In January 2014, the Japanese Nippon Individual Savings Account (NISA) will be launched, offering tax exemptions on capital gains and dividend income from some investments.
According to a survey conducted last month by Nomura Asset Management Co., 15% of about 40,000 respondents said they would definitely use the NISA 15% of about 40,000 respondents said they would definitely use the NISA, and 25% of the individual investors said they were positively considering opening NISA accounts.
So what exactly is the NISA? Who can use it?
- An individual (either a Japanese resident, or a non-resident with a permanent establishment in Japan, who are above 20 years of age) is allowed to open one NISA account.
- The maximum investment amount is 1 million yen each calendar year.
- The account may hold up to 5 million yen, and may be opened for a 10-year period (through 2023).
- Investments made on January 1 of a certain year are subject to a five-year tax-free period, while an investment made on December 1 would have a tax-free period of only four years and one month.
- While purchased stocks and investment trusts through the account may be sold at any time, the redeemed portion cannot be reinvested under the same tax-exempt programme.
- Unlike the UK ISA system, the NISA does not allow for cash savings accounts.
- Unlike regular investment accounts in Japan, any capital losses incurred in the NISA account cannot be offset with capital gains in other investment accounts.
As the NISA programme is part of the central government’s initiatives to boost securities investments among individuals, banks and securities firms have already started gearing up for an intense competition to acquire new NISA accounts. Asset management companies, meanwhile, are aggressively developing new trust funds that could entice local investors, who tend to favour principle-guaranteed products, into the world of high-risk investments.
According to the Bank of Japan, cash and deposits account for about 55% of an estimated 1,500 trillion yen worth of Japanese household financial assets. The government says it aims to achieve 25 trillion yen, or one-sixtieth of these assets, to be shifted to the NISA accounts by 2020.
Given that the Japanese stock market has been recovering since Prime Minister Shinzo Abe took office in December, the question now is if the NISA programme will further revitalise the market and asset management businesses in Japan?
To NISA, or not to NISA? That is the question…