Different countries have different methods for taxing inheritances. Some countries don’t levy inheritance taxes at all. Others offer high tax exemptions for inheritances. If you’re from one such country, you may think that you’re in the clear. However, foreign people living in Japan may not be so lucky when receiving an overseas inheritance. Depending on your status of residence in Japan, you may need to take extra steps to protect your inheritance from Japan’s notoriously high inheritance tax.
Does Japan Tax Overseas Inheritances?
Some foreign nationals living in Japan are exempt from paying tax on their overseas inheritances. However, not all are. The exemption applies to those labeled “temporary foreigners” according to Japanese immigration law. To be considered a temporary foreigner, you must meet the following definitions:
- -Hold a “Table 1 visa” (this excludes permanent residents and others who hold a Table 2 visa)
- -Have no more than 10 years of residency (‘jusho’) in Japan out of the 15 years preceding the event that triggers your inheritance
Note that foreign nationals who return to Japan after receiving an overseas inheritance and within two years of their initial departure from Japan may not qualify for the temporary foreigner exemption.
So which foreign residents of Japan do need to pay tax in Japan when receiving an overseas inheritance? Any of the following:
- -Long-term residents
- -Permanent residents
- -Spouses and children of permanent residents
- -Spouses and children of Japanese nationals
- -Certain foreign nationals who had residency in Japan between April 1st, 2017, and April 1st, 2018.*
*Due to an additional “5-year tail” rule enacted during this time, foreign nationals who had residency in Japan for 10 years or more and received an inheritance between 2017 and 2018 continue to be subject to Japanese inheritance tax for up to 5 years after their permanent departure from Japan.
How to Pay Tax on Your Overseas Inheritance in Japan
As of 2017, individuals receiving an inheritance in Japan have 10 months from the date of the event triggering the inheritance to file and pay any applicable taxes. Those who have already left Japan at this time may need a local tax representative to help them do this.
Inheritance tax must be paid in one lump sum, although you can file for deferred payment. Payments can be made at the tax office or post office by yourself or through a lawyer or other tax representative.
Depending on your country of origin, you will be required to file, and possibly pay taxes on your inheritance there, too. If so, your inheritance may be at risk of double taxation. Without proper planning, this means you could lose well over half of the value of your inheritance to combined tax rates.
How to Protect and Plan for Your Overseas Inheritance
You’ll want to do all you can to protect the value of your overseas inheritance. An inheritance can help set you up for success in the future—but only if you know what to do with it today, so It’s important to consider how it will affect your current financial situation in Japan.
Consider any debts or requirements associated with receiving this inheritance. Will these debts and taxes have to come out of your family’s income when the inheritance is received? How can you minimize these costs or invest your current income and assets to offset them when the time comes?
If you invest your inheritance properly, you can protect yourself against various risks to your financial security and ensure that your wealth will grow over time. By anticipating the costs as well as the opportunities that come with your inheritance, you can create a financial plan to ensure your financial security for years to come.
How to Invest Your Overseas Inheritance
The prospect of financial planning for your international inheritance seems complicated, but don’t despair. There are numerous ways to invest your inheritance that will help you maintain and grow its value. International investment accounts, for instance, can help you create a diversified financial portfolio with exposure to a variety of asset classes. With an international account, you can invest in stocks and bonds, commodities, real estate, funds, crypto, and more. This ensures that you’re not putting all of your eggs in one basket, so if one asset class does poorly, there are still other asset classes performing well and generating returns.
An experienced financial advisor can help you best prepare a financial plan for receiving your overseas inheritance in Japan. Seeking guidance from an expert can help you understand all of the risks and opportunities that come with your inheritance, and how best to invest your inherited assets to protect your current and future wealth. If you think you are likely to receive an inheritance, don’t wait until it has already happened to talk to an advisor. Remember, planning for your future starts today.