Canadian moving from US to Japan

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
nyorotono
Posts: 7
Joined: Sun Oct 28, 2018 9:41 am

Canadian moving from US to Japan

Post by nyorotono » Wed Feb 27, 2019 2:45 pm

I’m a Canadian citizen in their mid-20s residing in the US as a resident alien (temporary work visa, no green card). I’m leaving in April to return to Canada for 1 month before moving to Japan for the next 2+ years. Long-term, I’m not sure where I will retire but it’s highly unlikely to be in Canada or the US.

I'm trying to determine what I should do with my current Vanguard holdings:
- 90k in taxable (holds VTSAX, VTIAX, VCITX)
- 11k in roth IRA
- 40k in 401k (but I will roll over to a traditional IRA once I leave my employer)

From my research, it seems my best option to keep investing in USD is:
- Sell my taxable holdings when I leave because a) they're US-domiciled and b) Vanguard won't let me add more money into or easily withdraw it once I become a non-resident (they said they mail me a cheque).
- Open a brokerage account with either IB or DBS Vickers.
- Buy IWDA (USD version of SWDA, which is all-world stock) and IGIL (international bond index) off the London Stock Exchange. Both are dividend accumulating and are non-US domiciled.
- Start the 5-year conversion process from traditional IRA to roth IRA in 2020 when I will not make much income so I can access the funds in 2025.
- Potentially withdraw my roth IRA contribution if my holding drops below the contribution amount so I can avoid paying any penalties on it.

Does this seem like a sensible plan or is there something major I'm missing? The only thing I'm unsure is what the the capital gains tax rate as a non-US resident selling IWDA and IGIL be. If it's high, I'm wondering if I should opt for and try to open a DBS Vickers account since Singapore has zero capital gains tax.
Last edited by nyorotono on Fri Mar 01, 2019 5:31 pm, edited 1 time in total.

TedSwippet
Posts: 2103
Joined: Mon Jun 04, 2007 4:19 pm

Re: Canadian moving from US to Japan

Post by TedSwippet » Wed Feb 27, 2019 5:24 pm

nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
I’m a Canadian citizen in their mid-20s residing in the US as a resident alien. I’m leaving in April to return to Canada for 1 month before moving to Japan for the next 2+ years. Long-term, I’m not sure where I will retire but it’s highly unlikely to be in Canada or the US.
Given your plans, I take it you are not intending to keep your green card (you have one, right?). In that case, you will want to surrender it as soon as possible after leaving the US, using form I-407. That way, you keep the IRS out of your non-US finances to the greatest degree possible.
nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
- Sell my taxable holdings when I leave because a) they're US-domiciled and b) Vanguard won't let me add more money into or easily withdraw it once I become a non-resident (they said they mail me a cheque).
Forced by b), but see below for why a) may not apply.
nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
- Buy IWDA (USD version of SWDA, which is all-world stock) and IGIL (international bond index) off the London Stock Exchange. Both are dividend accumulating and are non-US domiciled.
No problem with these as a non-US person.

However, in your situation you would also not face any issues holding US domiciled ETFs or funds either. The US has estate tax treaties with both Canada and Japan, so as long as you are domiciled in one of these you should be safe from US estate tax problems. And the US/Japan income tax treaty provides an unusually decent 10% US tax withholding rate on dividends, which comes out slightly better than the 15% paid by Ireland domiciled ETFs such as IWDA. Provided your Japanese tax rate exceeds 10%, you might actually do a little better holding US domiciled funds or ETFs.
nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
- Start the 5-year conversion process from traditional IRA to roth IRA in 2020 when I will not make much income so I can access the funds in 2025.
Make sure you can actually do this as a US NRA. Both in practical terms (with the broker) and in tax terms (which probably means spending some quality time with the guts of the US/Japan tax treaty to make sure Japan will not tax your Roth conversions).
nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
- Potentially withdraw my roth IRA contribution if my holding drops below the contribution amount so I can avoid paying any penalties on it.
Not certain I follow. However, beware of Roth early withdrawal penalties if your Roth doesn't meet the five year or other no-penalty rules. Roth withdrawals can be surprisingly tricky.
nyorotono wrote:
Wed Feb 27, 2019 2:45 pm
The only thing I'm unsure is what the the capital gains tax rate as a non-US resident selling IWDA and IGIL be.
For the US? Nothing. Even though traded and denominated in USD, IWDA and IGIL are non-US situated assets, and you are (or will be) a non-US person. The US has no involvement here.

