Japan Inheritance Tax – Calculation, FAQs & More

  • Post category:Japan

In Japan, an individual who inherits money or property from a deceased person must pay inheritance tax, also known as sōzokuzei. It is paid as a national tax in Japan, with an exemption of ¥30 million and a deduction of ¥6 million from the estate for each heir. The tax ranges from 10% to 55%.

An inheritance tax declaration and payment must be made if the net estate value exceeds the basic exemption amount. After the assets have been divided and given to the appropriate beneficiaries, each beneficiary must pay the inheritance tax if applicable. The heirs, not the estate, are subject to taxes.

japanese inheritance tax

The inheritance tax is due on inherited assets worldwide for those who have resided in Japan for ten years or longer, held an address, and have certain visa types.

HOW TO CALCULATE THE JAPAN INHERITANCE TAX?

With an inheritance tax rate that starts at 10% and can reach up to 55% depending on the amount of the inheritance, Japan has the highest inheritance tax rate in the world. In Japan, there is a basic exemption for each statutory heir of ¥30 million plus ¥6 million.

Therefore, if an individual’s net inherited asset, after deducting expenses like funeral costs, is less than the above figure, they are not required to pay inheritance tax. The inheritance tax will be levied if the inherited assets surpass this amount. To find the total taxable assets, deduct the value of the inherited assets from the essential exemption value.

In Japan, the beneficiaries of an inheritance are subject to inheritance taxes rather than the estate itself. The number of statutory heirs who will receive an inheritance determines the inheritance tax. The Japanese Civil Code forms the basis of the basic statutory calculation. 

According to the Japanese civil code, the deceased’s surviving spouse is entitled to half of the estate’s assets, with the children sharing the remaining half equally. In addition, if there is an inheritance tax, the decedent’s spouse pays 50% of it, and the remaining 50% is divided equally among the children.

The inheritance tax must be paid to the National Tax Agency not when the inheritance was received but within ten months of the decedent’s passing. If payment is not made within the allotted time, severe penalties will follow, ranging from fines to jail time.

Here is a list of the inheritance tax rates based on the amount of inheritance received.

Amount received Inheritance tax rate
Up to ¥10 million 10%
¥10 million – ¥30 million 15%
¥30 million – ¥50 million 20%
¥50 million – ¥100 million 30%
¥100 million – ¥200 million 40%
¥200 million – ¥300 million 45%
¥300 million – ¥600 million 50%
Over ¥600 million 55%

IS THERE A TAX ON INHERITANCE FROM OVERSEAS IN JAPAN?

Foreigners may find the answer more complicated as their eligibility for inheritance tax in Japan depends on several factors. The short answer is that you are eligible to pay inheritance tax in Japan on assets located in Japan and that you are also eligible to pay inheritance tax on assets you inherit from outside Japan.

You probably don’t need to worry about Japanese inheritance tax planning if your total inheritance is ¥30 million or less because you will be below Japan’s taxable threshold. 

WHO IS OBLIGATED TO PAY INHERITANCE TAX IN JAPAN?

Japan has inheritance tax laws that apply to foreigners as well as citizens. Regardless of whether the inheritance is located in Japan or overseas, citizens who receive any above the basic exemption must pay the inheritance tax.

Inheritance tax Because different factors determine whether an expat will be subject to the Japanese inheritance tax laws, the country’s laws become more complicated for foreigners and expatriates. Suppose you hold a Table 2 visa (permanent resident, long-term resident, spouse/child of a national, or permanent resident). In that case, the length of time you stay in Japan as a foreigner makes no difference. You have to pay inheritance tax if you are in this category or have been a citizen of Japan at the time of the inheritance.

Only temporary citizens are exempt from paying inheritance tax when they are foreign nationals holding a Table 1 visa. They must have passed the residency time test, which suggests they must have lived in Japan for less than ten years out of the previous fifteen years to be considered temporary citizens.

HOW TO MINIMIZE THE IMPACT OF THE INHERITANCE TAX IN JAPAN?

There are ways an expatriate can lower their tax liability. Since trusts cannot be used to reduce inheritance tax in Japan, investing in real estate and using life insurance to minimize inheritance tax liability is a better way to reduce inheritance tax.

Regarding real estate, the tax-assessed value in Japan is typically less than the property’s actual market value. This lowers the tax on the asset compared to the amount of inheritance tax paid. In addition, expatriates can utilize foreign tax credits, mortgage exceptions, retirement allowances, donations to public charities, and foreign tax credits to reduce their inheritance tax liabilities.

A way to settle inheritance tax liabilities in Japan after your death is to purchase life insurance. The current inheritance tax liability can be roughly estimated, and insurance can be obtained to cover this. The life insurance premium will be less expensive than the inheritance tax liability. 

For higher net-worth individuals living in Japan, there are other options where they can use trusts based in the United States of America for estate planning. This specialized kind of planning makes sense for people who wish to arrange their assets so that their loved ones will pay the least amount of inheritance taxes in the future. For this, the total asset base should be greater than approximately 1.5 million USD.

Refer to Japan company registration to know more about starting a business in Japan.

Contact us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with your Inheritance Taxes in Japan.

FAQs

Do I have to pay inheritance tax on inheritance located outside of Japan?

Yes, inheritance tax is payable in full by all heirs on both Japanese-owned property and any property you buy abroad. Additionally, inheritance tax is levied on foreign property if the deceased was a resident of Japan.

Do foreign nationals who inherit property in Japan still have to pay inheritance tax?

Yes, you are fully liable for taxes even if the deceased lived in Japan and you are not a Japanese national. Even if a person has a foreign nationality, inheritance tax is still applied to domestic property when the decedent resides in Japan (Article 2.1, Article 1-3.1 (i) and (ii) of the Inheritance Tax Act).

What is the inheritance tax deadline in Japan?

Within ten months of the death date, inheritance tax liabilities must be reported and settled in full. There are severe penalties for making late or no payments at all. The money can be paid at a post office, tax office, attorney’s office, or local tax agent.

In Japan, are spouses subject to inheritance tax?

The progressive tax rates, which range from 10% (less than ¥10 million) to 55% (more than ¥600 million), are used to determine the overall inheritance tax. Spouses often avoid paying inheritance tax because they are eligible for a special exemption.

What is the inheritance rule in Japan?

If there are kids, they’ll get half of the inheritance; the spouse gets the other half. The spouse will receive half of the inheritance while the parents will receive the remaining half if the decedent had living parents but no children.

Can you avoid inheritance tax in Japan?

The basic exemption is JPY 30 million plus each statutory heir at JPY 6 million. There is no filing requirement if the gross estate is less than the basic exemption’s total amount. The total amount of inheritance tax is determined by applying any applicable exemptions.