Wow thanks for all the research on this.
I'm confused about the tax rebate. Why is it allowed and given that why isn't it automatic?
Japan-based low-fee global index fund?
I'm just going by what that blog said. I presume it's not automatic since it depends on various stuff-
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Re: Japan-based low-fee global index fund?
Heh, sorry. I think the original post was on page one, so I replied to it there without seeing replies on page 2...
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eMaxis Slim Shady
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Re: Japan-based low-fee global index fund?
Just taking a look at some dividend statements for VT. This is what seems to happen (havn't read the previous Japanese post yet, maybe this is already explained there):
Taxable account: 10% US withholding tax deducted. Then ~20% Japanese withholding tax deducted from the remaining balance. (the ~20% seems to float up and down depending on the dividend, I'm not sure why).
NISA: 10% US witholding tax only.
Wow, that's more tax than I expected. I don't know where I got the idea that only 10% Japanese tax was deducted. It appears the formula is (dividend - 10% US - ~20% JP) = ~28% tax on dividends.
So now I see where the rebate comes in. You ask Japan to give you back the ~8% due to having been double-taxed by two states.
Urg the more I look at this the difficult it gets. As jcc said the hidden tax costs of buying US seems to be quite large.
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fools_gold
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Re: Japan-based low-fee global index fund?
It's to avoid double taxation. The dividends ate taxed at 10% in America and again at 20% in Japan. You can claim a tax credit for the first 10%, but exactly how much you get depends on your circumstances.
https://kabu.com/investment/guide/syouk ... gntax.html
[edit - Just noticed this has been answered above. The link explains it quite well though.]
Re: Japan-based low-fee global index fund?
There's a continuation article where they do more comparisons. http://shintaro-money.com/kaigai-etf-relay-2/
If you want US market exposure, buying US ETF(VTO/VTI) is actually a really good idea since whether you own them via a japanese fund or not they'll be taxed once in the us and once in japan, so the lower costs win out.
For Japanese stocks you really should get any fund/etf domestically(taxed only locally). For outside the US/Japan it basically depends on how much of a tax rebate you can get, but without it generally a low cost jp fund getting taxed twice will beat the vanguard offering getting triple taxed so long as the cost gap isn't too big.
Also, the fund of funds style things like exe-i and rakuten aren't actually as bad as I thought they would be. While they do suffer from the same triple taxation issues of etfs, in practice they have generally have lower turnover/management costs than domestic funds and they do make it possible to reinvest the dividends pre-jp tax, defering them into capital gains. Still, the rakuten ones are a bit pricey so they're not competitive. If you do account for points you acquire by holding them, it might make them slightly more worthwhile...
If you want US market exposure, buying US ETF(VTO/VTI) is actually a really good idea since whether you own them via a japanese fund or not they'll be taxed once in the us and once in japan, so the lower costs win out.
For Japanese stocks you really should get any fund/etf domestically(taxed only locally). For outside the US/Japan it basically depends on how much of a tax rebate you can get, but without it generally a low cost jp fund getting taxed twice will beat the vanguard offering getting triple taxed so long as the cost gap isn't too big.
Also, the fund of funds style things like exe-i and rakuten aren't actually as bad as I thought they would be. While they do suffer from the same triple taxation issues of etfs, in practice they have generally have lower turnover/management costs than domestic funds and they do make it possible to reinvest the dividends pre-jp tax, defering them into capital gains. Still, the rakuten ones are a bit pricey so they're not competitive. If you do account for points you acquire by holding them, it might make them slightly more worthwhile...
Re: Japan-based low-fee global index fund?
I updated the spreadsheet at https://docs.google.com/spreadsheets/d/ ... sp=sharing
It now has both inside/outside nisa simulations. If you make a copy you can plug in your own numbers for management costs and whatnot.
I've tried to account for all variables: management costs are all-in(not just the visible part but also the turnover costs). Dividend taxation is divided into domestic and foreign dividend taxation: you'd adjust the foreign part depending on what you're investing in(if you were going pure US stocks, you'd just have 10% foreign. For a VT type balance it's about 14.5%).
It's worth noting that the simulation I did for the nisa account is based on a non-existent nisa that allows you to keep going forever(in reality it's 5 years). I also used the "taxless bracket expansion" for the funds while I had the ETF reinvest externally in a tokutei account(since unless you have some leftover in your nisa, that is the only thing you can do if you want to reinvest dividends).
I think what makes the difference between my simulation and that of the article is that I accounted for the initial cost of investing(exchange and brokerage).
In the end I think the only place to make any significant savings is on VTI/VTO which would only get double taxed(so the same as a domestic fund investing internationally). I think I'm just going to stick to domestic funds because a) no hassle of tax returns b) no hassle of currency exchange and c) when I cash out I know I'll be getting the net asset value and not some speculated figure.
As to which fund to get if buying domestically? eMaxis slim seems to be the lowest cost but they're so new it's hard to know what their hidden costs are like. The i-exe funds SEEM cheap but since they're fund of funds they get triple taxed and really don't come out cheaper(though it can be ok for something heavily invested in the US since the US portion is only double taxed). Tawara and nissei though marginally more expensive seem to have shown consistently low hidden costs. There seems to be some healthy competition taking place now, so that's great for us.
