The Journal The Authority on Global Business in Japan

In December 2016, Japan’s ruling coalition announced its tax reform plan for fiscal 2017 (April 2017–March 2018). With this reform, the Government of Japan plans to drastically revise the rules relating to inheritance and gift tax obligations for non-Japanese.

The current inheritance tax law treats all residents of Japan equally, regardless of their nationality. For a resident of Japan, all assets either received or bequeathed are subject to inheritance tax in Japan regardless of the location of the asset. This can affect foreign individuals on temporary work assignment in Japan whose parents pass away during the assignment, and creates Japanese inheritance tax obligations for their heirs should the individual pass away in Japan during the assignment. In Japan, the gift tax rules supplement inheritance tax law.

In addition to inheritance tax, non-Japanese who work in Japan and temporarily transfer assets to their offspring—or receive assets from their parents—are subject to gift tax in Japan regardless of the property’s location. Additionally, Japan has the highest tax burden in the world for transfers of wealth, such as inheritance and gifts.

Under the tax reform plan, the Japanese government intends to revise the inheritance/gift tax obligations for foreigners to attract more highly-skilled professionals to the country. The revisions will apply to residents who have a “temporarily domicile” in Japan and have a visa status listed in Appendix Table 1 of the Immigration Control and Refugee Recognition Act. Those with Permanent Resident status or a Spouse or Child of Japanese National visa are excluded from this reform.

“Temporarily domicile” is defined as a stay in Japan of fewer than 10 years within the 15 years prior to the inheritance/gift (excluding those with permanent residency or family visas of Japanese nationals).

If the temporary domicile criteria are met, the scope of Japan’s inheritance and gift tax will narrow, applying only to assets located in Japan rather than worldwide.

In other words, temporarily domiciled foreigners who only hold offshore assets will fall out of the scope of Japan’s inheritance and gift tax legislation.

Recently, almost all major Japanese corporations have sought to hire senior executives from abroad. Some businesses pointed out that the current inheritance rules were proving a difficult obstacle to recruiting highly-skilled professionals from overseas, and that the revision was needed. The changes, which will take effect in April 2017, will bring Japan’s inheritance and gift tax laws in line with those of several European countries and the United States, which do not levy inheritance/estate tax on expats on temporary assignments who have offshore assets.

Finally, the National Tax Authority is continuing its focus on high-net-worth individuals. Those with Permanent Resident status or Spouse or Child of Japanese National visas, and are thus excluded from this relaxation of the rules, should pay careful attention to their Japan inheritance/gift tax obligations.

For more information, please contact your Grant Thornton representative at +81 (0)3 5770 8829 or email us at
tax-info@jp.gt.com

Eiji Miura is a partner at Grant Thornton Japan