
Changes To Japan Inheritance Tax Law
Presently, until you have lived in Japan for 10 out of the past 15 years then you do not have any gift tax or inheritance tax liability as a result of an overseas gift or inheritance of overseas assets. This does however only apply to “Table 1 Visa” holders. This is the majority of visa holders who are here on a working visa. If you have a Japanese spouse, or are a “permanent resident”, then you are still included in the previous regime, whereby you will be subject to tax on international assets received; even for the 5 years following you having left Japan.
Japanese tax rates are marginal and among the highest in the world, starting at 10% and maxing out at 55%. Money can be ‘gifted’ to anyone during the year with a maximum allowance of 1.1 million JPY. Anything below this amount does not attract tax, and requires no notification to be made to the tax office. Many will start to systematically gift the maximum amount allowable to their beneficiaries annually, when they realise that their asset base is about to surpass the minimum “tax-free” threshold. Assets can be transferred to the spouse of the deceased free from tax if the total value is lower than 160 million JPY. Anything above that amount is taxed marginally. The basic exemption is 30 million JPY. This of course includes real estate assets, so homeowners should be among the first to consider the tax implications for their children and other beneficiaries before reaching their 10 year Japan-niversary. For those that have already crossed the 10 year mark, all is not lost, but estate planning should be completed as soon as possible to minimise expense.
You Leave Japan, But Japan Does Not Leave You
As mentioned, Japan levies inheritance tax on those previous Table-2 Visa recipients, even up to 5 years after they have left Japan. Although there is ‘relief’ available from double taxation (via bilateral taxation agreements between countries), it is our understanding that ‘normalisation’ is essentially the practice of grossing up tax bills to that of the higher Jurisdiction. For example, you may have paid the taxes payable on the inheritance in the UK, but those taxes are lower than those that were owed in Japan, so you “only” have to pay the difference in Japan. Are you taxed double? No, but you do pay twice…
As progress is often a slow process in Japan, this part of the legislation has yet to be repealed- despite fierce opposition from the expat community and rational policymakers. We would like to see the eventual removal of this clause altogether on the basis that it is entirely unreasonable. In the meantime, clients are advised to conduct tax planning and be aware of the implications surrounding the transfer of wealth among their family members. Failure to conduct planning could cost a family up to 55% of its financial legacy.
Tax Planning For Foreign Nationals In Japan
Japan does not acknowledge traditional common-law structures like Trusts, which instantaneously complicates the asset-protection proposition for foreign nationals. There are likely many Japan residents who are themselves beneficiaries of Trusts, or have their own Trusts set up from a time that they were residents of a foreign country that acknowledged asset trusts and their preferential tax implications. For these clients, remedial measures should be made to ensure compliance with Japanese rules whilst still maintaining a position which is tax efficient; both from the point of view of capital gains, and inheritance tax.
For those clients who have not yet conducted any planning measures, whose assets are owned personally, now is a good time to consider the options available for tax planning; ranging from corporate ownership of assets, to real estate investments and debt structuring.