It now has both inside/outside nisa simulations. If you make a copy you can plug in your own numbers for management costs and whatnot.
I've tried to account for all variables: management costs are all-in(not just the visible part but also the turnover costs). Dividend taxation is divided into domestic and foreign dividend taxation: you'd adjust the foreign part depending on what you're investing in(if you were going pure US stocks, you'd just have 10% foreign. For a VT type balance it's about 14.5%).
It's worth noting that the simulation I did for the nisa account is based on a non-existent nisa that allows you to keep going forever(in reality it's 5 years). I also used the "taxless bracket expansion" for the funds while I had the ETF reinvest externally in a tokutei account(since unless you have some leftover in your nisa, that is the only thing you can do if you want to reinvest dividends).
I think what makes the difference between my simulation and that of the article is that I accounted for the initial cost of investing(exchange and brokerage).
In the end I think the only place to make any significant savings is on VTI/VTO which would only get double taxed(so the same as a domestic fund investing internationally). I think I'm just going to stick to domestic funds because a) no hassle of tax returns b) no hassle of currency exchange and c) when I cash out I know I'll be getting the net asset value and not some speculated figure.
As to which fund to get if buying domestically? eMaxis slim seems to be the lowest cost but they're so new it's hard to know what their hidden costs are like. The i-exe funds SEEM cheap but since they're fund of funds they get triple taxed and really don't come out cheaper(though it can be ok for something heavily invested in the US since the US portion is only double taxed). Tawara and nissei though marginally more expensive seem to have shown consistently low hidden costs. There seems to be some healthy competition taking place now, so that's great for us.
Re: Japan-based low-fee global index fund?
Exploring shintaro money I keep coming up on more great data.
They've calculated the real costs(based on reports) here http://shintaro-money.com/index-cost/ calculated for all low-cost funds based off major indices.
Not only do they have the costs but they also add in breakdowns of the indices themselves so it's easy to identify which ones you want to hold.
I would add though that the real costs are probably pretty volatile right now as funds that have been recently started(a hell of a lot of them) or that have seen large growth(also most of them thanks to nisa/ideco and whatnot) are all looking at higher costs on the side
They've calculated the real costs(based on reports) here http://shintaro-money.com/index-cost/ calculated for all low-cost funds based off major indices.
Not only do they have the costs but they also add in breakdowns of the indices themselves so it's easy to identify which ones you want to hold.
I would add though that the real costs are probably pretty volatile right now as funds that have been recently started(a hell of a lot of them) or that have seen large growth(also most of them thanks to nisa/ideco and whatnot) are all looking at higher costs on the side
Re: Japan-based low-fee global index fund?
Hi,
Great thread and analysis! Very interesting as minimising costs is one of the few certain ways to improve returns.
Have you thought about non-US ETFs? In particular Ireland/Luxembourg domiciled ETFs are often recommended by bogleheads forum (https://www.bogleheads.org/forum/viewtopic.php?t=153389) for non US investors as they 1) Have no dividend withholding tax, 2) Accumulate dividends and 3) Avoid the very large inheritance tax liability of US based ETFs.
For example IWDA.L tracks a similar index to VT, it has an ER of 0.2% and reinvests dividends before tax. So I think it would beat the JP domiciled fund (0.08% lower ER but otherwise identical) but not by so much, 1-2% over 20-30 years.
Great thread and analysis! Very interesting as minimising costs is one of the few certain ways to improve returns.
Have you thought about non-US ETFs? In particular Ireland/Luxembourg domiciled ETFs are often recommended by bogleheads forum (https://www.bogleheads.org/forum/viewtopic.php?t=153389) for non US investors as they 1) Have no dividend withholding tax, 2) Accumulate dividends and 3) Avoid the very large inheritance tax liability of US based ETFs.
For example IWDA.L tracks a similar index to VT, it has an ER of 0.2% and reinvests dividends before tax. So I think it would beat the JP domiciled fund (0.08% lower ER but otherwise identical) but not by so much, 1-2% over 20-30 years.
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RetireJapan
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Re: Japan-based low-fee global index fund?
Interesting! How to buy these in Japan though?anjin wrote: ↑Sat Mar 17, 2018 3:30 am Have you thought about non-US ETFs? In particular Ireland/Luxembourg domiciled ETFs are often recommended by bogleheads forum (https://www.bogleheads.org/forum/viewtopic.php?t=153389) for non US investors as they 1) Have no dividend withholding tax, 2) Accumulate dividends and 3) Avoid the very large inheritance tax liability of US based ETFs.
For example IWDA.L tracks a similar index to VT, it has an ER of 0.2% and reinvests dividends before tax. So I think it would beat the JP domiciled fund (0.08% lower ER but otherwise identical) but not by so much, 1-2% over 20-30 years.
English teacher and writer. RetireJapan founder. Avid reader.
eMaxis Slim Shady
eMaxis Slim Shady