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Webinar: an overview of Japanese gift & inheritance taxation system

The Tax and Regulations Committee held a webinar on October 21 devoted to an "Overview of the Japanese gift & inheritance taxation system" presented by a team from PwC Tax Japan (see team below).

The Japanese taxes relevant for estate planning are the inheritance tax upon passing away (an unavoidable event) and the gift and exit taxes which apply only if certain conditions are met.

The implementation of these taxes is closely connected with the residency status of the parties involved (both donor/donee & decendent/heir), including the visa category under which foreign nationals reside in Japan, Japanese nationals if any , and the location/situs of the various assets. Added to the duration of stay in Japan, the combination of these factors leads to the definition of either “limited” or “unlimited“ taxpayers and a complex matrix of taxable (or non-taxable) situations.

It should be noted that the “principal place of living” (“jusho”) is based on the facts and circumstances pertaining to each individual situation.

When dealing with the exit tax, an additional concept of “kyosho” (“temporary place of abode”) may come into play.

In addition, in Japan, the burden of the tax falls on the recipient. Since the scope of the assets subject to tax maybe located either in Japan or abroad, it becomes necessary to reconcile legal concepts applied In Japan with those prevailing in foreign countries. For example, there is no concept of joint ownership in Japan or of dividing a real estate interest between ownership and right of use (itself subject to many variations).

Graduated tax ranges from 10 to 55% with basic exemptions of 1.1 M JPY annually per recipient for gift and for inheritance an exemption of 30 M JPY per descendent and 6 M JPY per statutory heir. In response to a question raised, the exemption of 1.1 M JPY is computed annually and cannot be aggregated over several years.

The subject of the interaction between domestic regulations and applicable international bilateral tax treaties was also raised but few such tax treaties deal specifically with inheritance issues.

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