Long-term foreign residents pay attention: Inheritance Taxes

Have you ever heard of Inheritance Tax?

It's a tax that is imposed when you inherit a deceased person’s estate according to a will.

About ten years ago there was a rapid increase in some IT-related entrepreneurs suddenly becoming billionaires and immigrating to Singapore.

The reason why is called 'The five-year Rule': they noticed that the tax was imposed only on Japanese assets if both the deceased person and the heir are non-residents of Japan for over five years. They moved and were able to transfer their overseas assets to the next generation with almost no inheritance tax burden. (Recently, the period has been changed to 10 years.)

For example, assuming that a Canadian has lived in Japan for more than 10 years and his/her parents unfortunately pass away. Even if the parents never visited Japan and have their assets in Canada, those assets will be subject to Japanese inheritance tax. Canada has no inheritance tax obligation so it becomes a burden and inconvenience for long-term foreign residents. The Japanese inheritance tax has a limitation set to three generations.   

There is a high probability that you don’t need to pay inheritance taxes for foreign assets if you have been in Japan no more than 10 years and the visa is recognised under Immigration Control and Refugee Recognition Act Appended Tables I. However, if you have lived in Japan for over 10 years or hold a permanent visa/spouse visa, it's hard to say that the inherited assets from your won't be affected.

Recently since frequently exchanging tax information internationally, the simple idea of leaving Japan to 'hide' overseas and try avoid paying taxes on your assets is something I don't recommend as there is still no guarantee you won't be taxed. There are lots of conditions related to this including; you need to leave Japan and live in a foreign country for a period of at least 10 years in which it is clear that your family shall not have any foreseen health problems; and you will only be able to come back to Japan for 183 days a year.

Long-term foreign residents should strategise their stays in Japan to avoid paying taxes or be prepared for the inheritance taxes on your assets. 

David Otani