Your estate planning would not be complete without Japan Estate Tax consideration. Japan Inheritance Tax applies to very very wide range of people. Japanese Government may come after you and your heirs even if you believe you are no longer connected to Japan.
Here is the matrix based on the 2018 Japan tax reform.
[Temporary Resident A]: Any resident (1) who had a status of residence listed in Table 1 of the Immigration Control and Refugee Recognition Act, such as a work visa, at the time of death or gift, and (2) whose total period of having residence in Japan is 10 years or less within the past 15 years prior to death or gift.
[Non-Japanese Citizen B-1]: Any decedent or donor (non-Japanese citizen) (1) who had no residence in Japan at the time of death or gift, (2) who had a residence in Japan at a point in time within the past 10 years prior to death or gift, and (3) whose total period of having residence in Japan is more than 10 years within the past 15 years prior to death or gift, provided that they were not Japanese nationals during any of the Japan residency period.
[Non-Japanese Citizen B-2]:Any decedent or donor (non-Japanese citizen) (1) who had no residence in Japan at the time of death or gift, (2) who had a residence in Japan at a point in time within the past 10 years prior to death or gift, and (3) whose total period of having residence in Japan is 10 years or less than 10 years within the past 15 years prior to death or gift, provided that they were not Japanese nationals during any of the Japan residency period.
[Note A]: The decedent or donor's worldwide assets are subject to Inheritance or Gift tax for 10 years after permanent departure.
[Note B]: The donor's worldwide assets are subject to Gift Tax if the donor reestablishes residence within 2 years after permanent departure.
[Table 1 of the Immigration Control and Refugee Recognition Act]: Diplomat, Official, Professor, Artist, Reigious Activities, Journalist, Highly Skilled Professional, Business Manager, Legal / Accounting Services, Medical Services, Researcher, Instructor, Engineer / Specialist in Humanities / Intl Services, Intra-Company Transferee, Entertainer, Skilled Labor, Technical Itern Training, Cultural Activities, Temporary Visitor, Student, Trainee, Dependent, Designated Activities.
[Table 2 of the Immigration Control and Refugee Recognition Act]: Permanent Resident, Spouse or Child of Japanese National, Spouse or Child of Permanent Resident, Long-term Resident
If the decedent, US citizen but Non-Japanese, had a residence in Japan at the time of death, but his total period of having residence in Japan was 10 years or less within the past 15 years, working under one of the types listed on Table 1 of the Immigration Control and Refugee Recognition Act, then Japan Inheritance Tax will not apply to the assets located outside of Japan, unless his/her heirs who actually inherited the estate had a residence in Japan within past 10 years.
On the other hand, if the decedent lived in Japan less than 10 years within the past 15 years, but held the visa listed on the Table 2, instead of Table 1, of the Immigration Control and Refugee Recognition Act, then his/her estate will be subject to the worldwide taxation under Japan Inheritance Tax Law.
If the decedent holding Japanese citizenship, left Japan permanently 8 years ago, and all of his/her children, who would inherit the estate, lives in the US and never visited Japan, still the estate will be subject to world-wide taxation under Japan Inheritance Tax Law. This will be the same even if the children do not have a Japanese citizenship.
Why should we care?
First, the maximum rate under Japan Inheritance Tax Law is 55% ! See the rate table below.
• Up to ¥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%
Second, the Basic Exemption amount, which will be subtracted from the total value of estates, is only ¥30 million + ¥6 million multiplied by the number of statutory heirs. For example, if the decedent had a wife and two children, then, the basic exemption amount would be only ¥48 million (=¥30 million + 6 million x 3). Third, Japan-US Tax Treaty does not protect you. Even if your taxable estate is below the basic exemption amount under US Estate Tax Law, which is currently about 11 million, if your heirs are subject to Japan Inheritance Tax Law, and your estate’s value is above the basic exclusion amount in Japan, then you will still need to pay the inheritance tax to Japanese authority according to Japan Inheritance Tax Law. Now you realize that your US estate planning is not complete without Japanese Tax consideration. We will discuss briefly how Japanese Estate Tax is calculated on the next post.
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