Hey everyone, Hirokichi here.
In an earlier post, “[Beginner’s Guide] How to Start High-Dividend Stock Investing“, I mentioned that dividends are tax-free inside the growth investment portion of the new NISA. But there is a trap here that a surprising number of people miss. Even if you buy stocks inside a NISA account, your dividends can still be taxed at 20.315% unless one specific setting is switched on.
That setting is called the Proportional Share Method (kabushiki-su hirei haibun hoshiki). Here’s how to change it, and three things to watch out for. It takes about five minutes, so if any of this sounds familiar, go ahead and check your account while you read.
The trap: taxed dividends inside a tax-free account
Dividends from stocks held in a NISA account are only tax-free if your dividend payment method is set to the Proportional Share Method. That means receiving dividends directly into your brokerage account. If you have chosen any other method (a bank transfer, or picking up cash at a post office counter), the usual 20.315% is withheld even on shares bought inside NISA. That rate breaks down into 15% income tax, 0.315% special reconstruction income tax, and 5% residential tax.
The tricky part is that this setting does not switch itself on when you open a NISA account. If you already had a brokerage account and were receiving dividends by bank transfer, or you had chosen paper dividend receipts, that old setting is probably still in place. The Japan Securities Dealers Association also warns that the Proportional Share Method must be selected for NISA dividends to be tax-free (source: Japan Securities Dealers Association).
One exception: distributions from mutual funds are tax-free regardless of the payment method. This setting only matters for dividends and distributions from Japanese individual stocks, ETFs, and REITs. If you only hold index funds like Orcan or S&P 500 trackers, you can skip all of this.
Four ways to receive dividends, and only one is tax-free
In Japan there are four ways to receive dividends from listed stocks (source: Japanese Bankers Association).
(1) Proportional Share Method: dividends are paid into your brokerage account in proportion to the number of shares you hold. This is the only one that is tax-free inside NISA.
(2) Registered Dividend Account Method: dividends from all of your holdings are paid into one designated bank account.
(3) Individual Stock Designation Method: you choose a bank account for each stock separately.
(4) Dividend Receipt Method: a paper receipt arrives in the mail, and you exchange it for cash at a post office or bank counter.
Methods (2) through (4) are all taxable. If your dividends show up in your bank account, or a paper slip arrives at your home, you are on something other than method (1).
When I first started investing, I was on method (2) myself. I liked seeing the money land in my bank passbook, but once I learned it was blocking the NISA tax exemption, I switched to method (1).
A 24,378 yen difference on 120,000 yen of annual dividends
Let’s put a number on it. If your goal is 10,000 yen a month (120,000 yen a year) in dividends, the Proportional Share Method leaves you with the full 120,000 yen. Any other method leaves you with 95,622 yen, meaning 24,378 yen goes to tax.
As the chart shows, the gap widens as your dividends grow: 48,756 yen at 240,000 yen a year, and 73,134 yen at 360,000 yen a year. Over decades of receiving dividends, that adds up to real money. And all it takes is one setting change that costs nothing. Personally, I think this is the first thing to check if you own even a single high-dividend stock.
How to switch to the Proportional Share Method
Here are the steps at the two largest Japanese online brokers. Both take just a few clicks after logging in.
At SBI Securities, log in and go to “My Settings” to “Trading and Account Information” to “Dividend Receipt Service”, then select “Proportional Share Method” and click “Change” (source: SBI Securities FAQ).
At Rakuten Securities, log in and go to “My Menu” to “Product Settings” to “Japanese Stocks”, then click “Change” next to “Dividend Receipt Method for Japanese Stocks” (source: Rakuten Securities).
Other brokers usually keep this under “Account Management” or “Settings” as “Dividend Receipt Method”. If you can’t find it, searching your broker’s site for “dividend receipt method” will usually bring up the right page.
If you don’t have a brokerage account yet, here are the ones I use.
Three things to watch out for
(1) The setting applies across every brokerage you use. Dividend payment methods are managed centrally by the Japan Securities Depository Center (JASDEC), so you cannot choose a different method at each broker. Change it at one company and every other account switches too. On the bright side, that means you only have to do this once, no matter how many brokers you use.
(2) You cannot make only your NISA account tax-free. For the same reason, there is no way to run the Proportional Share Method on your NISA account while keeping bank transfers on your taxable account. The setting applies to everything at once.
(3) Finish before the record date. For dividends to be tax-free, the change has to be reflected by the stock’s record date. Some brokers cut off earlier than you’d expect. Mizuho Securities, for example, asks for changes by 18:00 three business days before the record date (source: Mizuho Securities FAQ). Rather than scrambling right before a company’s fiscal year end, it’s safer to just get it done now.
One more thing worth knowing: dividends from U.S. stocks and U.S. ETFs are still subject to 10% withholding tax in the United States, even inside a NISA account. The Japanese tax is waived, but the U.S. portion is not eligible for the foreign tax credit, so you don’t get it back. That’s different from how Japanese stocks work, so it’s worth keeping in mind.
Wrapping up: check the setting before you buy
High-dividend investing is about receiving dividends and reinvesting them, slowly building things up over time. Losing 20.315% right at the entrance would be a shame. Before you spend hours picking stocks, take a minute to check how your brokerage account is set up.
Even if you’ve already done it, it’s worth checking accounts in your family’s names, or that old brokerage account you opened years ago and forgot about. If you’re looking for stock ideas, have a look at “[2026 Update] Top 5 U.S. High-Dividend Stocks for a Dividend Lifestyle Through Consecutive Increases” as well.
Let’s keep at it, slow and steady. See you next time!
* This article is for informational purposes only and does not recommend any specific investment. Please make investment decisions at your own responsibility.
日本語版はこちら → 【要設定】NISAでも配当金に税金がかかる？株式数比例配分方式のやり方と3つの注意点
Thanks for reading! If you enjoyed this post, a quick click on the banners below would really encourage me.
コメント