As many other countries Japan charges taxes from items that were inherited or obtained as a gifted. For example, if you have inherited or received real estate, large money sums or expensive items as a gift, you should pay taxes to the state. Of course, there are some exceptions to this rule as explained in more details in our guide.
About a year has passed after amendments of 2017, Japan has revised its inheritance and gift tax regulations again. The new revision of the law will be applicable to all acquisitions made on or after 1st of April 2018. What has changed and why is this important?
Tax Amendments of 2017
The Tax Law amendments of 2017 were supposed to find a balance between relaxing regulations for foreigners who were residing in Japan for a continues period of time and impose tax duties on those Japanese citizens who left the country in order to use such relaxed tax regulations made for non-residents of Japan. However, the proposed terms received a lot of criticism, especially when it comes to real estate property.
Namely, the revision of 2017 took the following factors into account:
- The time spent in Japan as a resident: 10 or more years within the last 15 years.
- The time spent outside Japan after those 10 or more years.
- The location of a property.
The old regulations of 2017 will not be applied to those donors who have moved out of Japan after the residence of 10 or more years before the 1st of April 2017.
The older revision suggested that inheritance and gifts received from a person that has resided in Japan (but is not a citizen) for 10 or more years within the last 15 years and has left the country no more than 5 years ago are taxable. It didn’t mater if the property was located outside Japan. Simply put, a non-Japanese citizen is obliged to pay taxes to Japan for a gift from a non-Japanese citizen who does not live in Japan anymore.
Experts agreed that such conditions were discouraging foreign citizens from coming to Japan and working or residing here on a long-term basis.
Tax Amendments of 2018
The new amendments will bring two major changes. The first one has to do with the location: properties located outside Japan are now considered to be non-taxable in principle. The second one has to do with the timeframe: the period of residence outside Japan after a continuous stay in the country for foreign donors had been shortened to 2 years instead of 5.
Changes have also relaxed regulations for Japanese nationals. According to the 20218 revision heirs who are Japanese citizens but have not resided in Japan during the past 10 years are free from inheritance and gift tax for properties located outside Japan.
Due to the fast switch in regulations heirs might find themselves caught in between two sets of rules and unsure whether they need to pay taxes to Japan on their newly acquired properties outside Japan transferred from a non-Japanese citizen.
The old regulations of 2017 will not be applied to those donors who have moved out of Japan after the residence of 10 or more years before the 1st of April 2017 as well as any inheritance and gifts received in between the 1st of April 2017 and the 31st of March 2022. They are subject to new regulations of 2018. Those who are still subject to taxation must fill in their tax returns between the 1st of February and the 31st of March the year following the year when one has received an inheritance or a gift.