Tax reform measures enacted in 2017 amend the scope of the inheritance tax (or gift tax) on transfers involving property located outside Japan with respect to inheritance (or gifts) involving foreign persons living in or having lived temporarily in Japan. Subject to certain conditions, such inheritances (or gifts) will not be subject to Japanese inheritance tax (or gift tax).
Previously, there were no specific rules concerning the inheritance tax (or gift tax) liability of foreign persons living temporarily in Japan. Under the amendments, in general, when a decedent (or donor) or an heir (donee) is a foreign national living in Japan for 10 years or less, only properties located in Japan will be taxable for inheritance tax (gift tax) purposes. When foreign nationals are decedents (or donors) after they leave Japan, if they stayed in Japan for 10 years or less, in general, only properties located in Japan will be taxable for inheritance tax (or gift tax) purposes.
The 2017 tax reform also amended the rules for when inheritance tax (or gift tax) will be imposed on certain Japanese persons who relocate outside Japan. Under the expanded rules, inheritance tax (or gift tax) will be imposed in certain instances on all property in order to deter attempted tax savings by wealthy Japanese persons who relocate outside Japan. Previously, wealthy persons moved their properties overseas and lived away from Japan for more than five years in order to make their properties non-taxable under the inheritance tax (or gift tax) regime. Under the former rules, tax was only imposed on properties located in Japan when the Japanese decedent (or donor) and the Japanese heir (donee) had lived outside Japan for more than five years. The 2017 tax reform has amended the scope of the tax obligations of the inheritance tax and gift tax, and generally provides a 10-year period for determining whether the subject property located outside Japan will be considered to be a taxable property.
Read a June 2017 report prepared by the KPMG member firm in Japan
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