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Foreign nationals and Inheritance tax and gift tax in Japan

Foreign nationals and Inheritance tax in Japan

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In the case a persons inherits property (Inheritance tax)

In the case a person receives donation, allowance (Gift tax)

Example of calculation of inheritance tax of Japan

How to save amount of inheritance tax of Japan

Conclusion : In the case a foreign national who has lived in Japan for 10 years or less within past 15 years, he does not need to pay gift tax for Japanese government. ( as far as objective of gift is not located in Japan )

Assumed that if a person ( even if he does not have address in Japan ) has died and his heir,  ( Assumed Ms. H.  Even if she does not have address in Japan ) has inherited his property that is located in Japan, his property  is subject to inheritance tax in Japan.
However, depending on situation, even if the property is located outside of Japan, his property is subject to inheritance tax for Japanese government.
( In the case of Japanese national, even if the property is located outside Japan, all property is subject to inheritance tax for Japanese government, though there are exceptions. This article is written for non Japanese nationals)

Following sentences are related to persons who do not have Japanese nationality nor permanent resident in Japan.
Tax law has been changed in 2017 and this new law has become effective in 1st, April, 2017. So, in the case a person named Mr. D died in and after 1st, April, 2017, this new law is applied to his heirs. Assumed that Mr. D ( he does not have Japanese nationality and he does not have address in Japan at the time of his death) has died in 1st, April, 2017. He has heirs ( his spouse and children ) who are not Japanese national. His heirs do not have address in Japan. So, it looks like there is not relation between Mr. D and his heirs and Japan at the time of Mr. D’s death. However, if Mr. D had address in Japan for ten years or more before his death, Japanese government considers that he has still relation with Japan. So, if his heirs inherit certain amount of property, his heirs need to pay inheritance tax tax for Japanese government, even if the Mr D’s property is located outside of Japan. Otherwise, Mr. D will transfer his property to outside of Japan and Japanese government can not collect inheritance tax from his heirs. So, his heirs need to declare his property in and outside of Japan and submit tax filing. However, if Mr. D has lived in Japan for 10 years or less within past 15 years, his connection with Japan is not strong ( if he has permanent resident in Japan, his connection with Japan is strong. So, his property that is located outside of Japan is still subject of inheritance tax for Japanese government ). So, property that is located outside of Japan is not included in calculation of inheritance tax for Japanese government. Before 1st, April, 2017, situation was as below. If Mr.D’s heirs who do not have address in Japan nor Japanese nationality inherit property from Mr D ( he does not have address in Japan at the time of his death ), only property that is located in Japan should be subject to calculation of inheritance tax for Japanese government.

However after change of law, Japanese government back forwards past 10 years and collect inheritance tax from property that is not located in Japan. This treatment is applied to gift tax, too. ?

inheritance-tax-table Japan

Gift tax of Japan

Assumed that a foreign national (Ms.F) who is living in Japan with status of residence of engineer (she is living in 10 years until now) receives allowance, donation from her mother.

Her mother (non Japanese national) is not living in Japan and did not live in Japan. 

Her mother sent 10 million yen from her bank account in India to Ms.F’s bank account in Japan.

In this case, though Ms.F receives the money in Japan, she does not need to pay gift tax of Japan.

Because location of the money is not Japan, but it is India.

If her mother gifts a real estate in Japan to her, location of the property is Japan. So Ms. F needs to pay gift tax.

In order to know whether gift tax is levied or not, you can refer to this table.

gift tax of japan table

In this table, temporary resident is a person who is living in Japan for ten years or less within past 15 years.

Assumed that now is 2020.

If Ms.F lived in Japan during 2006 ~ 2015 (for ten years) and is living in Japan now (2020, for one year).

In this case she is not a temporary resident, but she is a long term resident. Because duration of her living in Japan is 11 years.

In the case of Long term resident, even if donor is category (A) and property is located outside Japan, Ms.F needs to pay gift tax of Japan.

Moreover, even if Ms.F does not have legal address and had not legal address in Japan (class B), if the property is located in Japan, gift tax of Japan can be levied. 

However if value of property is less than 1.1 million yen, gift tax is not levied. 

Assumed that Ms.P is living in Japan for 20 years. Her mother gifts her 10 million yen in Japan. In this case gift tax is levied generally.

However when the amount of gift is 1.1 million yen per a year, gift tax is not levied. 

Her mother can gift 1.1 million yen to her in 2021 without payment of gift tax.

Then her mother can gift her another 1.1 million yen in 2025 without payment of gift tax.

Inheritance tax of Japan (Easy calculation)

Assumed that you are permanent resident of Japan.

Other than you, there are 3 sisters and only you are resident of Japan.

You (4 persons) inherit a real estate from your father.

Your father does not have any relating to Japan.

The real estate is located in India and value is ¥75million.

You are permanent resident of Japan. So if you inherit it, you need to consider inheritance tax of Japan.

If value left by your father is more than 54 million yen, you may need to pay inheritance tax of Japan.

●¥30million (basic deduction) + ¥6million * 4 heirs = 54 million yen.
(tax exempt allowance)

This 30 million yen is always same in spite of the number of heirs.

¥75million (value of real estate) – ¥54million = 21 million yen (taxable amount)

And 21 million / 4 heirs = 5.25 million

In the case of 5.25 million, rate of inheritance tax is 30%.

5.25 million * 30% – 700,000 yen (basic deduction) * 4 heirs = 3.5 million yen

If you inherit 1/4th of his asset, amount of inheritance tax (paid by you) is 875000 yen.
(3.5 million yen / 4)

If you inherit all of his asset, amount of inheritance tax (paid by you) is 3.5 million yen.

How to save amount of inheritance tax of Japan

In order to calculate amount of inheritance tax, you need to know value of asset (appraised value).

If it is a real estate, there is a wide gap between appraised value and market price.

For example, an apartment located in Minato-ku, Tokyo, room area of 65 square meters, built in year of 2014, market price is 74 million yen.

However appraised value of this apartment is 12 million yen.

When amount of inheritance tax is calculated, this 12 million yen is used. So some persons will keep asset by real estate, not by cash.

 

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