Inheritance and Gift Tax in Japan for Foreigners: The 10-Year Rule

Whether Japanese inheritance and gift tax extends to overseas assets depends on the address, nationality, status of residence (在留資格) and past residence in Japan of both the person receiving the assets and the person passing them on. If a foreign national living in Japan on a status such as Business Manager dies, heirs who are foreign nationals living abroad are, in principle, subject to inheritance tax only on assets in Japan. Permanent residents and certain others are treated differently, however, so each case needs to be checked.

Four types of inheritance taxpayer: the scope of taxable assets

Whether a taxpayer is “unlimited” or “limited” depends on the heir’s nationality and status of residence, the circumstances of the decedent (the person who died) and each party’s past residence. For the detailed tests, check the latest version of the National Tax Agency (NTA) Tax Answer “When an heir lives abroad”.

Three key concepts used in the tests

Temporary resident (the heir)

A person who, at the start of the inheritance, holds a status of residence listed in Appended Table I of the Immigration Control and Refugee Recognition Act and whose total period with an address in Japan during the 15 years before the start of the inheritance is 10 years or less. Business Manager, Engineer/Specialist in Humanities/International Services, Intra-company Transferee and Highly Skilled Professional are all Appended Table I statuses.

Foreign decedent (the deceased)

A person who, at the start of the inheritance, held an Appended Table I status of residence and had an address in Japan. The FY2021 tax reform removed the requirement relating to the length of residence in Japan, so a person qualifies if they held an Appended Table I status, however long they had lived in Japan.

Non-resident decedent (the deceased)

A person who had no address in Japan at the start of the inheritance and who either had an address in Japan at some point in the 10 years before the start of the inheritance but did not hold Japanese nationality at any time during that period, or had no address in Japan within those 10 years.

Note that permanent resident, spouse or child of a Japanese national, spouse or child of a permanent resident, and long-term resident are statuses listed in Appended Table II of the Immigration Control Act. People with these statuses are neither temporary residents nor foreign decedents. If you are considering permanent residency, review the change in inheritance tax treatment together with the requirements for permanent residency.

By case: are overseas assets taxed?

An heir of Japanese nationality living abroad is taxed on overseas assets as well if they had an address in Japan within the 10 years before the start of the inheritance (non-resident unlimited taxpayer). Even without an address in Japan within those 10 years, overseas assets are also taxed if the decedent is neither a foreign decedent nor a non-resident decedent. This is what is commonly called the “10-year rule”.

The table shows typical examples. In practice, the determination is also affected by how the address at the start of the inheritance is assessed and by when a status of residence was changed.

Check in advance before a change of status or nationality

Once a person moves from an Appended Table I status to permanent resident, they no longer qualify as a foreign decedent. If they naturalize and acquire Japanese nationality, treatments that depend on a status of residence, such as temporary resident, no longer apply. Both changes bring major advantages in stability of residence and administration, but they may widen the scope of inheritance and gift tax. If you hold substantial assets overseas, it is prudent to estimate the taxable scope before the change, based on the address and nationality of every family member.

Gift tax follows the same logic

Gift taxpayers are classified in the same way as for inheritance tax, according to the address, nationality, status of residence and residence history of the donee (recipient) and the donor (giver). For gift tax, a temporary resident is a person who, at the time of the gift, holds an Appended Table I status of residence and whose total period with an address in Japan during the 15 years before the gift is 10 years or less.

• When a person with no address in Japan receives a gift, the taxable scope may be limited to assets in Japan.
• People temporarily outside Japan, for example for study or a short overseas assignment, are in certain cases treated as having an address in Japan.
• The basic deduction under calendar-year taxation is JPY 1.1 million a year. If the total assets received in a year (January 1 to December 31) exceed JPY 1.1 million, a return is in principle required.

For example, if a child living in Japan as a temporary resident receives overseas assets from a parent of foreign nationality living abroad (with no address in Japan within 10 years), Japanese gift tax generally does not apply. However, once the child’s total period with an address in Japan within the past 15 years exceeds 10 years, the child is no longer a temporary resident, and gifts of overseas assets also become taxable.

The gift tax tables are finely divided. Check the NTA Tax Answer “When a donee lives abroad” or consult a certified tax accountant (税理士).

Inheritance tax basic deduction and calculation steps

Inheritance tax is due when the total estate exceeds the basic deduction, which is “JPY 30 million plus JPY 6 million multiplied by the number of statutory heirs”. With three statutory heirs, a spouse and two children, it is JPY 48 million.

1. Calculate the taxable value (inherited assets less debts, funeral expenses and the like, plus certain gifted assets)
2. Subtract the basic deduction to arrive at the total taxable estate
3. Apply the tax rates as if the estate were divided according to statutory shares, to find the total inheritance tax
4. Allocate the total to each person by their actual share, then apply tax credits and other adjustments

Gifts received under calendar-year taxation within a set period before death are added to the inherited assets. For gifts made on or after January 1, 2024, this add-back period is being extended in stages from three to seven years. For inheritances starting on or after January 1, 2027, gifts made on or after January 1, 2024 are progressively brought in, and for inheritances starting on or after January 1, 2031, seven years of gifts are covered.

Points to watch when filing and paying

• Filing deadline: within 10 months from the day after the heir learned that the inheritance started. The deadline is not extended even if the estate has not yet been divided.
• Tax agent: heirs and donees with no address in Japan appoint and register a tax agent before filing and paying.
• Overseas documents: valuation records for overseas assets, foreign documents proving family relationships and their translations take time to prepare.
• Tax also levied abroad: if a foreign inheritance tax or similar is imposed on the same assets, a foreign tax credit may be available if the requirements are met.

For foreign nationals who own property in Japan, structuring title and funding with inheritance in mind from the purchase stage is effective. See also how foreigners buy property in Japan and what to watch for. Note too that the residency test for income tax uses different criteria from inheritance tax; see determining resident and non-resident status for Japanese tax.

How TIMOA can help

In inheritances and gifts involving foreign nationals, the taxable scope varies widely depending on whether the status of residence is in Appended Table I or II, the length of residence in Japan, and the addresses of both the deceased and the heirs. It is important to make the determination before assets are transferred.

Working with partner certified tax accountants, judicial scriveners (司法書士) and attorneys, TIMOA supports the determination of taxable scope, inheritance and gift tax filings, obtaining and translating overseas documents, and the succession of Japanese real estate and company shares. For details, see Private Client Services.