The Journal The Authority on Global Business in Japan

With the close of another tax return filing season, the Taxation Committee would like to update readers of The Journal on its recent activities. Highlights include the committee’s work on Japanese inheritance tax reform, its US and Japanese individual tax seminars, and its continued coordination with local government and industry partners to review Japanese tax matters affecting constituents of the American Chamber of Commerce in Japan (ACCJ).

The Taxation Committee has been working with partners in the Japanese government to review inheritance and gift tax implications for foreign nationals in Japan, and the latest Japanese tax reform, effective April 1, 2017, reflects a more practical approach. Specifically, the new legislation amends the old rules to exempt foreigners temporarily in Japan and their transfers of non-Japanese assets from inheritance and gift tax.1

The previous inheritance tax rules have long caused concern for many non-Japanese citizens in Japan because they subject foreign nationals who generally have been resident in Japan for at least one year to Japanese taxation on their worldwide assets in the event of death. This prospect of having their entire estate—including assets outside Japan—subject to Japanese inheritance tax has had a deterrent effect on many foreigners considering whether to move to Japan or extend their residency in Japan, which in turn has created difficulties for foreign companies in bringing talented personnel to their Japanese operations.

Notably, the new legislation adds anti-tax avoidance provisions for Japanese nationals and long-term foreign residents, subjecting their assets to Japan inheritance and gift tax for a period after their permanent departure from Japan.2 The committee, nevertheless, views the new laws as a substantial improvement and hopes this will ease concern that the old rules created undue Japanese tax risk for most non-Japanese citizens living in Japan.

The reform follows years of the committee coordinating with other organizations in Japan and advocating to the Japanese government, and the publication of an official ACCJ Viewpoint, which the Japanese Ministry of Economy, Trade and Industry ultimately quoted in one of its own reports. The committee will continue to review the inheritance tax rules for further updates and improvements.

In advance of tax return filing deadlines, the Taxation Committee, along with local tax advisors, conducted US and Japanese individual tax seminars over lunch at Tokyo American Club. The seminars were aimed at helping foreigners and ACCJ constituents sort through US and Japanese tax filing requirements, including any new reforms or procedural changes.

Members of the Taxation Committee were pleased to note from post-seminar feedback that the individual tax seminars were well received by attendees. The committee sees the seminars as a great opportunity to bring their efforts directly to ACCJ constituents, and hopes to continue the seminars next year.

The Taxation Committee has two additional issues that it hopes to review over the next year, in addition to continuing its efforts on the matters above.

First, to make Japan more attractive as a business hub, the committee will review the effect of a Japanese corporate tax rule restricting the ability of Japanese companies—including subsidiaries of US companies—to deduct non-periodic payments, such as performance bonuses to directors.

Second, to help improve corporate governance and reduce compliance risks for companies, the Taxation Committee will continue its discussions on the potential for reform of Japanese corporate tax filing deadlines. In Japan, the tax “busy season” can place great pressure on local companies, including subsidiaries of US companies, due to Japan’s relatively short tax filing period and the harmonized fiscal years of most Japanese entities.

The committee welcomes any other suggestions from ACCJ constituents for new areas of focus or public outreach during the upcoming year.

1. Non-Japanese assets transferred between foreigners living in Japan for not more than 10 of the past 15 years on a Table 1 visa (such as a work-related visa) at the time of inheritance/gift from inheritance tax and/or with foreigners residing outside of Japan for more than five of the past 15 years. Transfers with foreigners in Japan for more than 10 of the past 15 years and with Japanese nationals and transfers involving Japanese assets will not qualify for the exemption. The new rules can be complicated. Please consult with a Japan tax professional for advice on your specific situation.

2. In general, for up to five years after permanent departure for foreigners and for 10 years for Japanese nationals.

The committee, nevertheless, views the new laws as a substantial improvement