JAPAN Law and Practice Contributed by: Atsushi Oishi and Makoto Sakai, Mori Hamada & Matsumoto
2.2 International Planning As seen in 1.1 Tax Regimes , the rates of inheritance tax and gift tax are very high in Japan, so international planning is essential for high-net-worth families. To avoid inheritance and gift taxes, a family generally needs to emigrate from Japan to a foreign country and stay there for more than ten years, and also change the location of their assets from Japan to a foreign country. In connection with this, the exit tax regime introduced in 2015 is critical for the emigrating family. Under this tax regime, a Japanese resident will be subject to an individual income tax on unrealised gain from certain securities upon the resident’s emigration from Japan if certain conditions are met. The exit tax is applicable to a person who: • is a Japanese resident whose place of domicile ( jyusho ) or residence ( kyosho ) has been Japan for more than five years out of the ten years prior to the emigration; and • has taxable assets with a combined value of JPY100 million or more – ie, certain securities, interests in a silent partnership ( tokumei kumiai ), unsettled credit transactions and unsettled deriva - tives. As a result of the introduction of the exit tax regime, it has become difficult for families who have securities (such as shares in their own businesses) with a sig - nificant amount of unrealised gains to emigrate from Japan. However, other families who only have assets with no unrealised gains are still in a good position to Under Japanese law, the rules of inheritance are gov - erned by the law of the nationality of the decedent. Therefore, if a decedent’s nationality at the time of their death is Japanese, then Japanese law governs the rules of inheritance. Under the Japanese Civil Code, all rights and obliga - tions (except those that are purely personal) of the deceased transfer to the heirs automatically and com - prehensively at the time of the decedent’s death. consider international planning. 2.3 Forced Heirship Laws
As Japan ratified the 1961 Convention on the Con - flicts of Laws Relating to the Form of Testamentary Dispositions in 1964, the formality of a Will made in a form that satisfies relevant foreign law requirements may be admitted. However, the contents of a Will are governed by the law of the nationality of the decedent. As is the case in other civil law jurisdictions, statu - tory reserved portions of certain statutory heirs are provided for in the Civil Code. A statutory reserved portion enables certain persons to claim a share of an estate if they are excluded from succession by the decedent’s Will. Although the decedent may deter - mine the allocation of their estate property by Will, their spouse, children and lineal ascendants as heirs will have a right to receive their statutory shares of the estate under forced heirship rules. As a result of the amendments to the Civil Code regarding the succession system, which became effective on 1 July 2019, certain rules regarding forced heirship rules were changed (eg, gifts made ten years or more before the decedent’s death are generally not counted in the calculation of the statutory reserved portion of the estate for certain heirs). 2.4 Marital Property Common Property Assets obtained during marriage are deemed com - mon property, even when they are obtained under the name of only one spouse, and are therefore divided equally, even if one spouse did not earn any income. By contrast, assets obtained by a spouse prior to mar - riage belong to that spouse only. Assets that a spouse inherited from their own family are also excluded from the division of assets upon divorce. Prenuptial and Postnuptial Agreements Prenuptial and postnuptial agreements are permitted in Japan. Postnuptial agreements may be cancelled at any time during the marital term, unless any third- party rights are impaired. However, such cancellations will not be permitted once the amendments to the Civil Code of Japan take effect by 2026. Prenuptial agree - ments may be asserted against third parties if they are registered with the Legal Affairs Bureau.
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