The inheritance tax law changed several times making many people, including the mayor of Tokyo, frustrated, confused and not sure about what set of rules applies to them. SME Japan has a dedicated guide where you can find detailed information about all the changes in the legislation and handy explanations about all the aspects of the inheritance and gift procedures in Japan. In this article, we focus on foreign investors in Japan who happen to have assets and property inside and outside the country.
Key things to know about the inheritance tax for investors
In Japan, inheritance taxes are charged from heirs. However, the terms and conditions of such taxes are different depending on the donor’s status. Heirs of the “long-term foreigners” (those who stay in Japan for more than 10 years) are more likely to pay inheritance taxes on broader set of assets than heirs of the “short-term foreigners” (living in Japan for less than 10 years out of last 15).
In Japan, the inheritance tax is charged starting at JPY 30 million.
Your residential status is tied to your permanent address in Japan (jusho) that determines if a person has had “Japan as the center of their life” as the main premise to finalize inheritance tax liabilities. Other factors influencing the tax policies are having spouses or heirs in Japan and the location of your assets.
How assets are taxed?
To sum up all the complicated developments in the legislation, foreign investors in Japan must remember the following:
- Their Japanese assets are always taxable.
- Their overseas assets are non-taxable in principle for short-term foreigners (living in Japan for less than 10 years).
- Their overseas assets are taxable if they have been long-term foreigners (living in Japan for more than 10 years).
- Their overseas assets are taxable if they moved out of the country but fall under the “5-year tail” or the “2-year” tail rule when moving back in.
How to calculate the tax amount?
Japan has a tax-free limit of JPY 30 million, while spouses automatically charged only for half the value, and statutory heirs have their own benefits and ways to push the tax down. However, generally speaking, tax progression goes the following way:
- Less than JPY 10 mln: 10%
- JPY 10 mln – JPY 30 mln: 15%
- JPY 30 mln – JPY 50 mln: 20%
- JPY 50 mln – JPY 100 mln: 30%
- JPY 100mln – JPY 200 mln: 40%
- JPY 200 mln – JPY 300 mln: 45%
- JPY 300 mln – JPY 600 mln: 50%
- More than JPY 600 mln: 55%
Moreover, mortgage amounts can be also deducted from the property value. Thus, if you are still paying a mortgage and pass it on to your heirs, you can actually get a negative property value when it comes to taxes. This scheme makes housing investment an attractive way to pass on the heritage of the wealthier ones.
Are there other taxes to consider?
When the property is transferred to a new owner, there might be additional property acquisition payments charged at 4% for gifts, 0.4% property registration fee calculated based on the asset value as well as a license tax of 2%. However, with inheritance tax that is usually not the case.
When to pay the inheritance tax?
Taxes must be filed within 10 months since the date of death. Non-residents must appoint a local tax representative to help them manage the procedures.
"Otsumami" - a bite size snack:
It is highly recommended for foreign investors to consult a lawyer to find out how the inheritance tax will affect their heirs and assets.