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Feb 20, 2014

Inheritance tax and law


The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Japan: what restrictions there are and whether making a will is advisable.

INHERITANCE TAX

How high are inheritance taxes in Japan?

Inheritance tax in Japan is based on the residence status of the individual. Beneficiaries are subject to inheritance tax on property they received if they are domiciled in Japan. If, however, beneficiaries are not domiciled in Japan, they are still subject to inheritance tax if the property that they inherited is situated in Japan. Still, a non-domiciled person could still be subject to inheritance tax if he has a Japanese nationality and if he or the donor had lived in Japan at any time within 5 years before the deceasedís death. The registration tax rate for entrusting real estate is 0.4% on the appraised value of the property.

INHERITANCE TAX

TAX BASE, JPY (US$)
TAX RATE
Up to 10 million (US$98,425)
10%
10 million – 30 million (US$295,276)
15%
30 million – 50 million (US$492,126)
20%
50 million – 100 million (US$984,252)
30%
100 million – 300 million (US$2,952,756)
40%
Over 300 million (US$2,952,756)
50%
Source: Gobal Property Guide

Inheritance tax is levied at progressive rates on the fair market value of the property inherited less funeral expenses and taxes. Further deductions are allowed, depending on the status of the heir/s:

  • JPY10 million (US$98,425) for each statutory heir
  • JPY160 million (US$1,574,803) for the surviving spouse

INHERITANCE LAW

What inheritance laws apply in Japan?

The deceasedís national laws apply to inheritance issues.

The principal laws applying to inheritance issues, with particular regard to inheritance by foreigners, are: Act on the General Rules of Application of Laws; Act on Governing Law of Formalities of Wills; Civil Code; Code of Civil Procedure and Domestic Relations Trial Act.

Only the national inheritance laws of the deceased apply. The religion and the nationality of the spouse are not considered in inheritance issues. In Japan, the ownership of real estate is not affected by marriage. If a foreign man is married to a Japanese woman, and he owns real estate in Japan, then his national laws apply to the inheritance of the property, and not Japanese law.

The foreign nationality of an heir does not pose a problem regarding the inheritance of real property in Japan. An heir who is of foreign nationality residing abroad can also own real estate in Japan.

So-called renvoi (when the international private law of a foreignerís nationality is referred back to Japan) is permitted. If a foreignerís national law provides that the applicable law in inheritance issues is that of the country where the property in question is located, and this property is in Japan, then Japanese law becomes applicable.

Under the laws of Japan, it is assumed that Japanese inheritance law always applies to a decedent who has Japanese nationality, wherever his/her real property is located.

Family Courts mainly deal with inheritance issues.

If the case concerns the property of a non-resident deceased foreigner, it is possible to obtain a decision from a Japanese Family Court, if an interested party (heir) wishes to. With respect to property located outside Japan, it is not clear whether a decision made by a Japanese Family Court can be executed outside Japan. Therefore, the courts tend to be reluctant to make a decision in such cases.

The time to reach a decision is influenced by the caseís difficulty, the amount of inherited property, the number of the heirs, etc. So it is not possible to generalize. A little under 40% of the cases were resolved within six months, a little under 70% of the cases were resolved within one year and a little under 90% of the cases were resolved within two years by settlement, withdrawal or otherwise, according to judicial statistics disclosed in 2007 by the Supreme Court of Japan, with regard to conciliations for partition of estates at Family Courts.

Reserved portions: provisions of the Japanese Civil Code.

Because Japanese law specifies that a foreignerís national law applies to inheritance issues, the provisions of the Japanese Civil Code do not apply to foreigners. Therefore, the following provisions of the Japanese Civil Code are provided here merely for reference. The legally reserved portion applies to the residual property remaining, after the deduction of obligations.

The reserved portion claimants, for heirs of a decedent with Japanese nationality, are as follows:

One half of the property in cases of:

  • A child or a lineal descendant only
  • A spouse only
  • A child or a lineal descendant and a spouse
  • A lineal ascendant and a spouse

One third of the property in cases of:

  • A lineal ascendant only

Siblings of a decedent are not included in the claimants for legally reserved portions.

