Japan looks to tighten inheritance tax on foreign assets
TOKYO -- Japanese policymakers are proposing an overhaul of the country's inheritance tax, targeting those who shift their wealth abroad to take advantage of a foreign residency loophole.
Japan's inheritance tax does not apply only to the ultra-rich. When someone with a spouse and two children dies, for example, anything the person leaves behind beyond 48 million yen ($461,000) in real estate and other assets is taxed, in principle -- including overseas assets. But the overseas estate is not taxed if that person and the heirs had been living abroad for more than five years.
"Some people move their assets to Singapore or some other place and live abroad for more than five years to avoid the tax," a Tokyo tax accountant said, describing this as a phenomenon among those worth upward of several billion yen.
The Ministry of Finance is studying proposals that would impose inheritance tax on the overseas assets of all Japanese nationals, or at least of those living abroad for fewer than 10 years.
Government and ruling-coalition policymakers also want to change how the estates of foreigners who die while working in Japan are taxed. The current code applies Japan's inheritance tax to all of the foreigners' assets regardless of country. Officials propose narrowing the scope to assets in Japan, except for foreigners who have permanent resident status or have lived in the country for five or more years.
Some highly qualified people are reluctant to work in Japan because of its inheritance tax, said a person with the American Chamber of Commerce in Japan. With more of Japan's big corporations hiring foreign executives, the business community has voiced similar concerns. The U.S. and the U.K. do not apply inheritance tax to the overseas assets of people working there temporarily.
The ruling Liberal Democratic Party's tax policy commission will discuss these proposed changes with a view to including them in a plan for fiscal 2017 tax code revisions.