Buying Japanese stocks from abroad

An American depositary receipt (ADR) is a certificate traded in the US that represents shares of a foreign company, priced in dollars. Some Japanese companies, including Toyota, Sony and Honda, have shares listed on the New York Stock Exchange. Many others have ADRs that trade over the counter (OTC), with thinner trading and wider price gaps.

ADRs are easy to buy through an ordinary US broker, but you still carry the yen risk because the underlying shares are in yen. The depositary bank may charge a small annual fee, and some ADRs come with extra costs on dividends.

Some large international brokers let you buy shares on the Tokyo Stock Exchange directly. You trade in yen, so the broker converts your money, usually for a currency fee. Trading is in units of 100 shares. Tokyo's trading hours fall overnight in the Americas and in the early morning in Europe, although you can place orders ahead of time.

Check what your broker offers before assuming you can buy Japanese shares. Many only offer ADRs or funds, and some do not accept customers from every country.

Japan withholds income tax on dividends paid to people outside the country. For listed shares, the rate is 15.315% under current rules, collected before the money reaches you. Tax treaties between Japan and your country can lower the rate, and how you claim the lower rate depends on your broker.

For gains on selling, Japan generally does not tax small non-resident investors who have no business in Japan, although there are exceptions such as large shareholders. Your home country will have its own rules on dividends, gains and foreign income, and these often matter more.

Many Japanese companies give shareholders perks, called yūtai, such as products, discount vouchers or meal tickets. Often you must hold at least one unit of shares on a set date. Perks are usually sent to a Japanese address, so shareholders abroad often cannot receive them, and the companies treat them as a bonus, not a reason to buy.