Japanese Inheritance Tax Relief 2021: Will Japan be able to attract foreign executives?

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It is now far from a secret that the Prime Minister of the Japanese government Yoshihide Suga is currently focusing on making Japan a global financial center. The ruling coalition believes that creating an environment that will be able to attract high-income executives of foreign financial firms will facilitate and accelerate the attempts of turning Japan into an international financial center.

At the beginning of 2021, the Japanese government enacted the Bill based on the 2021 Tax Reform Outline which offers several tax measures to favor the entry of foreign financial institutions and high-skilled individuals.

This article will focus only on one amendment: the relaxed scope of Japanese Inheritance Tax 

In an attempt to make Japan an attractive destination for high-income executives, Japanese authorities have introduced some amendments to the Japanese Inheritance Tax System for the past several years. The first step was taken in 2018 by introducing the concept of “temporary resident” which reduced the scope of the Inheritance Tax. 

Under this concept, foreign nationals, with a resident status under Table 1 of the Immigration Control and Refugee Recognition Act and with a total period of having jusho (read our article “Foreigners on the hook for Inheritance Tax in Japan” to learn more about “jusho”)  is 10 years or less within the last 15 years, were only subject to Inheritance Tax on the property located in Japan. It was a good sign because previously their worldwide assets also fell under the scope of the Japanese Inheritance Tax.

 

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Japanese Inheritance Tax Amendment 2021

The latest amendment was enacted on April 1, 2021. It relaxes the scope of the Inheritance Tax even further by eliminating the residence period requirement for decedents, which makes it beneficial for long-term foreign residents.

Relaxed scope on the Japanese Inheritance Tax 2021

Before April 1, 2021:

*Temporary Resident (for both decedent & heir): a person who has jusho and a resident status under Table 1 of the Immigration Control and Refugee Recognition Act at the time of inheritance, and whose total period of having jusho is 10 years or less within the last 15 years before the time of inheritance

So, if the person held a Table 1 Visa and lived in JP for more than 10 years within the last 15 years, they had to keep in mind that their heirs might be liable for the Japanese Inheritance Tax on assets located overseas.

On and after April 1, 2021:

*Temporary Resident (for decedent): a person who has jusho and a resident status under Table 1 of the Immigration Control and Refugee Recognition Act at the time of inheritance.

*Temporary Resident (for heir): a person who has jusho and a resident status under Table 1 of the Immigration Control and Refugee Recognition Act at the time of inheritance, and whose total period of having jusho is 10 years or less within the last 15 years before the time of inheritance.

After the amendments, those descendants with temporary resident status who have lived in Japan for more than 10 years  within the last 15 years can freely leave their overseas assets to the categories of individuals mentioned below without worrying that the Inheritance Tax will posed on the heirs:

  • Other foreigners with temporary resident status
  • Foreign nationals (a person who doesn’t have Japanese nationality, had jusho at a point in time within 10 years before the inheritance and whose total period of having jusho is 10 years or less within the last 15 years before the time of inheritance.)
  • Japanese nationals who have not resided in Japan during the last 10 year before the time of inheritance

     

It is important to note, however, that the amendment is not applicable to decedents who have resident status under Table 2 of the Immigration Control and Refugee Recognition Act. They will receive no relief from the amendments and the tax will be posed on overseas assets.

The following table reflects the current scope of the Inheritance Tax in Japan.

Scope of Japanese Inheritance Tax 2021
Inheritance Tax Japan table's symbols definition

*Temporary Resident (for decedent): a person who has jusho and a resident status under Table 1 of the Immigration Control and Refugee Recognition Act at the time of inheritance.

*Temporary Resident (for an heir): a person who has jusho and a resident status under Table 1 of the Immigration Control and Refugee Recognition Act at the time of inheritance, and whose total period of having jusho is 10 years or less within the last 15 years before the time of inheritance.

**Foreign national: a person who doesn’t have Japanese nationality, had jusho at a point in time within 10 years before the inheritance and whose total period of having jusho is 10 years or less within the last 15 years before the time of inheritance.

What benefits does the relaxed scope of the Japanese Inheritance Tax offer?

The latest amendment to the scope of the Japanese Inheritance Tax offers wonderful estate-planning opportunities for foreigners that fall under the scope of “temporary resident” definition. The relaxed scope means that decedents with Table 1 visa who have been residing in Japan for more than 10 years of the last 15 (“temporary resident” concept for decedents) can freely leave overseas assets to heirs that are treated as “temporary residents” (note the definition is different for the heir and the decedent), heirs that are considered to be “foreign nationals” as well as heirs that are Japanese nationals but have not resided in Japan during the last 10 year before the inheritance occurred.

There is absolutely no need to worry the above-mentioned heirs will get liable for the Japanese Inheritance Tax.

Whether or not this amendement will attract the desired category of individuals we will see in the near future. But without a doubt, the Japanese government has made significant developments in the tax industry to further facilitate the process of making Japan a leading financial center.

Inheritance Tax relief will most likely draw much attention as the Japanese Inheritance Tax rates are known to be pretty high. Hopefully, the enacted amendments will make Japan an appealing destination for high-income executives and provide beneficial estate-planning opportunities for financial planners.

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