How can you invest more tax efficiently?

One can use a tax-efficient wrapper that will shield Capital gains Taxes (CGT) until a later date.  Also, it will help with the OECD’s Common Reporting Standard (CRS) now in place. Unfortunately, more and more of our financial data gets automatically exchanged. A wrapper is good for most jurisdictions and of course the authorities here in Japan (who joined the CRS in September 2018). If funds are held in an insurance wrapper they can be easily reported but aren’t taxable unless you take a profit out (this means all capital gains are shielded from taxes). At the point where one decides to take things out, one can plan to take advantage of using the best tax-friendly jurisdiction possible to mitigate as much tax as possible.

call 03 5724 5100 to find out more or email info@bannerjapan.com

What is the inheritance tax in Japan?

Japanese inheritance tax law (*sozoku zei ho*)*sozoku zei*)*zoyo zei*)

What types of inheritance taxes are there in Japan?

In general, inheritance taxes apply to property, money, or assets. The following types of properties might be included in a Japanese inheritance:

• Personal property
• Ship or aircraft
• Mining or quarry rights
• Fishing concession rights
• Bank deposits
• Insurance proceeds
• Retirement allowances
• Loans
• Shares in a bond or company
• Investment interest
• Patents, copyrights and trademarks
• Japanese government bonds or foreign government bonds
• Trade receivables

All of these properties might be taxable, depending on if they are located in Japan. Japan has certain rules to determine this, for instance, for personal property it depends on where the property is located, for fishing concession rights it depends on which place on the coast is nearest to the fishing grounds, and for bank deposits it depends on the location of the office where the deposit was made.

Who has to pay inheritance tax in Japan?

All heirs, and recipients of a gift, who live in Japan have to pay inheritance and/or gift tax, regardless of their nationality. If an heir is a Japanese national but doesn’t live in Japan, they’re subject to Japanese inheritance taxes if either the heir or the deceased lived in Japan within 10 years before the date of passing. This same rule applies to givers of a gift and their recipients, if either the gift-giver or recipient has lived in Japan in the 10 years before the donation, the recipient of the gift will be fully liable to pay tax. Even when you’re not a Japanese national and don’t live in Japan, the deceased or person who gives you a gift is living in Japan at the time of passing or at the time of donation, or has done so in the preceding 10 years, you’re fully liable for tax purposes.

When you’re considered to be fully liable to pay inheritance or gift tax, you will have to do so not only on property located in Japan but also on any property you acquire outside of Japan.

Non-resident inheritance tax

Expatriates who are staying temporarily with a Table 1 visa in Japan are required to pay tax only on an inheritance or gift they receive, that is located in Japan. The law defines short-term foreigners as those who have resided in Japan for no more than 10 out of the past 15 years.

Ownership of the property in Japan

Allocating an inheritance through a will is the most straightforward way to go. Without a will, Japanese law requires that assets be distributed by the deceased’s national law. If there’s no will and the deceased was a Japanese citizen or subject to their inheritance rules, local law requires that family members are entitled to the property in a succession distribution, dividing the assets up by the closeness of the relative starting with the spouse. If there’s a surviving spouse, they’ll always be entitled to a share. In case there is a will, but it doesn’t include, for instance, the spouse as one of the heirs, then they can still claim a part of the estate. Lineal ascendants, and lineal descendants, have a right to a share of the estate too, even if they are left out of the will. The following table demonstrates the priority groups of statutory heirs based on their relation to the donor:

½ for spouse, ½ in total for the children (in equal shares)

How is inheritance tax calculated?

The Japanese inheritance tax is assessed based on the fair market value of the property or asset at the time of death minus any liabilities, funeral expenses, and exemptions or allowances. In Japan, it’s the individual heirs that are taxed, not the estate.

The calculation of the amount is done a bit differently than in most countries. First they calculate what the amount of tax would be for each, separate, statutory heir, no matter if they will receive their statutory share or not. These amounts are then added up, and divided between those who receive a part of the estate.

Various tax rates may apply depending on the amount of property or assets inherited. Certain exemptions can also apply, mainly in the form of land and business exemptions, donations to nonprofits or the government, or life insurance proceeds and retirement allowances. The following table depicts the progressive tax rates for Japanese estates:

How can I reduce the amount of inheritance tax I pay?

There are a few exemptions and tax credits, related to inheritance tax, in Japan. For instance, there’s a standard amount of ¥30 million which you can deduct, as well as ¥6 million multiplied by the number of heirs.

Other exemptions are:

• Donation of property to specified non-profit organizations, a local public organization, or a foundation of the Japanese government, provided that the donation is made by the filing due date of the inheritance tax, by the heir
• Each statutory heir can deduct ¥5 million for life insurance proceeds
• ¥5 million for retirement allowance, per statutory heir
• Under certain circumstances, you can deduct 20% of acquired small-scale business or residential land

There are also a few tax credits that you can apply for, including:

• ¥100.000 x (heirs age), for minor heirs under the age of 20
• ¥100.000 x (heirs age) for handicapped heirs (¥200.000 x heirs age, in case of special disabilities)
• To avoid double taxation, a foreign tax credit is available

As there might be special rules and conditions to apply these exemptions and tax credits, it might be a good idea to seek professional advice to make sure you don’t miss out on one that might apply to your situation.

There are also several exemptions for gift tax, these can include, but are not limited to, the following:

• Gifts for living expenses and education
• Duly reported donations to a candidate for a public election campaign
• For handicapped persons, receiving a subsidy from a local public organization
• Public interest trusts giving money or goods to students/pupils, to help with their education

What are the inheritance tax thresholds in Japan for 2017-2018?

For inheritance tax thresholds in Japan, please refer to the above table on how inheritance tax is calculated. For gift tax thresholds, assuming the beneficiary is 20 years or older and is a direct descendant of the donor, the thresholds are the following:

Are there any other additional taxes on inheritance in Japan?

Some real estate transfer taxes may apply. For example, the registration of the transfer of ownership of a property is taxed at a rate of 0.4% of the assessed value of the property, and for the license tax, a standard rate of 2% is usually assessed. A real estate acquisition tax of 4% might also apply if the property is a gift. Usually, property acquired by inheritance is exempt from this tax.

When do I have to pay inheritance tax?

You have 10 months from the date of death to file and pay any tax debts owed on your new inheritance. If you’re a non-resident of Japan, you’ll need to appoint a local tax representative to help you.

How do I pay my inheritance taxes in Japan? Can I pay online?

The inheritance tax must be paid in one lump sum and a deferred payment may be allowed for up to 20 years. You can also pay with the inherited property if a single cash payment isn’t doable.