Also, no Irish or UK capital gains tax. The only tax you should have to worry about is Japanese tax. That's also true for capital gains tax, by the way, if you held US domiciled funds or ETFs. The US does not tax capital gains on US stocks held by NRAs (it does on real estate, but presumably you're not retaining a house in the US).

rhe
Posts: 42
Joined: Sun Feb 26, 2017 2:10 am

Re: Canadian moving from US to Japan

Post by rhe » Wed Feb 27, 2019 6:08 pm

In general the japanese national tax agency takes a dim view of foreign "tax free" accounts. There seem to be some exceptions for accounts where you are prohibited from withdrawing the money, and accounts that look like annuities. You may be better off minimizing the amount you have left in the 401k, depending on what your options are.

Topic Author
nyorotono
Posts: 7
Joined: Sun Oct 28, 2018 9:41 am

Re: Canadian moving from US to Japan

Post by nyorotono » Thu Feb 28, 2019 4:55 pm

TedSwippet wrote:
Wed Feb 27, 2019 5:24 pm
Given your plans, I take it you are not intending to keep your green card (you have one, right?). In that case, you will want to surrender it as soon as possible after leaving the US, using form I-407. That way, you keep the IRS out of your non-US finances to the greatest degree possible.
Gotcha, I don't have one.
TedSwippet wrote:
Wed Feb 27, 2019 5:24 pm
However, in your situation you would also not face any issues holding US domiciled ETFs or funds either. The US has estate tax treaties with both Canada and Japan, so as long as you are domiciled in one of these you should be safe from US estate tax problems. And the US/Japan income tax treaty provides an unusually decent 10% US tax withholding rate on dividends, which comes out slightly better than the 15% paid by Ireland domiciled ETFs such as IWDA. Provided your Japanese tax rate exceeds 10%, you might actually do a little better holding US domiciled funds or ETFs.
Ah, I see.
TedSwippet wrote:
Wed Feb 27, 2019 5:24 pm
Make sure you can actually do this as a US NRA. Both in practical terms (with the broker) and in tax terms (which probably means spending some quality time with the guts of the US/Japan tax treaty to make sure Japan will not tax your Roth conversions).
Okay, will do - thank you.
TedSwippet wrote:
Wed Feb 27, 2019 5:24 pm
Not certain I follow. However, beware of Roth early withdrawal penalties if your Roth doesn't meet the five year or other no-penalty rules. Roth withdrawals can be surprisingly tricky.
To clarify, I meant since I've contributed 11k to my Roth IRA, if the value of it drops to or below 11k, I should be able to just withdraw all of it (since it's equal to or less than my contributed amount).
TedSwippet wrote:
Wed Feb 27, 2019 5:24 pm
For the US? Nothing. Even though traded and denominated in USD, IWDA and IGIL are non-US situated assets, and you are (or will be) a non-US person. The US has no involvement here. Also, no Irish or UK capital gains tax. The only tax you should have to worry about is Japanese tax. That's also true for capital gains tax, by the way, if you held US domiciled funds or ETFs. The US does not tax capital gains on US stocks held by NRAs (it does on real estate, but presumably you're not retaining a house in the US).
Makes sense, thank you.

User avatar
Hyperborea
Posts: 793
Joined: Sat Apr 15, 2017 10:31 am
Location: Osaka, Japan

Re: Canadian moving from US to Japan

Post by Hyperborea » Fri Mar 01, 2019 8:13 am

I've sort of done what you are thinking about doing. I'm a Canadian who lived in the US and now lives in Japan.

Yes, move the Vanguard assets to someplace else - I'd recommend Interactive Brokers. Do NOT sell them yet. Take up Japanese residency and do NOT bring the assets into Japan. If you do this then you get a 5 year window in which you don't have to pay Japanese taxes on these assets as long as the proceeds from them are not brought into the country. Once you get rid of your US residency (green card - make sure that follow all the right procedures) then sell the assets and buy ones that are not domiciled in the US. You will have washed away any capital gains.
- Start the 5-year conversion process from traditional IRA to roth IRA in 2020 when I will not make much income so I can access the funds in 2025.
Once you are no longer a US resident you can't contribute to US retirement accounts even in conversions.
The only thing I'm unsure is what the the capital gains tax rate as a non-US resident selling IWDA and IGIL be. If it's high, I'm wondering if I should opt for and try to open a DBS Vickers account since Singapore has zero capital gains tax.
Most of the tax treaties place the right of taxing capital gains on equities on the country where you live so where you have your brokerage account doesn't matter for that. In your case that will be Japan only once you get rid of the green card. As I mentioned above, you get a 5 year window to not pay tax on capital gains, dividends, interest, etc. kept outside of Japan and not brought in.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

