JAPAN Law and Practice Contributed by: Atsushi Oishi and Makoto Sakai, Mori Hamada & Matsumoto
1.2 Exemptions Any gift or inheritance of shares in a private company that is effective between 2018 and 2027 as part of a business succession plan may be exempt from gift or inheritance tax if certain requirements are met. As stated in 2.6 Transfer of Assets: Vehicle and Plan- ning Mechanisms , the transfer of assets to a spouse would usually be exempt from inheritance tax. With respect to gift tax, there are special tax treatments for transferring assets to younger generations for educa - tion, residence acquisition and other purposes. 1.3 Income Tax Planning In Japan, purchasing real estate to be depreciated is the most common form of planning to create tax losses, which reduces the amount of income tax. 1.4 Taxation of Real Estate Owned by Non- Residents As stated in 1.1 Tax Regimes , rental income and capi - tal gains from real estate owned by non-residents and located in Japan are always treated as Japan-sourced income. To reduce the tax burdens arising from real estate, certain special tax structures (eg, TMK or TK- GK schemes) are commonly used by non-resident investors. 1.5 Stability of Tax Laws Japan amends its tax laws every year. The following recent amendments have had a significant impact on high-net-worth individuals. Scope of Inheritance and Gift Taxes There have been changes to the scope of inheritance and gift taxes, depending on the status of the heir/ donee and the deceased/donor. For instance, before 2017, to avoid inheritance and gift taxes, a family generally needed to emigrate from Japan to a foreign country and stay there for more than five years and also change the location of their assets from Japan to a foreign country. However, after 2017, the term of five years was extended to ten years. Introduction of Exit Tax The Japanese government introduced an exit tax effective from 1 July 2015, which is applicable to cer -
tain expatriating Japanese individual residents; see 2.2 International Planning . COVID-19 To simplify the tax filing procedures, Japanese tax authorities have started to accept tax returns and other tax documents that are not sealed by the tax - payers. They are also promoting the electronic filing system – the so-called “e-tax”. 1.6 Transparency and Increased Global Japan has concluded many tax treaties, most of which include an exchange of information clause. Japan is also a signatory to the Convention on Mutual Admin - istrative Assistance. Common Reporting Standard (CRS) Reporting Tax Treaties For the purposes of implementing an exchange of information based on the CRS, Japan adopted a sys - tem for financial institutions to report relevant infor - mation to the competent tax offices in its 2015 tax reforms. Reporting System In an effort to improve compliance and enforcement with respect to the reporting of income from overseas assets, the foreign asset report requirement was intro - duced on 1 January 2014 for permanent individual residents who own overseas assets of more than JPY50 million in aggregate. A permanent individual resident is an individual resident who has Japanese nationality or who has been in Japan in excess of five years out of the preceding ten years. 2. Succession 2.1 Cultural Considerations in Succession Planning It is a tradition in Japan for older generations to pass on their wealth to younger generations. Donations to charity funds have recently become popular among founders because the donated assets are not subject to inheritance tax upon their death, as stated in 3.1 Types of Trusts, Foundations or Similar Entities .
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