NISA

NISA - Nippon (Japan) Individual Savings Account - is a type of tax-advantaged investment account modelled on the British ISA.

Investments in a NISA are free of capital gains and dividend taxes, but there are limits to how much can be invested.

The New NISA (新しい NISA) system started in 2024 to replace the Old NISA system which ended in 2023.

Benefits

The main benefit of a NISA is that investments are free of both capital gains and Japanese dividend taxes.

Example

If an investment of ¥1.2 million yen grew at 5% for 30 years, it would become about ¥5.1 million for a gain of ¥3.9 million. Outside of a NISA, about ¥800,000 (20.315%) of this would be due as tax, so using a NISA would save ¥800,000 of capital gains tax on this investment. It is possible to invest up to ¥18 million in a NISA, so the potential savings are much larger.

Investment limits

There are limits on how much can be invested in a NISA.

1. An annual investment limit of ¥3.6 million.
   • This is a limit on purchases. Selling an investment does not return the annual limit.
2. A lifetime investment limit of ¥18 million.
   • The lifetime limit can be re-used when selling investments. Selling an investment increases the remaining lifetime allowance by the amount the investment was originally purchased for, from the following year.

     For example, if you invested ¥10k and then sold it after it grew to ¥20k, the original ¥10k of lifetime allowance would become available the following year for reinvestment. The other ¥10k would be a tax-free gain but you would not be able to reinvest it without consuming additional lifetime allowance.

Both of the above limits are further split into tsumitate and growth portions, as per the following section.

Tsumitate and Growth portions

Investments in a NISA are split into one of two portions: Tsumitate (積立) and Growth (成長, seichō). Quite confusingly, a periodic purchase order in Japan is also called a tsumitate order. To avoid ambiguity, when either Tsumitate or Growth is mentioned below, it refers to the NISA portion.

• Tsumitate investments are periodic monthly investments.
  • These investments may only be in approved mutual funds.
  • It is necessary to set up a periodic purchase order to use the Tsumitate portion.
  • However, it is also possible to make one-off bonus payments as a part of the Tsumitate NISA purchase order.
• Growth investments have fewer restrictions.
  • Generally most mutual funds, stocks and ETFs are allowed with the exception of highly leveraged stock / derivative funds or funds that pay monthly dividends.
  • These can be made by spot purchases or by a periodic purchase order.

The ¥3.6 million annual limit is spit into ¥1.2M of Tsumitate investments and ¥2.4M of Growth investments. Similarly, of the ¥18 million lifetime limit, a maximum of ¥12 million can be from investments made in the Growth portion and the remaining ¥6 million must be made from the Tsumitate portion. It is also possible for the whole ¥18M to be from the Tsumitate portion (e.g. ¥1.2M × 15 years).

The securities that quality for the Tsumitate portion are a strict subset of the securities that qualify for the Growth portion, i.e., an security that is eligible for the Tsumitate portion is also eligible for the Growth portion. All of the Japanese global index funds qualify for the Tsumitate and as such, they also qualify for the Growth portion.

Taking advantage of the maximum allowance possible

To use the maximum annual allowance available, it is necessary to buy ¥1.2 million of Tsumitate-eligible securities in the Tsumitate portion, and ¥2.4 million of Growth eligible securities Growth portion every year. This will fully exhaust the annual limit each year and it will fully exhaust the lifetime limit over five years.

In order to take advantage of the full ¥18 million lifetime allowance, ¥6 million must be made as Tsumitate-portion investments over at least 5 years. This appears to be in order to encourage people to make periodic investments in mutual funds (and not focus only on speculative stock purchases, for example).

Choosing a NISA provider

There are many NISA providers, each providing their own selection of available funds, which in turn have different management costs. The large online brokers have the widest selection available, including the Japanese global index funds and other low-cost alternatives. Three popular online brokers that provide access to almost every available investment are SBI Securities, Rakuten Securities and Monex Securities.

• Fund Selection: When considering a provider, compare the available funds and the corresponding management fees to the global funds above, and to the selection available from the online brokers. A small difference in management fee can make a large difference in performance over the long term.

• Bank Integrations / Benefits: Depending on your current bank, certain brokerages might offer benefits. A Rakuten Bank account holder can utilise Rakuten money-bridge service to set up an auto-sweep facility to automatically transfer funds from the securities company to their bank savings account. An identical feature is offered by SBI Securities to holders of an SBI Shinsei account or an SBI Neobank account. Some banks also offer preferential treatment from the bank's end based on the account value of assets held in their affiliated brokerage's account.
• Bank Fees: As you would be funding a NISA for a period of at least five years, it is best to identify if a brokerage account offers features like free Instant Deposits with your existing bank. Failing this, many online brokerages offer to open virtual bank accounts at major banks to allow for a zero-fee fund transfer. As an example, SBI Securities allows creation of a virtual bank account at SMBC Bank or MUFJ Bank or Mizuho Bank allowing the users of such a bank to make a within-bank-transfer, which are usually free.

• Point Rates: A NISA account is also a great way to earn a non-negligible amount of points. For example, if an investor already has a Rakuten Credit Card, they could earn a 0.5-5% point-rate (depending on the tier of the credit card) for purchases made on Rakuten Securities. For an investor with a SMBC Credit Card, there is a very similar system with similar rates on SBI Securities. A Monex Credit Card / dCard (co-branded Credit Card from Docomo) allows for similar rates on Monex Securities. Same is the case for PayPay Credit Card on PayPay Securities and auPay Card and auKabu Securities.

As an alternative to online brokerages, sometimes a bank too can offer a NISA account. In many cases, the fund selection in a Bank based NISA is pretty restrictive and they often do not carry the low-cost Japanese global index funds, making them a less ideal place to get a NISA. Some banks, however, do offer an acceptable selection and in such cases, the convenience of having a brokerage account and having a NISA at such a bank would need to be weighed against the further flexibility offered by a full brokerage.

When opening an account at a broker, it is worth being aware of the securities account types.

Caveats

• Reinvesting dividends requires the use of additional annual and lifetime allowance. This can be worked around by buying mutual funds that reinvest the dividends internally.
  • In Japan, a lot of Japanese mutual funds do re-invest dividends internally.
• Dividends on foreign stocks and ETFs are subject to foreign withholding tax that cannot be reclaimed.
• When selling an investment, the original purchase amount, not the present value, is credited back to the lifetime allowance.
• Assets sold at a loss cannot be used to offset capital gains tax due on assets sold outside of the NISA.
• A NISA must be closed and the assets sold when permanently leaving Japan.

Pre-2024 NISA and Tsumitate NISA

Prior to 2024, there were three kinds of NISA:

1. The Old NISA, which could be invested over a rolling 5-year period, with a maximum allowance of ¥1.2M/year.
   • This was replaced by the Growth portion of the current NISA.
2. Tsumitate NISA, which could be invested over a (non-rolling) 20-year period with a maximum allowance of ¥400k/year.
   • This was replaced by the Tsumitate portion of the current NISA.
3. Junior NISA

The New NISA from 2024 is a new system, unrelated to these previous NISA accounts. Tax free investments in the old accounts can be held until their tax free period expires, when they will be moved to a taxable account. It's not possible to move "old" NISA investments to the New NISA.

See Also

• iDeCo - an account that also allows income tax to be deferred.
• Summary by Ministry of Finance (PDF)
• FSA's New NISA page (in Japanese)
• NISA on retirejapan.com
• Shintaro Money's Guide to NISA (in Japanese)
• Shintaro Money's Guide to Japanese broker point programmes (in Japanese)