Inheritance Tax in Japan: A Practical Guide

Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.

I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.

Introduction

Japan imposes inheritance tax on individuals who acquire property as a result of someone’s death. The rules can be particularly complicated when the deceased person, the heirs, or the inherited assets are located outside Japan.

This article provides a basic overview of who may be subject to Japanese inheritance tax, the basic exemption, statutory heirs, statutory inheritance shares, and inheritance tax rates.

Because Japanese inheritance tax can vary depending on nationality, visa status, domicile, and the location of inherited assets, each case should be reviewed individually.

Who Is Subject to Inheritance Tax?

In Japan, inheritance tax is generally imposed on individuals who acquire property through inheritance or a bequest.

However, the scope of taxable property can vary depending on several factors, including:

• ・Where the deceased person lived at the time of death
• ・Where the heir lives
• ・The nationality of the deceased person and the heir
• ・The heir’s type of Japanese residence status
• ・How long the deceased person and the heir lived in Japan
• ・Whether the inherited property is located in Japan or overseas

Depending on these circumstances, an heir may be taxed only on property located in Japan or may be subject to Japanese inheritance tax on worldwide assets.

The applicable rules depend on the Japanese Inheritance Tax Act and each individual’s circumstances.

International inheritance cases can therefore require a detailed review of the residence, nationality, immigration status, and history of both the deceased person and the heir.

When Does Inheritance Tax Apply?

Inheritance tax is generally payable when the net taxable estate exceeds the basic exemption.

The basic exemption is calculated as follows:

30 million yen + 6 million yen × number of statutory heirs

For example, if there are three statutory heirs, the basic exemption is:

30 million yen + 6 million yen × 3 = 48 million yen

If the net taxable estate exceeds 48 million yen, an inheritance tax return may be required.

The net taxable estate is generally calculated by adding the taxable inherited property and certain taxable gifts, and then subtracting items such as qualifying debts, funeral expenses, and tax-exempt property.

The National Tax Agency confirms that the basic exemption is 30 million yen plus 6 million yen multiplied by the number of statutory heirs.

Who Are the Statutory Heirs?

Statutory heirs are the people legally entitled to inherit under Japan’s Civil Code.

A surviving spouse is always a statutory heir. Blood relatives become statutory heirs according to the following order of priority:

1. Children

   Children are the first-priority heirs. If a child died before the deceased person, that child’s descendants, such as grandchildren, may inherit by representation.

2. Parents or other direct ascendants

   If there are no children or other descendants, the deceased person’s parents become the statutory heirs. If the parents have already died, grandparents or other direct ascendants may become heirs.

3. Siblings

   If there are no children, descendants, parents, or other direct ascendants, the deceased person’s siblings become the statutory heirs. If a sibling died before the deceased person, that sibling’s children may inherit by representation.

Relatives in a lower-priority group do not become statutory heirs when relatives in a higher-priority group exist.

For example, if the deceased person had a spouse and children, the parents and siblings would not be statutory heirs.

What Are the Statutory Inheritance Shares?

The statutory inheritance share is the share assigned to each heir under Japan’s Civil Code when the heirs do not agree on a different division of the estate.

The main statutory inheritance shares are as follows:

Spouse and children

• ・Spouse: one-half
• ・Children: one-half in total

The children’s one-half share is divided equally among them.

For example, if the heirs are a spouse and two children:

• ・Spouse: one-half
• ・Each child: one-quarter

Spouse and parents

• ・Spouse: two-thirds
• ・Parents or other direct ascendants: one-third in total

The parents’ one-third share is generally divided equally between them.

Spouse and siblings

• ・Spouse: three-quarters
• ・Siblings: one-quarter in total

The siblings’ one-quarter share is divided equally among them.

No surviving spouse

If there is no surviving spouse, the heirs in the highest applicable priority group generally divide the estate equally.

The statutory inheritance shares are also used when calculating inheritance tax, even when the estate is divided differently by agreement among the heirs.

Inheritance Tax Rates

Japan’s inheritance tax rates are progressive. The applicable rate ranges from 10% to 55%.

For example, if a statutory heir’s taxable share is 25 million yen, the inheritance tax is calculated as follows:

25 million yen × 15% − 500,000 yen = 3.25 million yen

The deduction shown in the table is built into the tax calculation and helps ensure that only the portion exceeding each tax bracket is taxed at the higher rate.

However, Japanese inheritance tax is not calculated simply by applying these rates directly to the amount each person actually receives.

First, the total taxable estate is divided according to the statutory inheritance shares. The tax is calculated for each statutory heir based on those shares, and the resulting amounts are added together. The total inheritance tax is then allocated among the people who actually received the inherited property.

Certain tax credits and additional charges may also apply. For example, a surviving spouse may qualify for a substantial spouse’s tax credit, while some heirs who are not the deceased person’s spouse, parent, or child may be subject to a 20% additional tax.

Inheritance Tax Filing Deadline

An inheritance tax return must generally be filed within ten months from the day after the date of death.

Any inheritance tax due must also generally be paid by the same deadline.

For example, if the person died on June 15, the filing and payment deadline would generally be April 15 of the following year.

The heirs usually need to complete several steps before filing, including:

• ・Identifying all heirs
• ・Confirming the deceased person’s assets and liabilities
• ・Valuing the inherited property
• ・Determining how the estate will be divided
• ・Calculating the available exemptions and tax credits
• ・Preparing and submitting the inheritance tax return

Because the valuation of real estate, unlisted shares, overseas property, and other assets can require significant time, it is advisable to begin the process as early as possible.

Conclusion

Japan’s inheritance tax system can be complicated, particularly when foreign nationals, overseas heirs, or assets outside Japan are involved.

Whether Japanese inheritance tax applies to domestic assets only or to worldwide assets depends on the circumstances of both the deceased person and the heirs. The value of the estate, number of statutory heirs, family relationships, residence history, nationality, and immigration status may all affect the tax calculation.

At Koshida Accounting and Tax Office, we assist foreign residents and international families with Japanese inheritance tax matters, including reviewing the scope of taxable assets, calculating inheritance tax, valuing inherited property, and preparing inheritance tax returns.

Through our professional network, we can also introduce specialists who provide assistance with inheritance registration, legal procedures, visas, and other related matters.

All services are available in English. Please feel free to contact us through our inquiry form.