For people with assets overseas, people with foreign-national family members, or inheritance involving an overseas posting or relocation, the question is "how far does Japanese inheritance tax reach (the scope of taxation)." Japanese inheritance tax is not decided by nationality alone; it is the combination of each person's — the decedent's and the heir's — "address (domicile)," "period of residence," and "location of the property" that determines whether the taxable object is "worldwide property" or "domestic property only." This article organizes, from a neutral standpoint, the categories of taxpayer and the scope of taxation, the 2017 reform concerning short-stay foreign nationals, and the "non-permanent resident" system under income tax.
The scope of inheritance tax is decided by "domicile, residence, and location of property"
For inheritance tax, the scope of the property that is taxed changes depending on which of the following categories the heir who acquired the property falls into. Whether or not one has Japanese nationality is one of the factors in the determination, but it does not decide the matter by itself.
Worldwide taxation: All property acquired, whether inside or outside Japan, is subject to inheritance tax.
Domestic-property-only taxation: Only property located in Japan is subject; property outside Japan is not.
Categories of taxpayer and scope of taxation
| Category | Main persons who fall under it | Scope of taxation |
|---|---|---|
| Resident unlimited taxpayer | A person who has an address (domicile) in Japan at the time of inheritance (excluding temporary residents, etc. described below) | Worldwide property |
| Non-resident unlimited taxpayer | A person who has no address in Japan but has Japanese nationality and had an address in Japan within the past 10 years, and the like | Worldwide property |
| Limited taxpayer | A person other than the above who acquired property located in Japan | Domestic property only |
The key point is a design under which a person who has long had an address in Japan, or a Japanese national who moved abroad only recently, tends to be under "worldwide taxation," while a person with weak ties to Japan tends to be under "domestic property only." This concerns not only foreign nationals but also Japanese people living abroad[NTA No.4138 (in Japanese)].
"Temporary residents" and short-stay foreign nationals (the 2017 reform)
For foreign nationals who stay in Japan for a short period for work and the like, there is a category called temporary resident.
It means a person who, at the start of the inheritance, holds a residence status (status of residence) and whose total period of having had an address in Japan within the 15 years before the start of the inheritance is 10 years or less.
On and after April 1, 2017 (Heisei 29), it was provided that where both the decedent and the heir are short-stay foreign nationals (such as temporary residents), property outside Japan is not made subject to inheritance tax or gift tax. This strikes a balance: making it easier for foreign nationals, including highly skilled personnel, to work in Japan, while taxing overseas property too for those who have put down long roots in Japan. Conversely, once the period of residence lengthens and the domestic address exceeds 10 years, the treatment moves closer, in principle, to worldwide taxation.
In the past, cases of avoiding inheritance tax by combining overseas assets with a foreign-national, overseas-resident heir were regarded as a problem, and reforms were made repeatedly. At present, the scope of taxation is finely provided according to the domicile and period of residence of the decedent and the heir. Because the determination in international inheritance is complex, be sure to check with a professional.
The "non-permanent resident" system under income tax
Income tax also has a mechanism that divides residents into "permanent residents" and "non-permanent residents."
Among residents who have an address, etc. in Japan, it means an individual who does not have Japanese nationality and whose total period of having had an address or place of residence in Japan within the past 10 years is 5 years or less[NTA No.2010 (in Japanese)].
The scope of taxation for a non-permanent resident is limited to the entirety of domestic-source income and, among foreign-source income, that which is paid in Japan or remitted to Japan[NTA No.1923 (in Japanese)]. In other words, income left overseas may, for the time being, not be taxed in Japan. This is a system designed with the acceptance of foreign talent in mind, and once the stay lengthens and one becomes a permanent resident, worldwide income becomes subject to tax in the same way as for Japanese people.
Practical points to note
- The determination is decided by the combination: You need to check the domicile, nationality, and period of residence of the decedent and the heir respectively, and self-judgment is dangerous.
- Tax treaties and the foreign tax credit: Foreign property and foreign income may also be taxed locally, and the adjustment of double taxation (the foreign tax credit and tax treaties) comes into play.
- Valuation and filing of overseas assets: Foreign property requires valuation, currency conversion, and local procedures, and takes more time than domestic assets.
- Report of foreign property: If you have foreign property above a certain amount, there is a separate reporting system.
International inheritance and international taxation are highly specialized fields. If there are overseas assets or persons concerned who live abroad, we recommend consulting a tax accountant well-versed in international taxation at an early stage.
FAQ
Is inheritance tax decided by nationality?
No. The scope of taxation (whether worldwide taxation or domestic property only) is decided by the combination of each person's — the decedent's and the heir's — domicile, period of residence, and location of the property. Nationality is no more than one of the factors in the determination.
Is an heir living abroad subject to Japanese inheritance tax?
If they acquire property located in Japan, then even living abroad they are subject to inheritance tax on the domestic property. Furthermore, if they meet certain requirements, property outside Japan too becomes subject (worldwide taxation).
What about inheritance between short-stay foreign nationals?
On and after April 2017, where both the decedent and the heir are short-stay persons holding a residence status (such as temporary residents), property outside Japan is not subject to inheritance tax or gift tax. Domestic property is subject.
Does a non-permanent resident not have to declare income from overseas?
For a non-permanent resident, domestic-source income and, among foreign-source income, the portion paid in Japan or remitted to Japan are subject to tax. Income left overseas may for the time being be outside the scope, but if there is a remittance or the like, it is taxed.
Summary
Reference links (sources)
This article is based on the following published materials of the National Tax Agency (neutral, primary sources). Because international taxation is reformed often, be sure to check the latest content and the advice of a professional.
- NTA No.4138 When an heir resides in a foreign country (in Japanese)
- NTA No.4132 The range of heirs and the statutory shares of inheritance (in Japanese)
- NTA No.2010 Individuals who become taxpayers (resident, non-permanent resident, non-resident) (in Japanese)
- NTA No.1923 The scope of taxable income of a non-permanent resident (in Japanese)
* This article is general information provision and is not tax advice. For determinations on international inheritance and international taxation, please consult a tax accountant well-versed in international taxation or a tax office.