The Nippon ISA (NISA) allows people living in Japan to invest in the stock market without paying tax on their capital gains or dividends. Modeled on the British ISA (individual savings account), NISA is designed to encourage individuals in Japan to invest in the stock markets. A NISA account can be opened at many financial institutions, including most banks and online brokers. NISA accounts offer a tax wrapper for stocks and funds, meaning that for a period of either five or twenty years all dividends and capital gains are tax-free.
Who is NISA for?
NISA accounts are particularly beneficial if you’re…
- already investing in the stock market,
- not eligible for an iDeCo account,
- not planning to stay in Japan until retirement,
- or just wishing to invest more than the iDeCo limit.
Benefits of NISA Accounts
Investors can currently contribute up to ¥1,200,000 per year to an ordinary NISA account, or ¥400,000 per year to a tsumitate NISA account. This system, which began in 2014, has seen some improvements over the years, such as the ability to open a new account every year instead of every four years as initially planned. The government is also planning to extend the duration of tax-free benefits (see 2024 NISA changes below).
Limitations of NISA Accounts
The key disadvantage of NISA accounts is that capital losses cannot be used to offset capital gains made outside the accounts*. Additionally, price falls will also be reset and any subsequent recovery will count as a capital gain**.
The five-year limit on tax-free benefits is another significant drawback of the current NISA accounts, although this will be extended in future (see 2024 NISA changes below).
Past Changes: Regular Investment and Junior NISA
In 2018, a new type of NISA account, the tsumitate (積立 or regular investment) NISA, became available. This account type has a lower annual allowance of ¥400,000 but offers a duration of 20 years and is limited to mutual funds. Users must set up regular monthly transfers to the account.
Junior NISA accounts were introduced in April 2016, allowing parents and guardians to open an account for a child and contribute up to ¥800,000 a year on behalf of children under 20.
New NISA System (starting in 2024)
The New NISA will start from January 2024. It is a completely new system and is not connected to current NISA accounts. Any current NISA years will continue to be tax free until they reach the end of their tax free period (5 years or 20 years, for ordinary or tsumitate NISA respectively).
In the new NISA system, the tsumitate (regular investment) NISA and ordinary NISA will become tsumitate and growth frameworks respectively. The tsumitate framework will continue to be primarily focused on mutual funds while the growth framework will focus on listed Japanese stocks. The Junior NISA, designed for people under 20 years old, will be phased out.
The existing limit on the tax exemption period for capital gains will be removed in the new system, meaning there will be no limit – great news! This change reflects the increasing need, considering longer lifespans, to prepare for retirement through long-term asset management.
2024 NISA Highlights
- Indefinite tax-exempt holding period.
- The tsumitate and “growth” investment limits can be combined.
- The annual combined investment limit has been increased to ¥3.6 million:
- Tsumitate framework: ¥1.2 million per year
- Growth framework: ¥2.4 million per year
- The lifetime combined investment limit has been increased to ¥18 million. (The growth investment limit is ¥12 million. These limits can be reused.)
- No Junior NISA
Comparison of the 2023 and 2024 NISA Systems
| 2023 NISA | 2024 NISA | |
|---|---|---|
| Eligible Investments | Tsumitate: Mutual funds suitable for long-term investment Ordinary: Stocks and mutual funds | Tsumitate: Mutual funds suitable for long-term investment Growth: Stocks and mutual funds |
| Eligible Persons | Tsumitate & ordinary NISA: Adults Junior NISA: People under 20 years old | People 18 years old and over (Junior NISA abolished) |
| Tax Exemption Period | Tsumitate NISA: 20 years OR Ordinary NISA: 5 years | Unlimited |
| Annual Limit | Tsumitate NISA: ¥400,000 OR Ordinary NISA: ¥1.2 million | Tsumitate framework: ¥1.2 million Growth framework: ¥2.4 million |
| Total Investment Limit | Tsumitate NISA: ¥8 million OR Ordinary NISA: ¥6 million | ¥18 million (includes up to ¥12 million in the growth framework) |
Recommended Resources for NISA
- NISA活用入門 is the best book on the NISA that I have read. It is in Japanese, but is fairly accessible.
- The RetireJapan Guide to NISA is also pretty good!
- The official NISA website has lots of information, as you’d expect, but in Japanese only.
Next Steps: How to Start a NISA
All of the major stock dealing companies offer the ability to buy investments (mutual funds and stocks) within a NISA. If you don’t have an account already, here are the NISA account pages for the big three:
For advice on which company is most suitable for you, or for any other questions about Japan’s NISA system, feel free to visit the friendly RetireJapan forum.
* Normally if you buy a stock and the price goes up, you can sell it for a profit. This is called a capital gain, and is subject to taxation. In a normal account, if you have a stock where the price has fallen you can sell it at a loss and write off the loss against the gain on the first stock. For example, if you make a 10,000 yen profit (capital gain) from selling stock A, and you sell stock B at a loss of 8,000 yen, you only have to pay capital gains tax on 2,000 yen. This process is not allowed in a NISA account.
** The way assets in NISA account avoid paying capital gains tax is that the price is reset when the five years is up or when you sell the assets. For example, if you buy a stock in your NISA account for 1,000 yen and five years later it is worth 3,000 yen, the government will consider 3,000 yen as the purchase price. You will only have to pay capital gains tax on any subsequent rises in the price. On the other hand, if the stock price falls to 600 yen five years later that will be considered the purchase price, and you would have to pay capital gains tax if it went back up to 1,000 yen and you sold it.