Your guide to paying inheritance tax in Japan

06.02.18
8 minute read
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If you live abroad as an expat, you’ll probably experience many benefits - adventures, new friends, and a general broadening of your horizons. One of the downsides is that at times, you run into a new system of taxes, laws, and bureaucracy.

You may need to learn about the rules of inheriting property or gifts from a citizen of another country. Perhaps you have expatriated family that is passing something on to you, or you’ve inherited something in one country while living in another. If you aren’t a citizen, you should understand which rules carry over from your home country, and what new laws you’ll face. What are the legalities that apply to foreigners and non-residents? This post will provide insight into the inheritance process in Japan.

What is inheritance tax in Japan?

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

(Source 21 Dec 2017)

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 a personal property is depends where the property is located, for fishing concession rights it depends on which place of 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.

(Source 21 Dec 2017)

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, but 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.

(Source 21 Dec 2017)

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.

(Source 21 Dec 2017)

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 are 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:

Order Statutory heirs Share allocation Mandatory heirship
1 Children of the deceased (or their direct descendants if they’re also deceased) ½ for spouse, ½ in total for the children (in equal shares) ½ in total for spouse and children, ½ in total for children only
2 Ascendants of the deceased (parents and grandparents) ⅔ for spouse, ⅓ in total for ascendants (in equal shares) ½ in total for spouse and ascendants, ⅓ in total for ascendants only
3 SIblings of the deceased (or, if they’re deceased, nieces and nephews of the deceased) ¾ for spouse, ¼ in total for siblings (in equal shares) ½ for spouse only, no mandatory heirship for brothers and sisters

(Source 21 Dec 2017)

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 actually receive their statutory share or not. These amounts are then added up, and divided between those who actually 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 for life insurance proceeds and retirement allowances. The following table depicts the progressive tax rates for Japanese estates:

Total amount Tax rate
Up to ¥10 million 10%
Above ¥10 million up to ¥30 million 15%
Above ¥30 million up to ¥50 million 20%
Above ¥50 million up to ¥100 million 30%
Above ¥100 million up to ¥200 million 40%
Above ¥200 million up to ¥300 million 45%
Above ¥300 million up to ¥600 million 50%
Above ¥600 million 55%

(Source 21 Dec 2017)

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 organisations, a local public organisation, 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, 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 in order 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 a number of exemptions for gift-tax, these can include, but are not limited too, the following:

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

(Source 21 Dec 2017)

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:

Tax base Rate
Not more than ¥2 million 10%
Above ¥2 million and up to ¥3 million 15%
Above ¥3 million and up to ¥4 million 15%
Above ¥4 million and up to ¥6 million 20%
Above ¥6 million and up to ¥10 million 30%
Above ¥10 million and up to ¥15 million 40%
Above ¥15 million and up to ¥30 million 45%
Above ¥30 million and up to ¥45 million 50%
Above ¥45 million 55%

(Source 21 Dec 2017)

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.

(Source 21 Dec 2017)

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.

(Source 21 Dec 2017)

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.

(Source 21 Dec 2017)

Paying inheritance taxes online

You can make payments at the tax office or at the post office. For estate taxes, you have the option to pay online using your credit card. You may also be able to pay taxes through your attorney, and you should contact them for details.

(Source 1, Source 2, 21 Dec 2017)

When the time comes, make sure you’re keeping as much of your inheritance in your pocket as possible. Instead of using a big bank, use TransferWise to transfer the money to Japan. Big banks usually offer poor exchange rates, but TransferWise offers you the mid-market rate, i.e. the same one you’d find on Google. Further, TransferWise multi-currency borderless account allows you to hold and manage money in several currencies, including the Japanese yen. TransferWise offers the lowest rates for currency exchanges, sometimes 4-5% lower than typical banks.

You’ll need to check if the government will accept payments from third parties, as well as what kind of reference on a bank transfer that they may need in that case. Otherwise, if you have a friend or family member with a bank account in Japan, TransferWise can help reduce the costs you’re paying from abroad.

Unexpected costs like inheritance and gift taxes can be a hassle on top of already complex tax dues. Don’t make it more difficult. TransferWise might be your best option for saving money on cross-border transfers, whenever you need to pay taxes abroad.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.

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