06 May 2020 Hitomi Sakai

A taxing estate

Hitomi Sakai warns of the tax implications for non-Japanese residents planning their estates in Japan

In the past two decades, practitioners working on inheritance and estate planning for clients foreign to Japan will have experienced significant complications. During this period, repeated changes to Japan’s taxation laws have had a substantial impact on these clients, especially those who have enjoyed long-term residency in Japan. The main obstacle for clients was that their estate planning had been prepared by ‘foreign’ professionals, without considering Japanese legal, tax and practicable perspectives. While such plans might work well in their own native countries, they often cannot achieve their initial purpose in Japan, and may create serious problems for the client from a legal, tax and practicable perspective.

Inheritance tax and gift tax

Japan has a relatively high rate of inheritance tax (IHT) and gift tax, the maximum rate being 55 per cent.

Under tax reforms brought in in 2017, the scope of taxable assets extended to international assets if a foreign national1 beneficiary, who received assets from a deceased foreign national or donor who had lived outside of Japan for more than ten years, received assets within five years of leaving Japan. These assets were taxed, even if none of related parties lived in Japan at the time of death.

Thus, advice for long-term resident foreigners in the process of leaving Japan should be: you may die once you have lived outside of Japan for five years to avoid Japanese IHT for your worldwide assets.

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