EnjoyTheJourney
Posts: 51
Joined: Sat Nov 17, 2018 8:36 pm

Re: Canadian moving from US to Japan

Post by EnjoyTheJourney » Fri Mar 01, 2019 9:02 am

I'd echo Hyperbora about several points. <Inaccurate material about tax residency status removed, my thanks to Hyperborea for catching that>

I'd also suggest considering TD Ameritrade as a broker, along with Interactive Brokers. TD Ameritrade will work with you as a non-US citizen with US deferred tax retirement accounts, unlike a lot of other brokers. Also, TD Ameritrade has a broader and more inexpensive set of index investing options, in case that's your preferred way of investing.

I would suggest checking in with an accountant and/or an attorney with expertise and experience in personal international taxation issues. Although Hyperbora is probably correct about how tax treaties affect withholding and tax rates, you'll want to ensure that the US recognizes you as a resident of Japan for tax purposes, despite not being a Japanese citizen and not being "permanent resident" of Japan (for tax purposes, a separate determination from your visa status).

I believe you need a Roth IRA set up before you leave the US, as you can't open a new retirement account after you leave. I think you can do conversions if you've got one set up before you leave. Definitely check this, though, before acting on this idea. But, I believe you would pay a 10% penalty on withdrawals in your 20s, in addition to normal tax withholding, so it might be better to wait for a few decades before doing Roth conversions.

Be certain to read about the relatively new US expatriation act, as long term residents (ie: green card holders) are also covered by it. Not following the right procedures for the expatriation act can end up being disruptive and expensive, so you definitely want to know about it in advance.

Finally, take a look at your social security earnings to date. I believe you can use your years living in Japan or Canada to meet the minimum ten years of contributions for social security, if you need, so chances are you will qualify for social security benefits down the road. This might seem very abstract now. But, the amount in your US-specific deferred tax accounts suggest that you might get a noticeable amount of inflation-indexed social security payments when you're older, which is likely to be helpful. As part of your research into this, take a quick look at the windfall elimination provision, which seems quite likely to apply to any social security you might receive.
Last edited by EnjoyTheJourney on Sat Mar 02, 2019 12:51 am, edited 2 times in total.

User avatar
Hyperborea
Posts: 793
Joined: Sat Apr 15, 2017 10:31 am
Location: Osaka, Japan

Re: Canadian moving from US to Japan

Post by Hyperborea » Fri Mar 01, 2019 10:09 am

EnjoyTheJourney wrote:
Fri Mar 01, 2019 9:02 am
I would suggest checking in with an accountant and/or an attorney with expertise and experience in personal international taxation issues. Although Hyperbora is probably correct about how tax treaties affect withholding and tax rates, you'll want to ensure that the US recognizes you as a resident of Japan for tax purposes, despite not being a Japanese citizen and not being "permanent resident" of Japan (for tax purposes, a separate determination from your visa status).
Tax laws require you to be a resident of somewhere. The OP has likely broken Canadian residency. Once he leaves the US and abandons his green card he won't be a resident of the US. Since he will live in Japan and Japan considers him a tax resident then he will be a resident of Japan. There will be some overlap time when he lives in Japan but still holds a green card and that will require coordinating two returns.

The OP won't be considered a permanent resident for tax purposes (and so lose the 5 year tax-free window) unless he becomes a citizen or he has lived in Japan for 5 years out of the last 10.

As for US expatriation, it's likely that the OP hasn't been a green card holder for long enough (8 tax years out of the last 15, including as a year even a single day in the calendar year) to even need to file. Even if that was the case he isn't wealthy enough to be a covered expatriate and so the only downside would be filing some forms.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

bsteiner
Posts: 3796
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Canadian moving from US to Japan

Post by bsteiner » Fri Mar 01, 2019 10:21 am

Hyperborea wrote:
Fri Mar 01, 2019 10:09 am
...
Tax laws require you to be a resident of somewhere. ...
I once had a client who said he wasn't a resident of any country for income tax purposes. He worked for a major company in the financial sector and divided his time among several countries. He said he paid tax to several countries on what he earned in those countries.

