Demystifying Japan’s Inheritance Tax

There is a lot of confusion about Japanese inheritance tax among foreign residents in Japan. If you do a Google search for “inheritance tax in Japan” you will surely find a lot of alarming (and often inaccurate) information out there.

You might have read that Japan has a 55% inheritance tax that applies to foreign residents. This has led more than a few long-term residents to consider leaving Japan. In reality, the situation is not so alarming, but rather complicated.

So what is the reality of Japan’s inheritance tax? In this blog our tax and legal experts on the Legacy Tomodachi team will break it down for you.

 

Do foreigners have to pay inheritance tax?

In recent years, Japan’s laws have been changed to target foreign inheritance. The most recent change occurred in April 2018. Generally, if foreigners inherit assets located in Japan, they are obligated to pay inheritance tax in correspondence to the Japanese assets. In some cases, it goes further and foreigners have to pay Japanese inheritance tax on all assets inherited worldwide.

So in what cases do you have to pay Japanese inheritance tax on all assets inherited worldwide?

First of all, if you are a foreigner who has resided in Japan for more than 10 years over the past 15 years and you were residing in Japan at the time of the decedent’s passing, you must pay Japanese inheritance tax on inherited overseas assets.

Other factors include as whether or not you have an address in Japan, the number of years you have resided in Japan, as well as the nationality of the deceased and the amount of time they had stayed in Japan. All of this will determine whether or not you must pay Japanese inheritance tax on all inherited overseas assets.

 

What assets are taxed?

What exactly gets taxed when receiving an inheritance?

Almost everything you inherit or that you receive as a gift from a deceased person is subject to tax. Anything with financial value, including cash, bank accounts, securities, precious stones, gold doubloons, land, buildings, loans that are owed, patents, copyrights, pension, life insurance, and other assets are deemed taxable. The tax reaches as far as farm land and unlisted stocks.

Assets that were gifted by the deceased within 3 years of their death are also subject to inheritance tax.

Although the tax has a wide reach, there are some assets that go untaxed. Tax-free assets may include assets that you intend to use for religious, charitable, academic reasons, or another public benefit.

 

Tax Relief

Japan’s inheritance tax also has some exemptions and deductions.

Basic exemption

When calculating inheritance tax, you can subtract the basic exemption from the total amount of taxable inherited assets:

Basic exemption = 30,000,000 yen + (6,000,000 x the number of statutory heirs) 

*for inheritance after 1 Jan 2015

If the value of all inherited assets is lower than the total amount of the basic exemption, the estate is not subject to Japanese inheritance tax.

Foreign Tax Deductions

When foreigners who inherit assets that are located outside of Japan pay inheritance tax on an asset both in Japan and to an overseas government, it is possible to deduct the amount of inheritance tax paid in the foreign country from the Japanese inheritance tax to mitigate double taxation.

 

Why you should see a professional

Inheritance tax requirements may differ depending on the assets, residence, and the composition of the family involved. If you want to know more about inheritance tax or methods to reduce your tax burden, we suggest consulting with a professional. Legacy Tomodachi offers tax consultations with experienced tax consultants with strong background in international cases.

Contact us to learn more about matters related to Japanese inheritance tax.