-filing-jointly than for married-filing-separately ($40,000) and this is one reason you might want to maintain the MFJ status with your wife. Japan basically always applies a 20.3% rate for dividends and capital gains in accounts domiciled here.

If the accounts are in my wife's name does it make sense to drop filing as joint status in the US?

It might, but then you loose the benefits of MFJ status. Your wife must both go through the whole Green card "abandoning" process (which I take it you have done but keep in mind this is not just letting it expire but going through the official process) in addition to your filing MFS in order for her to be exempt from those tedious US reporting requirements. The reality is that most expats don't owe any US taxes although they do have burdensome reporting requirements.

If the account is in my name can I buy individual US stocks?

Yes you can. You will still be taxed on dividends by the IRS before they even reach you because the account is located in a foreign country. I recently experimented with this by buying a share of Amazon in my Nomura account (because it doesn't pay dividends) and Nomura both charged me a higher transaction fee and exchanged yen for dollars at the extortionate rate of 115 yen / dollar. Don't underestimate how many ways your broker here can abuse you.

If it is all too difficult to open an account in Japan, are things simplified by opening a US taxable brokerage account like Interactive Brokers? Does that get double taxes by Japan and the US?

Yes, although you wouldn't have a NISA account at a foreign broker. The US account will still be taxed by both Japan and the US but the reporting requirements here in Japan don't kick in until you have fairly substantial assets overseas. (I think you still need to report income but not the total year-end account balances, etc.) There are many posts here about the troubles in starting a US brokerage account while living in Japan but many of us have them, although I don't have any experience with Interactive Brokers.

[jeronimoski]

Some of the answers to your questions get in the area of opinions but here is my take:

If the accounts are in my name do we have to report it for both Japanese and US tax purposes? Would there be double taxation on the regular account? Would the US still tax the NISA account?

Yes, for accounts in your name you will need to report in both the US and Japan. Japan will not tax the NISA account but the US will. Both Japan and the US will tax your non-NISA account but there are ways to get part of the double taxation reduced when you file taxes. If you have US stocks in your NISA account (or any account that is based in Japan) the US will also tax you on dividends (but not capital gains) before they even reach you because the account is foreign domiciled.

If my income is below a threshold and the capital gains are long term would the tax rate be effectively 0%, but I'd still have to report?

Japan doesn't have a 0% bracket for capital gains or dividends but the US does for qualified dividends and long term capital gains regardless of where the account is located. The threshold for when the 0% bracket ends is higher ($80,000 for 2020) for married-filing-jointly than for married-filing-separately ($40,000) and this is one reason you might want to maintain the MFJ status with your wife. Japan basically always applies a 20.3% rate for dividends and capital gains in accounts domiciled here.

If the accounts are in my wife's name does it make sense to drop filing as joint status in the US?

It might, but then you loose the benefits of MFJ status. Your wife must both go through the whole Green card "abandoning" process (which I take it you have done but keep in mind this is not just letting it expire but going through the official process) in addition to your filing MFS in order for her to be exempt from those tedious US reporting requirements. The reality is that most expats don't owe any US taxes although they do have burdensome reporting requirements.

If the account is in my name can I buy individual US stocks?

Yes you can. You will still be taxed on dividends by the IRS before they even reach you because the account is located in a foreign country. I recently experimented with this by buying a share of Amazon in my Nomura account (because it doesn't pay dividends) and Nomura both charged me a higher transaction fee and exchanged yen for dollars at the extortionate rate of 115 yen / dollar. Don't underestimate how many ways your broker here can abuse you.

If it is all too difficult to open an account in Japan, are things simplified by opening a US taxable brokerage account like Interactive Brokers? Does that get double taxes by Japan and the US?

Yes, although you wouldn't have a NISA account at a foreign broker. The US account will still be taxed by both Japan and the US but the reporting requirements here in Japan don't kick in until you have fairly substantial assets overseas. (I think you still need to report income but not the total year-end account balances, etc.) There are many posts here about the troubles in starting a US brokerage account while living in Japan but many of us have them, although I don't have any experience with Interactive Brokers.

If you open an NISA account as an American with Rakuten or SBI, I thought you weren't able to buy US stocks and ETFs?

[TokyoWart]

My NISA accounts are not with Rakuten or SBI so I don’t know what rules they are using. There are some special rules on what can go into Tsumitate NISA but I am not aware of a restriction on foreign stock for American expats in a regular NISA.