NISA: Nippon Individual Saving Accounts

Warm up your engines, eager non-instutional investors, because a new type of tax free trust account is coming to town. That's right, I am talking about the much hyped NISA or Nippon Individual Saving Account (shogaku toshi hi-kazei seido 少額投資非課税制度) that is starting up next year. If you are investing in the future (and you should be!), then this new system is a good opprotunity to get your foot in the investment door. Let's take a look...

What is NISA?

The NISA system is part of Prime Minister Shinzo Abe's economic reform plan. Basically, the idea is to encourage the prodigious savers of Japan to put their money into stocks and other invesemtns in order to spur domestic growth and cut down on all those old folks hoarding away cash. The system itself is modeled on the UK's Individual Savings Account program.

NISA is essentially a special tax free account for investments and investment-related financial instruments only. Furthermore, there are limits placed on the amount that is tax exempt:

• Each account has a maximum limit of 5,000,000 yen invested at one time and only increments of 1,000,000 yen can be invested per year. 
• Each yearly investment with in the 1,000,000 yen limit is counted as a single unit. 
• The current tax-free window is 5 years per yearly 1,000,000 yen unit. 
• Only one account can be held per person and you can only designate one financial institution.
• Only legal mid-to-long term residents of Japan are eligible.  You must be an adult (20 years old and above).
• Once an account is recognized by the National Tax Agency then you cannot change your designated financial instiution for a full 4 year period.
• Any additions and/or profits over the 5,000,000/1,000,000 yen threshold are subject to full taxation.

NISA linked accounts and products are available at just about every financial institution nation-wide, including the former post office bank, JP Bank. NISA accounts are not insured like savings and deposit accounts and, like all investments, can lose value. Opening a NISA is subject to approval by your financial institution of choice and the National Tax Agency (kokuzei-cho 国税庁).

A graphic illustrating the investment amounts and periods avaliable to NISA holders

The official kick off date for the NISA system is the start of 2014. However, financial institutions and tax authorities are currently taking applications for new accounts. Processing time can take any where from a week or two to over a month.

Why NISA?

The Japanese population has historically viewed stocks as something akin to casino gambling, preferring to save for retirement in extraordinarily low interest national bond accounts and deposit certificates. Despite the government's best effort, many older Japanese are still extraordinarily reluctant to put their savings into anything that carries any sort of risk.

NISA is part of PM Abe's carrot and stick approach to spur on Japanese savers. First the tax on intrest and income from investments will be doubled come next year from 10% to 20%. In addition to raising funds to pay down Japan's ginormous debt, this tax increase combined with the new tax free NISA accounts are designed to drive risk adverse Japanese towards the stock market as opposed the "sleeping money."

How to Get a NISA

You first have to open some sort of investment and/or financial instrument account (toshi shintaku koza 投資信託口座). This can be linked to a main bank account (checking/savings) or a stand-alone investment account.

This means that you have to approach a bank directly and hand over a government ID (drivers license, resident card, etc.). Some banks may require that you maintain a regular account in addition to an investment account while others may offer stand-alone products. You also have to listen to and agree to a set of warnings and waivers ("This account may lose valuve..." and the like).

Online brokerages also offer NISA services. Like banks, you have to agree to a set of warnings and waivers. NISA services can only be established after your brokerage account is open, which requires a paper copy of an official ID.

Here is where things get tricky....after opening your investment account, you must now apply for NISA. To do this, you need an original copy of your Basic Resident Register (juminhyo 住民票) available at your local town hall or ward office. Only an original paper copy issued within 3 months will suffice, no photocopies or Basic Resident Registry Cards allowed.These forms are the tax agency in order to check your residence status and determine where you pay local taxes.

And now here is where things get down right silly...if you have moved after January first (i.e. established a new resident registry in a new town or prefecture), then you must not only obtain your current juminhyo but also obtain a juminhyo no johyo (住民票の除票) from your previous place of residence. This is basically a statement telling when your official move out date was processed and accepted by the local authorities.

A copy of a juminhyo no johyo

To get a juminhyo no johyo you need to physically travel to the town hall/ward office of your last residence or go to the local government website and mail the forms, money, and cash directly to the ward office. Having a document mailed to you almost always costs more money plus you have to pay for postage.

Now why would you have to supply a paper copy of something that could be looked up electronicly? Moreover, why do you have to submit a copy of your current address register and proof from your old address despite the date of moving being listed on a full form juminhyo? Shut up, this is Japan, that's why. 

Once you get your paper work in order, your bank will supply you with forms to send your papers to a central processing center. Your juminhyo will then be passed on to the National Tax Agency. Once the g-men give you the thumbs up, your investment account will be certified as NISA. If you fail to submit the necessary paperwork, your account will be treated as a standard investment account and subject to all appropriate taxation.

Do You Need a NISA?

So, is setting up a NISA account worth it? Well, in this author's not so esteemed opinion, yes. If you are in your twenties, you should also start saving and investing responsibly as soon as you have a stable income. That being said, having a 20% bite taken out of your hard earned saving is a pretty big bummer. Therefore, if the government is offering some sort of tax abatement then you best get on board no matter how onerous the set up process is. Even contributing a few 10,000 yen bills a month to a low risk investment fund will go a long way 20 years down the line.

Have any experience setting up your own NISA account? If so, let us know!