Japanese Inheritance Tax: How It Is Computed, and Who It Reaches

"I have built assets in Japan and want them to pass to my children. How much actually survives?" We hear this repeatedly from wealth holders resident in Japan.

The question is really two independent questions. First, how is the tax computed? Second, which assets fall within scope at all? The first is a question of arithmetic; the second is a question of status and residence history. They are easily conflated — but the second has to be answered first.

The First Question: How the Tax Is Computed

Article 15(1) of the Inheritance Tax Act deducts from the aggregate taxable value "the sum of ¥30 million and ¥6 million multiplied by the number of the decedent's heirs." This is the basic estate deduction.

The count of heirs is constrained by Article 15(2): where the decedent has biological children, at most one adopted child may be included; where there are no biological children and two or more adopted children, at most two. Where an heir has renounced the inheritance, the count is taken as though no renunciation had occurred.

Rates are set by Article 16. The balance after the basic deduction is treated as divided among the heirs according to the statutory shares under Article 900 of the Civil Code, and each resulting amount is run through the following brackets. The sum is the "total inheritance tax."

The top rate of 55/100 does not apply to the estate as a whole. The statute divides the amount into bands and sums "the amounts calculated by multiplying each such amount by the rate" — so 55% reaches only the portion of each apportioned amount above ¥600 million.

Worked through for an aggregate taxable value of ¥300 million with three heirs (a spouse and two children): the basic deduction is ¥30m + ¥6m × 3 = ¥48 million, leaving ¥252 million. Statutory shares give the spouse one half (¥126 million) and each child one quarter (¥63 million). Applying the brackets gives ¥33.4 million on the spouse's share and ¥11.9 million on each child's, for a total inheritance tax of ¥57.2 million.

The Spouse's Share Carries a Separate Relief

That total is not necessarily what gets paid. Article 19-2(1) credits, against the spouse's liability, the tax corresponding to the greater of the spouse's statutory share or ¥160 million.

In the example above, if the spouse takes exactly one half (¥150 million), the spouse's computed tax of ¥28.6 million is credited in full and no tax is payable by the spouse. The two children then bear ¥28.6 million between them.

Article 19-2(3), however, makes the relief available only where the return carries a statement claiming it together with the supporting computation. A relief granted by statute still does not apply unless it is claimed on a filing.

The Second Question: Whose Assets, and Which Ones

Structurally this matters more. Article 1-3(1) sorts taxpayers by item. A person who has a domicile in Japan at the time of acquiring the property and who is "an individual other than a temporary resident" falls under item 1(a) — and in that case it makes no difference whether the property is located inside or outside Japan.

"Temporary resident" is defined in Article 1-3(3)(i): a person who, at the time the inheritance commences, holds a status of residence, and whose periods of domicile in Japan within the preceding 15 years total 10 years or less. The status of residence is expressly limited to "a status of residence listed in the left-hand column of Appended Table I" of the Immigration Control and Refugee Recognition Act.

Two requirements sit inside that definition.

First, the status must be one under Appended Table I. Article 2-2(2) of the Immigration Act divides statuses into those in the left column of Appended Table I (whose right column specifies "activities that may be performed in Japan") and those in the left column of Appended Table II (whose right column specifies a "status or position held in Japan"). Appended Table II lists: Permanent Resident, Spouse or Child of Japanese National, Spouse or Child of Permanent Resident, and Long-Term Resident. These are not Appended Table I statuses, so by definition they cannot satisfy the temporary-resident test. That alone, however, does not bring a person within item 1(a): the chapeau of item 1 separately requires the person to "have a domicile in the area where this Act is enforced at the time the property was acquired." Only where both conditions are met is the person "an individual other than a temporary resident" under item 1(a) — and taxed regardless of where the assets sit.

Second, the period test: total domicile in Japan of 10 years or less within the preceding 15 years. This is a distinct provision from the non-permanent resident test under the Income Tax Act (5 years or less within the preceding 10) — different figures, different framing. The resemblance of the numbers makes this one of the most frequently confused points in the area.

Where the person has no domicile in Japan at the time of acquisition, item 2 governs. An individual holding Japanese nationality who has had a domicile in Japan at any time within the 10 years preceding the commencement of inheritance falls under item 2(a)(1). Departure from Japan does not end the reach of the tax while that 10-year window remains open.

What is most easily missed are the parentheticals in items 1(b), 2(a)(2) and 2(b), each of which excludes cases where the decedent is a "foreign decedent" or a "non-resident decedent." Both terms are themselves defined in Article 1-3(3), which means the decedent's own status of residence, domicile and nationality alter the scope of taxation on the heirs' side.

Which item applies is therefore determined neither by the heir's circumstances alone nor by the decedent's alone, but by the combination — and that is the design pivot of the provision. One-directional readings such as "he lived in Japan, so worldwide assets are taxed" or "she has no Japanese nationality, so she is outside the scope" are both inconsistent with the structure of the text.

Once the Item Is Fixed, the Range of Taxable Property Follows

Article 1-3 classifies taxpayers, and does no more than that. Which property is then taxable under each classification is picked up by Article 2.

Article 2(1) provides that, for a person falling under Article 1-3(1) item 1 or item 2, inheritance tax is imposed "on all of the property acquired by inheritance or bequest." Article 2(2) provides that, for a person falling under item 3 or item 4, tax is imposed "on the property acquired by inheritance or bequest that is located within the area to which this Act applies."

Scope is therefore a two-stage construct. Article 1-3 fixes which item applies, on the basis of domicile, status of residence, nationality and duration of residence; Article 2 then determines, according to that item, whether the tax reaches all acquired property or only property located in Japan. The location of the assets enters the analysis at this second stage — not the first.

Provisions That Compress the Taxable Value

• Exempt limit for insurance proceeds — Article 12(1)(vi) excludes from the taxable value insurance proceeds received by heirs up to ¥5 million multiplied by the number of heirs. Item (vii) provides an equivalent allowance for retirement allowances.
• Relief for small-scale land etc. (shōkibo takuchi-tō) — Article 69-4(1) of the Special Measures Act reduces the value included in the taxable base, for land meeting the area limits, to 20/100 for land used for a specified business, specified residence, or a specified family-company business, and to 50/100 for land used in a leasing business — reductions of 80% and 50% respectively. The area limits under Article 69-4(2) are 400 m² for specified business use, 330 m² for specified residential use, and 200 m² for leasing-business use.

Treat It as a Structural Question

Whether and how estates are taxed varies widely between jurisdictions, and some impose no such tax at all. But the absence of a tax elsewhere is not a reason to narrow the Japanese scope. The Article 1-3 determination runs entirely on Japanese-law factors — domicile, status of residence, nationality, and duration of residence — and Article 2 then sets the range of taxable property according to the item so determined.

Three things to confirm:

• The category of each party — domicile, whether the status of residence sits in Appended Table I or II, nationality, and the duration of domicile. The combination fixes which item of Article 1-3 applies, and Article 2 then sets the range of taxable property for that item.
• The number of heirs — the basic deduction, the bracket allocation, and the insurance exemption all move with this figure.
• The composition of the estate — the proportion held as land or insurance changes which compression provisions are available.

None of these can be altered once an inheritance has commenced. Residence history and status of residence shift categories with the passage of time, and most reliefs are conditional on filing. They therefore need to be organised as a plan within the year.

This article provides general information on tax systems and does not constitute individual tax consultation. Specific filings and tax computations are handled by licensed partner tax accountants whom we introduce.