He clearly wasn't a U.S. citizen or resident. I didn't know enough about the tax laws of the other countries to know whether he was correct.

I sometimes referred to him as my homeless client.

Topic Author
nyorotono
Posts: 7
Joined: Sun Oct 28, 2018 9:41 am

Re: Canadian moving from US to Japan

Post by nyorotono » Fri Mar 01, 2019 5:45 pm

To clarify, I do not have a green card and have only been residing in the US on a temporary work visa. Thanks for your help everyone.

assyadh
Posts: 41
Joined: Tue Sep 18, 2018 12:44 pm

Re: Canadian moving from US to Japan

Post by assyadh » Fri Mar 01, 2019 7:26 pm

It's really a good thing you didn't have a green card.

Congrats on your move, Interactive brokers seems a good choice.

EnjoyTheJourney
Posts: 51
Joined: Sat Nov 17, 2018 8:36 pm

Re: Canadian moving from US to Japan

Post by EnjoyTheJourney » Sat Mar 02, 2019 12:44 am

I re-checked sources to verify what I wrote earlier about Japanese tax residency status.

I did indeed read what I wrote and I found the website that made it sound like intentions also mattered for determining tax residency status (link here: https://transferwise.com/gb/blog/income-tax-in-japan). But, on consulting KPMG's source material for that website on tax residency in Japan for foreigners, it seems that non-permanent residency changes into permanent (tax) residency only after either somebody becomes a Japanese citizen or after somebody has lived in Japan for more than five out of the last ten years.

KPMG source material link here: http://taxsummaries.pwc.com/ID/Japan-In ... -Residence

I don't see in the KPMG source whether living for part of a calendar year counts as a fraction of a year or whether paying taxes for a year means that you're considered by Japanese authorities to have lived in Japan for a year (ie: does showing up in July of a year and paying taxes mean you're considered as having used up your full first year or not).

I'll change my earlier post to remove the inaccuracy. I'm glad to have it pointed out.

Regarding how the US-based IRS views tax residency, my main question is whether the US views a non-permanent tax resident of Japan (the only tax status that exempts foreign-sources of income from taxation in Japan) as a resident of Japan for tax treaty purposes. My sense, based on my reading of the US-Japanese tax treaty (p.6 of the document below) that the US does *not* consider a non-permanent tax resident of Japan to be a resident of Japan for the purpose of applying the Japan - US tax treaty because those who pay taxes only on money earned in Japan would seem to be outside the scope of the US-Japan tax treaty. This doesn't mean double taxation would ensue, but any benefits from that tax treaty may be inapplicable to non-permanent tax residents of Japan.

Tax treaty source document weblink: (https://www.treasury.gov/resource-cente ... treaty.pdf)

I'll also echo that it simplifies the OP's situation to not have had a green card, which means there's no need to file paperwork for the expatriation act.

User avatar
Hyperborea
Posts: 793
Joined: Sat Apr 15, 2017 10:31 am
Location: Osaka, Japan

Re: Canadian moving from US to Japan

Post by Hyperborea » Sat Mar 02, 2019 3:39 am

EnjoyTheJourney wrote:
Sat Mar 02, 2019 12:44 am
I re-checked sources to verify what I wrote earlier about Japanese tax residency status.

I did indeed read what I wrote and I found the website that made it sound like intentions also mattered for determining tax residency status (link here: https://transferwise.com/gb/blog/income-tax-in-japan). But, on consulting KPMG's source material for that website on tax residency in Japan for foreigners, it seems that non-permanent residency changes into permanent (tax) residency only after either somebody becomes a Japanese citizen or after somebody has lived in Japan for more than five out of the last ten years.

KPMG source material link here: http://taxsummaries.pwc.com/ID/Japan-In ... -Residence

I don't see in the KPMG source whether living for part of a calendar year counts as a fraction of a year or whether paying taxes for a year means that you're considered by Japanese authorities to have lived in Japan for a year (ie: does showing up in July of a year and paying taxes mean you're considered as having used up your full first year or not).
The intention part is really only useful for people staying less than a year. It allows them to work temporarily in Japan for a short time and have no intention of becoming a longer term resident. The OP will be in Japan for two years. The "what's a year question" is interesting and I haven't done any research on it. I may need to know in the future so may have to do that research at some point.