The property outside the reserved portion can be freely willed. There is no restriction as to who this residue may be willed to.

Intestacy: if the deceased has not made a will, the case is resolved in accordance with the deceasedís national law.

The measures under the Japanese Civil Code for a decedent with Japanese nationality are provided here for reference. In Japan, if there is no will, the scope and the rank of the heirs of a decedent with Japanese nationality, under the Japanese Civil Code, is as follows:

First, a spouse always becomes an heir.

A spouse becomes a sole heir only if there are no heirs in the first, second or third rank. The scope of heirs who are relatives by blood, is as follows:

  • The first rank: a child and his/her lineal descendants (including heirs per stirpes)
  • The second rank: a lineal ascendant
  • The third rank: a sibling and his/her child (including heirs per stirpes)

The statutory share in inheritance is as follows:

  • The first rank (1/2), spouse (1/2)
  • The second rank (1/3), spouse (2/3)
  • The third rank (1/4), spouse (3/4)

If a foreigner owns property in Japan, it is advisable to make a local will.

It is unusual to formally make a will in Japan; however, the number of formally made wills has increased in recent years.

There is a system called Family Registration in Japan, which provides public proof of status relationships regarding Japanese citizens - the birth, the parent and child relationship, the adoptive parent and child relationship, the marriage, and the divorce or death, etc., of Japanese citizens. Consequently, it is difficult for foreigners who do not have Family Registration to obtain proof of heirs.

In such cases, if there is no will, the documents that must be prepared to prove the inheritance of an estate in Japan are not available, and it takes time for various procedures such as withdrawing bank deposits.

Such procedures may go smoothly if the foreigner has a will. In addition, in cases where a will by notarized document is made, there is an advantage that changes of title regarding real property become simplified.

A will made in accordance with any of the following laws is valid in Japan:

  • The laws of the place of act (the place where a will is made);
  • The laws of the country of which the testator has nationality at the time of formation of the will or at the time of death;
  • The laws of the place where the testator has an address at the time of formation of the will or at the time of death;
  • The laws of the place where a testator has habitual residence at the time of formation of the will or at the time of death; or
  • With regard to a will concerning real property, the laws of the country where the real property is located

Under the Japanese Civil Code, the ordinary will forms are a will by holographic document, and a will by notarized document.

In a will by holographic document, a testator writes the entire text of a will, the date, and his/her name in his/her own hand, and affixes his/her seal. This type of will may be made in any language; however, it is necessary to attach a procedure of registration of real property located in Japan, and to translate the will into Japanese. In addition, although there is a precedent stating that the will is valid even if a seal is not affixed, in the case of a foreigner, such a seal is required.

A will by notarized document is when a notary public takes dictation from the testator, before two or more witnesses. A will by notarized document must generally be made at a notaryís office. However, there is no such restriction for the preparation of a will. Therefore, it is possible to ask for a notary public to come to a hospital or a house to prepare a will. A will by notarized document must be made in Japanese. In this regard, it is possible to have an interpreter attend for a testator who cannot speak Japanese.

For a will by holographic document, it is not necessary for a foreigner to be in Japan. On the other hand, a will by notarized document is made by a notary public who is in Japan, therefore, it is necessary to make such notarial acts in Japan.

The inheritance procedure goes most smoothly if the testator uses the process of creating a will by notarized document, and designates an attorney-at-law in Japan as an executor.

An owner can give away his/her property freely to anyone prior to death, but it can be challenged if it infringes the reserved portion.

Under the Japanese Civil Code, there is no restriction on gifts of property during the ownerís lifetime. However, such gifts can be challenged after death. For example, a challenge may be brought if a claimant has the right to a legally reserved portion. In addition, there is a possibility that an assertion of nullity, or rescission of the manifestation of intention. can be made. In order to avoid such challenges, the donor must be careful not to infringe upon the legally reserved portion of a claimant.

