In recent years, more people have been investing in foreign stocks and similar assets, partly because of the relatively low dividend yields of Japanese stocks and the desire to diversify their investments.
When you make a loss from selling foreign listed stocks, you can offset (combine) that loss with gains from selling other listed stocks in the same year. However, if the transactions are made through an overseas securities company, you cannot offset these losses against dividend income from listed stocks, nor can you carry forward those losses to future years.
In this article, we will explain how capital gains and losses from selling foreign stocks are treated for Japanese tax purposes, focusing on how to convert amounts into Japanese yen and how loss offsets work for foreign listed stocks.
1. Treatment of Domestic Stock Sales (Basic Rules)
When you sell domestic (Japanese) stocks, the first step is to classify them as either “listed stocks” (stocks listed on a stock exchange) or “non-listed stocks”.
For both categories, you can offset gains and losses within the same category during the same year. After offsetting, the taxable amount is subject to a flat tax rate of 20.315% (15.315% income tax and 5% local tax).
You cannot offset between the two categories.
This means:
- Gains from listed stocks can be offset with losses from other listed stocks.
- But gains from listed stocks cannot be offset with losses from non-listed stocks.
For listed stocks, you can also offset losses with dividend income from listed stocks (if you choose separate self-assessment taxation), and if you still have remaining losses after offsetting, you can carry them forward for up to three years.
For non-listed stocks, however, you cannot offset with dividend income or carry forward any remaining losses.
2. Classifying Foreign Stocks into “Listed” or “Non-Listed”
The same classification applies to foreign stocks: you must first determine whether the stock you sold is considered “listed” or “non-listed.”
“Listed stocks” include those traded on any stock exchange, whether in Japan or overseas.
So, if you own foreign stocks listed on an overseas exchange, they are treated as “listed stocks” for tax purposes.
For example, if you trade through a Japanese securities company, you can offset losses from domestic listed stocks with losses from foreign listed stocks, as long as they are within the same “listed stock” category.
3. How to Calculate Capital Gains and Losses for Foreign Stocks
After classifying the stock as listed or non-listed, you calculate your gain or loss using the following basic formula:
Basic formula:
Selling price – (Purchase cost + Selling expenses) = Capital gain/loss
For foreign stocks, you must also convert amounts into Japanese yen:
Detailed formula:
(Selling price × TTB on the sale date) – (Purchase price × TTS on the purchase date + selling commission, etc.)
- TTB = Telegraphic Transfer Buying rate
- TTS = Telegraphic Transfer Selling rate
(These are exchange rates published by securities companies.)
Any currency gain or loss from exchange rate changes is included in the capital gain/loss and is not treated separately as miscellaneous income.
4. Treatment of Losses from Foreign Listed Stocks
Losses from selling foreign listed stocks can be offset with gains from other listed stocks in the same year. This is similar to domestic rules.
However, there is an important difference:
If the loss from foreign listed stocks results in an overall loss in the “listed stocks” category, that loss is ignored for certain purposes. Specifically:
- You cannot offset it with dividend income from listed stocks.
- You cannot carry it forward to future years.
Offsetting with dividend income and carrying forward losses (for up to three years) is only allowed when the transactions are made through a Japanese-registered securities company. Therefore, if you sell through an overseas broker, you lose these benefits.
When the loss is from trades through a Japanese securities company, you can offset it with dividend income from both domestic and foreign listed stocks and carry the loss forward to future years.
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