EnjoyTheJourney wrote:
Sat Mar 02, 2019 12:44 am
Regarding how the US-based IRS views tax residency, my main question is whether the US views a non-permanent tax resident of Japan (the only tax status that exempts foreign-sources of income from taxation in Japan) as a resident of Japan for tax treaty purposes. My sense, based on my reading of the US-Japanese tax treaty (p.6 of the document below) that the US does *not* consider a non-permanent tax resident of Japan to be a resident of Japan for the purpose of applying the Japan - US tax treaty because those who pay taxes only on money earned in Japan would seem to be outside the scope of the US-Japan tax treaty. This doesn't mean double taxation would ensue, but any benefits from that tax treaty may be inapplicable to non-permanent tax residents of Japan.

Tax treaty source document weblink: (https://www.treasury.gov/resource-cente ... treaty.pdf)
It's the same model that applies to most (but not all of the US tax treaties). There's a flow chart of sorts where you check your residency through a set of conditions. It's similar to the US-Canada tax treaty that in the past made the OP a US tax resident rather than a Canadian one even though he was on a temporary work visa.

Follow the conditions in Article 4. You start with paragraph 1:
For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that Contracting State, is liable to tax therein by reason of his domicile, residence,
Yep, that's the OP he's a resident. But then further in paragraph 1:
This term, however, does not include any person who is liable to tax in that Contracting State in respect only of income from sources in that Contracting State, or of profits attributable to a permanent establishment in that Contracting State.
Oh no, that knocks out the OP. Ok, so now we drop to paragraph 2 but that's only about US citizens and resident aliens so it doesn't apply to the OP. Ok, so on to paragraph 3:
Where by reason of the provisions of paragraph 1 an individual not described in paragraph 2 is a resident of both Contracting States, then his status shall be determined as follows:
Ok, that's the OP.
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him; if he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (center of vital interests);
Ok, so if the OP holds a Japanese residence (anything other than a hotel room really), then he's a Japanese resident under the terms of the treaty.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

Topic Author
nyorotono
Posts: 7
Joined: Sun Oct 28, 2018 9:41 am

Re: Canadian moving from US to Japan

Post by nyorotono » Wed Mar 13, 2019 5:47 pm

Hyperborea wrote:
Fri Mar 01, 2019 8:13 am
Yes, move the Vanguard assets to someplace else - I'd recommend Interactive Brokers. Do NOT sell them yet. Take up Japanese residency and do NOT bring the assets into Japan. If you do this then you get a 5 year window in which you don't have to pay Japanese taxes on these assets as long as the proceeds from them are not brought into the country. Once you get rid of your US residency (green card - make sure that follow all the right procedures) then sell the assets and buy ones that are not domiciled in the US. You will have washed away any capital gains.
Do you know what is considered bringing assets into Japan? I've spoken with an advisor who isn't sure if setting an IB Japan account and buying off the UK exchange is considered "bringing assets in to Japan." To me, this sounds like it is and I was leaning toward having a IB US account for this 5-year period.

rhe
Posts: 42
Joined: Sun Feb 26, 2017 2:10 am

Re: Canadian moving from US to Japan

Post by rhe » Wed Mar 13, 2019 7:51 pm

nyorotono wrote:
Wed Mar 13, 2019 5:47 pm
Hyperborea wrote:
Fri Mar 01, 2019 8:13 am
Yes, move the Vanguard assets to someplace else - I'd recommend Interactive Brokers. Do NOT sell them yet. Take up Japanese residency and do NOT bring the assets into Japan. If you do this then you get a 5 year window in which you don't have to pay Japanese taxes on these assets as long as the proceeds from them are not brought into the country. Once you get rid of your US residency (green card - make sure that follow all the right procedures) then sell the assets and buy ones that are not domiciled in the US. You will have washed away any capital gains.
Do you know what is considered bringing assets into Japan? I've spoken with an advisor who isn't sure if setting an IB Japan account and buying off the UK exchange is considered "bringing assets in to Japan." To me, this sounds like it is and I was leaning toward having a IB US account for this 5-year period.
It's not possible to trade non-japanese stocks in the IB japan account, as far as I understand. All non-japanese stocks are handled in an IB LLC account. I think it would be an unforced error to keep your stocks in an account that isn't linked with your japanese address. For example, it would mean that the account would have your US social security number or canadian SIN, and eventually the IRS or CRA are going to come looking for their money. It seems better to give them your Japanese tax id.

Post Reply