Dividends from shares already have 20.315% withheld at source when you receive them, so you can finish without filing. But in fact you can choose from three taxation methods, and the choice changes your take-home amount. People whose income is not so high often find that with "aggregate taxation + dividend tax credit," part of the tax comes back, and in a year you lost money on shares, "separate self-assessment taxation" is advantageous for offsetting gains and losses. Including the point that from the FY2024 portion residence tax was unified to the same method, we organize how to choose.
① Dividends on listed shares can be chosen from three methods: (A) no filing required (complete at 20.315% withholding) / (B) aggregate taxation + dividend tax credit / (C) separate self-assessment taxation (offset against share transfer losses)[National Tax Agency No.1331].
② The dividend tax credit is a tax credit available when you choose aggregate taxation: 10% for income tax and 2.8% for residence tax (on the portion of taxable total income of ¥10 million or less)[National Tax Agency No.1250].
③ Guideline: if taxable income is ¥6.95 million or less, (B) aggregate taxation tends to be advantageous. In a year you lost money on shares, (C). Otherwise, or to save the effort, (A).
④ From the 2023 income tax portion and FY2024 residence tax, you can no longer choose separate methods for income tax and residence tax. Note that if you file, the dividends enter your "income" for national health insurance premiums and dependant judgments.
⑤ Dividends in a NISA account are tax-free (when the receiving method is set to the "proportional-to-shareholding distribution method").
Comparing the three taxation methods
| (A) No filing required | (B) Aggregate taxation | (C) Separate self-assessment | |
|---|---|---|---|
| Tax rate | 20.315% (withholding only) | Progressive rate − dividend tax credit 10% + 2.8% | 20.315% |
| Advantage | Zero effort. Not counted as income | For low-to-middle income, the effective rate falls below 20.315% | Offset against share transfer losses and loss carryforward |
| Who it suits | High earners; those who want to avoid effects on dependants or premiums | Guideline of taxable income ¥6.95 million or less | A year you lost money on shares |
- Taxable income ¥1.95 million or less: about 7.2% (vs 20.315%) → greatly advantageous
- Up to ¥3.3 million: about 7.2% / up to ¥6.95 million: about 17.4% → advantageous
- Up to ¥9 million: about 20.3% → roughly equal (given the effort and premium effects, no filing is the safe choice)
- Over ¥9 million: no filing (A) is advantageous
* Rough figures including the special reconstruction income tax. They do not include judgments such as the spouse deduction, or effects on national health insurance premiums.
Two points to check without fail before you file
- (1) Residence tax is linked too (from the FY2024 portion): Previously you could cherry-pick "aggregate taxation for income tax, no filing for residence tax," but now income tax and residence tax are unified to the same method. If you file, the dividends enter income on the residence tax side too.
- (2) The side effect of increasing "income": Because filed dividends are included in your total income amount, they can affect judgments for the spouse deduction and dependant status, national health insurance premiums, the co-payment ratio for medical costs of the elderly, and more. Those living on a pension or self-employed should decide not only by the tax gain or loss but including premiums.
Dividends where the dividend tax credit cannot be used
The dividend tax credit applies to "dividends of profits from a domestic corporation." Note that the following, even under aggregate taxation, cannot use the dividend tax credit (or have a lower rate)[National Tax Agency No.1250]:
- Dividends on foreign shares (such as US shares) and distributions from J-REITs: Outside the scope of the dividend tax credit. For foreign shares, consider the foreign tax credit.
- Distributions from investment trusts: The credit rate is lower depending on the product (depending on the proportion of foreign-currency and non-share holdings).
- Dividends in a NISA account: Tax-free in the first place, but they are taxed unless the receiving method is set to the "proportional-to-shareholding distribution method," so check your brokerage account settings (New NISA Utilization Guide).
FAQ
Is it better to file a tax return for dividends?
If your taxable income is at the guideline of ¥6.95 million or less, with aggregate taxation + the dividend tax credit, part of the withheld tax often comes back. However, once you file, the dividends are included in your income and can affect dependant judgments and national health insurance premiums, so decide by the overall gain or loss including premiums. In a year you lost money on shares, separate self-assessment taxation with loss offsetting is advantageous.
What is the dividend tax credit?
It is a tax credit available when you file dividends under aggregate taxation: on the portion of taxable total income of ¥10 million or less, 10% for income tax and 2.8% for residence tax of the dividend are subtracted from your tax. It is a mechanism to adjust the double taxation between corporate tax and income tax.
Can the dividend tax credit be used for dividends on US shares too?
No. The dividend tax credit applies to dividends from domestic corporations. US shares are taxed domestically after 10% is withheld locally, so the standard approach is to use the foreign tax credit in your tax return to adjust the double taxation.
I heard you can choose no filing for residence tax only.
That method was abolished. From the 2023 income tax portion (FY2024 residence tax), you can no longer choose different taxation methods for income tax and residence tax, and filing is reflected in both.
Data sources
- Taxation method for dividend income (choice of three methods): National Tax Agency No.1331 Separate self-assessment taxation system for dividends of listed shares, etc. (in Japanese) / No.1330 When you receive dividends (in Japanese)
- Dividend tax credit (10%, 2.8%, etc.): National Tax Agency No.1250 When you have dividend income (dividend tax credit) (in Japanese)
* The guideline for advantage/disadvantage is a rough estimate and changes with the situation of other income and deductions. This article is general information; for individual judgments, please confirm with a tax office or a tax accountant.