There is a real estate registration system in Japan.

The real estate registration system secures the safety of real estate transactions, by giving public notice of the correct status of rights to real estate. The person who is registered regarding the real property, is treated as the owner in principle.

In the case of inheritance; however, all the heirs are deemed to own the real estate in common to each of them. In order to have the real property belong to a particular heir, and change the registry of the real estate to indicate the heirís ownership, there must be a valid will or an agreement between all the heirs.

The administration of property for a minor is conducted by a person who has parental authority.

If there is no person with parental authority, or such person has no administration rights for the property, a guardian conducts the administration of property for a minor. A person who last exercised parental authority over a minor and has administration rights for property may appoint a guardian of the minor by will. If there is no guardian appointed in such a manner, a family court, upon request by an interested party, appoints a guardian for the minor.

Japanese Inheritance tax is based on the residence status of the heirs.

An heir who is a foreign national residing abroad is subject to Japanese inheritance tax for such property which is located in the territory of Japan; the typical type of such property is real estate in Japan.

Inheritance tax is levied at progressive rates (up to 50%) on the fair market value of the property inherited minus funeral expenses and taxes. Further deductions are permissible, depending on the status of the heirs.






Comments

#1 INEZ | April 25, 2010

Thank you for publishing this information - I have been searching for clearer info on inheritance tax in Japan esp for non-residents and this has been helpful.

#2 ALICIA | May 23, 2010

im a second wife of my japanese husband..he was divorced with his first wife. do i still get the right to get the half of my husbands property as wife?
thank you..

#3 SUGAR | May 28, 2010

I know a Japanese born person who is now an American Citizen who just learned she is an heir to a family estate (house/property). Her cousins are sending her "Japanese Legal Form" to sign over her share of the property. Would she be liable for any inheritance tax if she is gifting her share of the estate to the remaining heirs?

#4 VICTORIA | June 22, 2010

I am buying property with my Japanese husband. We will both own our house 50/50.
However in the event he dies before the house is paid, I will be responsible for the bank Loan!!! So I want to know, what is best to put on the DEED! Sole survivorship?? By the way he has 2 kids and an ex wife. Will any 1 of them be able to claim 1/2 of his inheritance if he dies.?????

#5 GERARD ROY | August 18, 2010

How can I find out what finally transpired in an inheritance case for my mother when the Lawyer in Japan will not respond with any information?

#6 ERIKO MATSUNO | August 29, 2010

Under Japanese Law, heirs automatically have the right to acquire certain portion of all of the assets of the person who passed away if no will exists. If you would like to know what your inheritance is and ensure it, please retain a Japanese Family lawyer (such as me) and start mediation process under Japanese Family Law.

#7 ERIKO MATSUNO | August 30, 2010

If you are the second wife, you will be one of the heirs of your husband if he is dead. His kids are the heirs too. In order for the second wife to secure the house of the husband, the best way is that the husband prepares the living will. Otherwise the ownership rights held by the husband will be automatically divided among the heirs in the prescribed proportions under Japanese civil law.

#8 JUST WONDERING | October 24, 2010

Hi to everyone. My grandfather and father are both japanese citizen. In the event that my father pass away first than my grandfather, what will be the inheritance implication, will we have rights on my grandfathers property when the time comes my grandfather is not around anymore. My mother and father are legally married in the Philippines, making me a Filipino citizen as well. My father is the only child. Thank you if anyone can elighten

#9 SUSAN PEARSON | February 17, 2012

Hello Ericko Matsuno. How exactly would someone reach a Japanese Family Lawyer (such as you).

Hideko

#10 CHRIS DODSON | March 19, 2014

Is it true that the Japanese government requires that all taxes on inheritance be paid for up front before assets can be liquidated verses any taxes coming from the inheritance proceeds?
My wife is expected to inherit assets from Japan and was told that she would have to pay required percentage amount of tax prior to receiving her inheritance.

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