SEISEI INSIGHTS — Succession
Does Real Estate Located Outside Japan Enter the Japanese Inheritance Tax Base?
2026-09-29
"I still own property back home. When I die, my child in Japan will inherit it. Will Japan really tax property that sits on the other side of the world?" We are asked this constantly by families spread across borders.
The answer turns not on where the property is, but on which category the person acquiring it falls into.
Inheritance Tax Looks at the Person First
The Inheritance Tax Act builds its taxable scope from the categories of taxpayer, not from the location of the property. Article 1-3(1) divides taxpayers into five items; Article 2 then sets the scope of taxation for each.
| Category of acquirer | Provision | Scope of taxation |
|---|---|---|
| A person domiciled in Japan at the time of acquisition (an individual who is not a temporary resident; and a temporary resident where the decedent is not a foreign or non-resident decedent) | Art. 1-3(1)(i) → Art. 2(1) | All property acquired, including property outside Japan |
| A person not domiciled in Japan who holds Japanese nationality and was domiciled in Japan at some point in the ten years before the inheritance commenced, and others specified in that item | Art. 1-3(1)(ii) → Art. 2(1) | All property acquired |
| Any other person acquiring property located in Japan | Art. 1-3(1)(iii), (iv) → Art. 2(2) | Only property located in Japan |
The first two groups are commonly called "unlimited taxpayers" and the third "limited taxpayers," though neither term appears in the statute. What actually divides them is domicile, nationality, and whether the person is a temporary resident.
A temporary resident, under Art. 1-3(3)(i), is a person who at the time the inheritance commences holds a status of residence listed in the left-hand column of Appended Table 1 of the Immigration Control and Refugee Recognition Act, and whose periods of domicile in Japan total ten years or less within the fifteen years preceding the commencement of inheritance. Note that both the years and the test differ from the residency categories under the Income Tax Act — it is a separate measure entirely.
Situs Is Determined Type by Type, Under Different Tests
Where a person falls under Art. 1-3(1)(iii) or (iv), the next question is whether the property is located in Japan. Article 10 governs that. The point to grasp is that there is no single test: each class of property has its own.
| Class of property | Provision | Situs test |
|---|---|---|
| Movables, immovables, and rights over immovables | Art. 10(1)(i) | The location of the movable or immovable itself (for vessels and aircraft, the registering authority) |
| Loan receivables | Art. 10(1)(vii) | The domicile or head/principal office of the debtor |
| Corporate bonds, shares, and capital contributions | Art. 10(1)(viii) | The head or principal office of the issuing entity |
| Property not covered above | Art. 10(3) | The domicile of the decedent or donor |
| Timing of the test | Art. 10(4) | The actual circumstances at the time of acquisition |
For real property, the test is physical location itself. It does not route through a person — a debtor, an issuing company — the way other classes do. Property situated abroad therefore remains foreign property unless the asset itself is disposed of.
The conclusion follows directly: where the acquirer falls under Art. 1-3(1)(i) or (ii), real estate located outside Japan is within the taxable base. Being foreign property is not, by itself, a reason to fall outside the scope of taxation.
Double Taxation, and How Far the Foreign Tax Credit Reaches
The country where the property sits may impose its own tax on it. If Japan taxes on a worldwide basis and the situs country taxes as well, two jurisdictions reach the same asset.
Article 20-2 provides the adjustment: where property located outside Japan is acquired and a tax equivalent to inheritance tax has been imposed on that property under the laws of that place, an amount corresponding to that tax is deducted from the computed Japanese tax.
The provision is limited in two distinct ways.
First, relief is confined to cases where a tax equivalent to inheritance tax has actually been imposed under local law. Where the situs jurisdiction's system does not levy such a tax on the property, there is no foreign tax for Japan to credit — and the foreign real estate simply enters the Japanese taxable base in full. Jurisdictions that impose no inheritance-tax equivalent do exist, and the credit is not a mechanism that operates automatically.
Second, the credit is capped. The proviso to Art. 20-2 denies any deduction beyond the computed tax multiplied by the ratio that the value of the foreign property bears to the value of acquired property included in the taxable base. However large the foreign tax, the Japanese credit stops at that ceiling.
Treat It as a Structural Question
In our experience, this issue surfaces not when someone tries to move assets, but when they did not realise that the acquirer's category and the property's situs are two separate determinations, each running on its own track. Three things to establish:
- Which category does each heir fall into? Art. 1-3(1) changes the scope of taxation fundamentally.
- Which class under Art. 10 does each asset belong to? The situs test differs by class.
- Does the situs jurisdiction impose a tax equivalent to inheritance tax on that property? This determines whether Art. 20-2 relief is available at all.
Mapping heirs' categories, asset classes and locations, and the situs jurisdictions' treatment onto a single structural diagram is the starting point of succession design for families holding assets across borders.
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.