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.

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. Two popular online brokers that provide access to almost every available investment are SBI Securities and Rakuten Securities.

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.

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

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.

These limits are further split into tsumitate and growth portions, see the section below.

Tsumitate and Growth portions

Investments in a NISA are split into one of two portions: Tsumitate and Growth.

• Tsumitate investments are regular monthly investments.
  • These investments may only be in approved mutual funds.
  • It is necessary to set up a regular purchase order to use the Tsumitate portion.
  • However, it is also possible to make one-off bonus payments.
• Growth investments - no restrictions.
  • These can be in any investment available (this includes the funds that qualify for the Tsumitate portion).
  • These can be made by spot purchases or by regular purchase order.

The ¥3.6 million annual limit is spit into ¥1.2M of Tsumitate investments and ¥2.4M of Growth investments.

Of the ¥18 million lifetime limit, a maximum of ¥12 million can be from Growth investments. It is possible for the whole ¥18M to be from Tsumitate investments (e.g. ¥1.2M × 15 years).

The funds that quality for the Tsumitate portion also qualify for the Growth portion. For an investment that is eligible for both the Tsumitate and Growth portions, it's possible to choose which one to allocate it to, however investments that do not qualify for the Tsumitate portion can only be allocated to 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 funds in the Tsumitate portion, and ¥2.4 million of any available investments in the Growth portion.

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 regular investments in mutual funds (and not focus only on speculative stock purchases, for example).

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.
• 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.

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 converted to 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 converted to 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 (Japanese)
• NISA on retirejapan.com