What Is a Specified Account?
The Specified Account (特定口座, Tokutei Koza) is a brokerage account type unique to Japan that simplifies tax compliance for individual investors. Introduced in 2003, it was designed to encourage stock market participation by removing the burden of calculating capital gains taxes manually. When you open a Specified Account, your brokerage tracks every purchase and sale, calculates your gains and losses using the average cost method (which is mandatory for listed securities in Japan), and provides an annual transaction report (年間取引報告書) that you can use for tax filing. This stands in contrast to a General Account (一般口座, Ippan Koza), where the investor is responsible for tracking all transactions and calculating gains independently.
Withholding vs Non-Withholding Options
Within the Specified Account, investors choose between two sub-types: with withholding (源泉徴収あり, gensen choshu ari) and without withholding (源泉徴収なし, gensen choshu nashi). The withholding option is by far the more popular choice. With this option, the brokerage automatically deducts 20.315% tax (15.315% national income tax including the reconstruction surtax, plus 5% local inhabitant tax) from your realized gains at the time of each sale. This means you never need to file a tax return for your investment income if the Specified Account is your only source of capital gains. The non-withholding option still provides the annual transaction report but does not deduct taxes automatically, requiring you to file a tax return and pay the tax yourself. This option can be advantageous if your total income is low enough to qualify for a lower tax rate or if you want to offset losses across multiple accounts.
Specified Account vs General Account vs NISA
Japan offers three main account types for securities investment, each with distinct tax treatment. The General Account provides no tax calculation assistance and requires the investor to report all gains manually, making it suitable only for sophisticated investors or those holding unlisted securities. The Specified Account automates tax handling as described above. NISA (Nippon Individual Savings Account) provides complete tax exemption on gains and dividends within its contribution limits. Most Japanese investors use a combination: NISA for tax-free growth up to the annual limit, and a Specified Account with withholding for investments beyond the NISA cap. The Specified Account's withholding feature means that even investors who exceed NISA limits face minimal tax compliance burden.
Comparison with the U.S. 1099 System
American investors may find the Specified Account concept unfamiliar because the U.S. uses a fundamentally different approach. In the U.S., brokerages issue Form 1099-B reporting your sales proceeds and cost basis, but they do not withhold taxes on capital gains. The investor must calculate their own tax liability and pay it through quarterly estimated payments or at annual filing. The U.S. system also allows investors to choose their cost basis method (FIFO, LIFO, specific identification, or average cost for mutual funds), whereas Japan mandates the average cost method for all listed securities. The Japanese system trades flexibility for simplicity: you cannot optimize your cost basis method, but you also cannot make mistakes in your tax calculation. Guides on investing in Japan cover account types and tax rules
Practical Tips for Choosing Your Account Type
For most Japanese residents, the optimal setup is straightforward: maximize your NISA contributions first, then use a Specified Account with withholding for everything else. Choose the non-withholding option only if you have losses in other accounts that you want to offset through a tax return, or if your total income is below the taxable threshold. Be aware that once you choose the withholding option for a given year, you cannot switch mid-year. Also note that if you hold the same security in both a Specified Account and a General Account, the cost basis calculations are tracked separately, which can create confusion. Consolidating all taxable investments into a single Specified Account with withholding is the simplest and most error-proof approach for the vast majority of investors.