Tax & Immigration
Japan | Japan inheritance & gift tax and exit tax implications based on visa status in Japan
Summary
Foreign nationals residing in Japan could have immediate or future exposure to Japan inheritance and gift tax and exit tax by holding a “Table 2” visa status in Japan.
The Detail
Inheritance or gifts
Japan imposes taxes on individuals who receive assets through inheritance or gifts. For foreign nationals recipients, these assets can encompass not only those located in Japan but also extend to assets situated overseas (please note that the Japan inheritance and gift tax laws are different for Japanese national transferors/transferees; this alert does not address these laws for Japanese nationals and therefore, it does not cover all possible Japan inheritance/gift tax scenarios).
For certain foreign nationals, non-Japan situs assets may be excluded from taxable inheritance or gift (note: assets situated in Japan will always be subject to Japan inheritance/gift tax). While foreign national recipients of assets are subject to Japanese inheritance or gift tax, the scope of taxable assets depends not only on the recipients’ residency status in Japan but also the visa type (for foreign nationals) of the decedent/donors. Therefore, it is crucial to confirm the residence status, nationality, and visa type (for foreign nationals) for both the decedent/donors and heirs/donees.
For foreign national decedents/donors who are residents of Japan at the time of death/gift, non-Japan situs assets are not subject to Japanese inheritance/gift tax if:
For foreign national decedents/donors who are non-residents of Japan at the time of death/gift, non-Japan situs assets are not subject to Japanese inheritance/gift tax if:
If the mentioned exemptions do not apply, recipients of assets would be subject to Japanese inheritance/gift tax on both Japan and non-Japan situs assets.
Tax rates for both Japanese inheritance tax and gift tax can reach as high as 55%, although the pace at which higher tax brackets are reached differs.
In summary, foreign nationals considering converting from a Table 1 visa to a Table 2 visa (such as a permanent resident visa) should be aware that there will be immediate or increased exposure to Japan gift and inheritance tax, both for the foreign national converting to the Table 2 visa as well as for foreign nationals receiving assets from the foreign national converting to the Table 2 visa. This is because the exemption in place for foreign nationals residing in Japan on a Table 1 visa (as is usually the case for foreign nationals on work assignments in Japan) for no more than 10 years out of the last 15 years would no longer apply.
Japanese Exit Tax Implications
In an effort to prevent wealthy individuals from possibly escaping tax on unrealized capital gains. foreign nationals residing in Japan who satisfy both of the following conditions are subject to Japan exit tax upon exit from Japan:
The Japanese ‘exit tax’ is a national tax on deemed capital gains (tax rate is the flat 15.315%), as if the individual sold all applicable financial assets (mainly securities such as stocks, bonds, and mutual funds) upon leaving Japan. This deemed capital gains tax rule in Japan has been effective since July 1, 2020 for foreign nationals.
Moreover, ‘exit tax’ applies to transferring such financial assets from Japan residents (who meet the conditions mentioned above) to non-residents even if the Japan residents do not permanently leave Japan (for instance, transfer through gift or inheritance). Therefore, on a gift/inheritance, both the exit tax and gift/inheritance tax could apply.
It is important to check the visa status of an individual who is permanently leaving Japan since the visa status impacts the applicability of the Japanese exit tax.
| Japanese inheritance/gift tax | Japan exit tax | |
| Foreign national Table 1 visa status decedent/donor/taxpayer | Table 1 recipients are subject to Japanese inheritance/gift tax. Tax relief is possible for those residing in Japan for 10 years out of the last 15 years | Not subject to exit tax |
| Foreign national Table 2 visa status decedent/donor/taxpayer | Recipient of assets are subject to Japanese inheritance/gift tax with no exemption for assets outside of Japan | Subject to exit tax if other conditions are met |
What this means
When an individual is eligible for both Table 1 visa and Table 2 visa and is making a decision on which visa type one prefers to hold, it is recommended to take into consideration the impact on tax in addition to the impact caused by the Immigration laws of Japan.
The table below shows the visa types under Table 1 and Table 2 of the Immigration Control and Refugee Recognition Act of Japan.
| Table 1 | ||||
| Diplomat | Official | Professor | Artist | Religious activities |
| Journalist | Highly skilled professional | Business manager | Legal / accounting services | Medical services |
| Researcher | Instructor | Engineer/Specialist in humanities/International services | Intra-company transferee | Nursing care |
| Entertainer | Skilled labor | Specified skilled worker | Technical intern training | Cultural activities |
| Temporary visitor | Student | Trainee | Dependent | Designated activities |
| Table 2 | |||
| Permanent resident | Spouse or child of Japanese national | Spouse or child of permanent resident | Long-term resident |
Individuals should be aware that the type of visa, nationality, and number of years of having jusho in Japan have significant importance with respect to Japan gift and inheritance tax.
In addition, long-term foreign residents in Japan who have significant financial assets and are subject to the exit tax because of their visa type, should certainly consider the affect to their situation when planning their overseas relocation or the transfer of assets to non-residents of Japan.
The tax laws surrounding Japan gift and inheritance tax as well as exit tax are complex, so we highly recommend individuals to seek professional advice when considering changes to their visa status.
Lastly, we also highly recommend companies to review their policies to determine whether inheritance and gift tax as well as exit tax is within the scope of their policy coverage, and if so, how to apply the tax settlement.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Marcus Wong,
Partner
Noriyuki Tominaga
Partner
Ryo Uehara
Japan, Director
Jia Ee
Japan, Director
Further information on Vialto Partners can be found here: www.vialtopartners.com
For additional alerts, please visit www.vialtopartners.com/regional-alerts
Contact us on the following address – me-immigration@vialto.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
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Further information on Vialto Partners can be found here: www.vialtopartners.com
Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.
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