NISA Account

Overview – NISA accounts are normal stockbroking accounts but remain tax free for 5 years

A NISA account is a standard investing account with a tax advantage or tax free “wrapper”.
The advantage is that any interest growth or dividendd returns will be exempt from capital gains tax (20%) for 5 years.
This is a significant saving, so I recommend everyone start by opening a NISA account.
The only catch is you are limited to investing up to 1.2M yen per year.

There are no penalties for early withdrawals, but if you make a withdraw the amount able to be invested is decreased.
So to take full advantage of this account plan to invest at least 5 years.
After 5 years that years investments are transferred to your normal investing account.
Currently NISA accounts can be opened within the time period of 2014 ~ 2023.

NISA accounts are the best place to invest in a medium time frame of 5-10 years.
For example we saved in NISA accounts while we were saving to buy an apartment.

If you invest 1.2M in a year into mutual funds returning an average of 12%, in 5 years that will have grown to 2.18M yen.
The taxable capital gains in this case is 2.18M – 1.2M yen = 0.98M yen.
The tax due upon withdraw would 980,000 x 20% = 196,000 yen.
If you do this for 5 years you will have saved 196,000 x 5 years = 980,000 yen!

Let’s see what happens if you invest 1.2M yen each year for 5 years.
1.2M yen invested yearly at 12% for 5 years.

Year Year Deposits Year Interest Total Deposits Total Interest Balance
1 12,000.00 809.33 12,000.00 809.33 12,809.33
2 12,000.00 2,433.87 24,000.00 3,243.20 27,243.20
3 12,000.00 4,264.45 36,000.00 7,507.65 43,507.65
4 12,000.00 6,327.19 48,000.00 13,834.83 61,834.83
5 12,000.00 8,651.53 60,000.00 22,486.37 82,486.37

This would all be tax free.
Let’s say you left it there for another 5 years.

8.24M yen invested once at 12% for 5 years.

Year Year Deposits Year Interest Total Deposits Total Interest Balance
1 0.00 10,461.34 82,486.37 10,461.34 92,947.71
2 0.00 11,788.10 82,486.37 22,249.43 104,735.80
3 0.00 13,283.12 82,486.37 35,532.55 118,018.92
4 0.00 14,967.75 82,486.37 50,500.31 132,986.68
5 0.00 16,866.04 82,486.37 67,366.35 149,852.72

Overall in 10 years you would have invested 6.0M yen which would have grown to 14.98M yen.
And you would have saved 1.0M in tax.

Why is the Japanese government offering this tax break?
They are trying to encourage people to invest their money rather their hoarding under their beds.
Currently there are over 10 million accounts open in Japan so it seems to be working.

Any major Bank or Securities company will have NISA accounts available to open.
You can change institution only once per year.

You can read more about NISA accounts here:
http://www.jsda.or.jp/en/activities/research-studies/html/NISA.html