How Japan’s Inheritance Tax Affects US Expats
Japan imposes a tax on those who receive an inheritance or gift. Here’s how Japan’s inheritance tax system works and what you can do to manage potential tax obligations.
How to Calculate the Japan Inheritance Tax
In Japan, inheritance tax is calculated based on the market value of the inherited assets at the time of the benefactor’s death. The taxable base includes assets such as real estate, stocks, and personal possessions, with the inheritance tax being applied on a progressive scale. Rates range from 10% to 55%, depending on the value of the assets:
| Value of Assets (All Amounts JPY) | Tax Rate |
| 0 – 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% |
There are also basic deductions, which include Japanese Yen (JPY) 30 million plus JPY 6 million per heir. These deductions can significantly reduce the taxable base for heirs, easing the burden of the Japanese inheritance tax.
Is There a Tax on Overseas Inheritance in Japan?
Japan’s inheritance tax laws can apply to assets inherited from overseas, depending on your residency status. Japanese nationals and long-term residents (those with a Table 2 visa) are generally subject to inheritance tax on worldwide assets, regardless of where the inheritance is located. However, temporary residents (those with a Table 1 visa) who have resided in Japan for less than ten years in the past fifteen years are taxed only on Japanese-based assets.
Changes in residency status or prolonged stays in Japan may trigger tax obligations on overseas assets. Consulting with a tax advisor is essential for navigating these complex rules.
Who Has to Pay the Inheritance Tax in Japan?
In Japan, who has to pay inheritance tax is determined by several factors, including residency status, the type of visa held, and the location of the inherited assets.
Japanese Citizens
Japanese citizens are subject to inheritance tax on worldwide assets. This means that regardless of where the assets are located, if a Japanese citizen inherits them, they must pay Japanese inheritance tax if the total exceeds the basic exemptions.
Foreign Nationals
Foreigners residing in Japan are also subject to inheritance tax, but the rules depend heavily on their residency status and duration of stay:
- Long-term residents (Table 2 visa holders): Foreigners with a long-term resident visa, permanent residency, or Japanese citizenship are subject to inheritance tax on worldwide assets, similar to Japanese citizens. These tax obligations do not change based on the length of your stay in Japan.
- Temporary residents (Table 1 visa holders): Temporary residents who have resided in Japan for at least 10 years within the last 15 years are considered long-term residents and taxed on their worldwide assets. If you have been in Japan for less than 10 years out of the last 15, you will only be taxed on assets located in Japan.
Non-Residents
For foreigners who are not residents of Japan, the inheritance tax typically applies only to assets located within Japan. Non-residents are not taxed on their global assets unless they have long-term ties to Japan, such as owning property or holding significant investments within the country.
Changes to Japan’s Inheritance Laws
In 2021, Japan’s inheritance tax laws were updated to refine the criteria for taxation, focusing on both the residency status of the deceased and the heirs.
- 2013: Before 2013, Japanese citizens or residents were only taxed on assets located within Japan. The reform extended the taxation to include worldwide assets if the deceased or heir was a resident of Japan at the time of death.
- 2015: In 2015, the top inheritance tax rate increased from 50% to 55%, significantly impacting high-value estates.
- 2017: Expats who had lived in Japan for less than ten years were now taxed only on Japanese-based assets, not on worldwide holdings. This was a significant shift, offering relief to short-term foreign residents.
- 2021: The residency time test (the “10 out of the last 15 years” rule) was revised, removing some restrictions for donors and decedents. However, that threshold is still the general rule for determining whether assets are taxed worldwide or only within Japan.
These reforms aim to balance tax obligations with the goal of attracting skilled foreign professionals to Japan.
How to Reduce Your Inheritance Tax
Minimizing inheritance tax in Japan requires strategic planning. Options for expats include:
Real Estate Investments
Real estate investments are a common way to reduce inheritance tax in Japan. This strategy leverages the fact that the tax-assessed value of real estate is often lower than the market value, meaning you might pay less tax on inherited property compared to other asset types.
Life Insurance
Life insurance can be a strategic tool for covering inheritance taxes. By estimating the likely inheritance tax amount, you can take out a life insurance policy that covers this cost. This can prevent heirs from liquidating assets to pay the Japanese inheritance tax.
Tax Deductions and Exemptions
Several deductions are available that can lower the taxable value of an estate. The basic exemption includes JPY 30 million plus JPY 6 million per statutory heir. Structuring your estate to maximize these exemptions can reduce the taxable amount significantly. Outstanding debts and liabilities, including funeral expenses, can also be deducted from the taxable base, potentially lowering the tax burden.
Donate to Charitable Organizations
Donations to qualified public charities in Japan can be exempt from inheritance tax. If your estate includes a sizable amount of assets, consider earmarking some for charitable causes. In addition to reducing inheritance tax, this can provide a way to contribute to causes you care about and help make the world a better place.
Foreign Tax Credits and Tax Treaties
The US-Japan tax treaty can help expats avoid double taxation. In addition to this, the IRS offers several tax benefits to reduce the risk of being taxed twice on the same income:
Using these benefits, many expats are able to erase their US tax bill entirely.
Want the Experts to Help with US Tax Issues?
Greenback can make this simple, so get started with us today. Looking for more information about US expat taxes in Japan? Read our full tax guide for Americans in Japan.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.
