What is Japan's NISA scheme?

Alright, let's break down Japan's NISA system for you.

What exactly is Japan's NISA system?

You can think of it as a "magic tax-free investment pocket" given to you by the government.

Normally, if you make a profit from investing in stocks or funds, say 100,000 JPY, about 20% (i.e., 20,000 JPY) would go to the government as tax. However, if you invest that money through NISA, this "magic pocket," any profits you make are completely tax-exempt. That 100,000 JPY profit can go entirely into your own pocket, without a single yen deducted.

The government introduced this system to encourage people not to keep all their money stagnant in bank accounts (where interest rates are pitifully low), but rather to invest it, allowing their money to grow and simultaneously boosting economic vitality.

The NISA system underwent a major upgrade in 2024, making it much more user-friendly than before. What we're mainly discussing now is this "New NISA."

Key Highlights of the New NISA (Starting from 2024)

1. Permanent System, Always Available

The old NISA had time limits, like a trial version. The "New NISA" is now permanent, meaning you can use it indefinitely without worrying about it ending someday.

2. Significantly Increased Quotas

New NISA provides you with two separate "investment spaces" that you can choose to utilize based on your circumstances:

Tsumitate Investment Frame: You can invest up to 1.2 million JPY annually.
- This frame is primarily for long-term, small-amount, diversified "regular fixed-amount investments," such as buying index funds with a fixed amount of several thousand or tens of thousands of JPY each month. You can think of it as the "Stable Investment Zone," suitable for investment beginners and those who want hassle-free, long-term savings.
Growth Investment Frame: You can invest up to 2.4 million JPY annually.
- This frame is more flexible; besides funds, you can also use it to buy individual stocks (e.g., Toyota, Sony shares). You can think of it as the "Aggressive Investment Zone," suitable for those who want to pick their own stocks or have a more proactive investment strategy.

These two frames can be used simultaneously, but the total annual investment cannot exceed 3.6 million JPY. You can use just one or both.

3. Lifetime Tax-Exempt Limit of up to 18 Million JPY

The lifetime tax-exempt investment limit (principal) through your NISA account is up to 18 million JPY. This is a substantial amount, sufficient for most people's long-term investment planning.

4. Quotas Can Be Reused!

This is one of the coolest features of the New NISA. For example, if you buy 1 million JPY worth of stocks using your NISA account, and later sell them at a market high, your profits are tax-free. Crucially, the investment quota used by the principal amount you sold (1 million JPY) will "resurrect" in the following year, allowing you to reuse that quota to buy new assets. This makes operations incredibly flexible, as you don't have to worry about the quota disappearing permanently after selling.

How to Start Using NISA?

It's simple: as long as you are an adult aged 18 or over residing in Japan, you can apply to open a dedicated NISA account at a bank or securities firm (such as online brokers like Rakuten Securities or SBI Securities, which typically have lower fees and more options). Once your account is open, transfer funds into it, and then choose the stocks or funds you wish to purchase.

Simple Summary

Purpose: To encourage individual investment and make your investment gains tax-exempt.
Core Benefit: Investment profits (capital gains and dividends) are exempt from the 20.315% tax.
Who it's for: All adults residing in Japan.
How to do it: Open a NISA account at a financial institution, then choose the stocks or funds you wish to buy.

Overall, NISA is a fantastic benefit offered by the Japanese government to its residents, especially for those looking to start investing or save for future retirement and children's education. It's definitely an invaluable tool. If you live in Japan, I highly recommend looking into it – don't let this "magic pocket" go to waste!