The Private Wealth & Private Client Review: Japan

Introduction

Japan is the home of many wealthy individuals, including executives and owners of large public and private Japanese companies, heirs of significant multi-generational family wealth, and senior foreign executives and investment fund managers employed in Asia-Pacific (APAC) regional roles or managing their own businesses in Japan.

As residents of Japan, these individuals face significant tax burdens in light of Japan's high income, gift and inheritance tax rates, which exceed the rates of most developed countries. Wealthy individuals subject to Japan tax face top marginal ordinary income, gift and inheritance tax rates of 55 per cent. Without proper planning, individuals and their family members stand to lose substantial amounts of wealth to Japanese taxes, and could be forced to liquidate assets to satisfy large tax obligations.

The government is focused on securing Japan's position as the leading financial centre of Asia by attracting senior foreign investment managers to head APAC strategies from Japan. To make Japan a more attractive place to base and relocate these executives, the Diet recently enacted new tax legislation that significantly alleviates the Japan gift and inheritance tax burdens historically facing foreigners in Japan. These tax law changes will also benefit foreign expatriates who work in other industries in Japan, as well as others who have long resided in Japan.

Tax

Japan's national tax regime is enforced by the Japan National Tax Agency (NTA). While Japan's tax system shares many characteristics with that of other developed, industrialised nations, there are certain aspects of Japanese tax law, particularly in the area of gift and inheritance tax, which are unique and demonstrate the complexity of Japan's tax system.

The Japan tax laws are generally revised annually at the beginning of the year in a comprehensive tax bill that covers all areas of taxation from individual to corporate and indirect taxation. For example, most recently, the government has enacted new tax legislation providing for more favourable treatment of foreigners living in Japan, aiming to attract foreign investment in Japan.

i Income tax

Under Japanese income tax law, individuals are taxed primarily on the basis of their residency status. Accordingly, Japan categorises individuals into resident or non-resident for Japan income tax status purposes.

A person is treated as a resident for Japan income tax purposes if he or she is domiciled in Japan, or if he or she has resided continuously in Japan for more than one year.

The determination on whether a person is domiciled in Japan for income tax purposes is based on a facts and circumstances test demonstrating whether the person's centre of living is located in Japan or in another country (the facts and circumstances test). The facts and circumstances taken into consideration include, for example:

  1. the number of days spent in Japan and other countries during the year;
  2. the location of homes, businesses, bank accounts, investments and work;
  3. the location of family members;
  4. the payment of taxes in other countries;
  5. the type of visa held; and
  6. the presence or absence of a registered residential address in Japan.

Residents

If the facts and circumstances as a whole demonstrate that a person's centre of living is in Japan (i.e., he or she is domiciled in Japan under the facts and circumstances test), such person would be considered a resident in Japan for income tax purposes. Individuals who are resident in Japan are classified into one of two sub-categories: permanent resident or non-permanent resident.

Permanent residents

Japan citizens residing in Japan, and non-Japan citizens who have resided in Japan for more than five cumulative years out of the past 10 years, are categorised as permanent residents for Japan income tax purposes. Individuals who are classified as permanent residents are subject to Japan income tax on their worldwide income, regardless of the source, up to a top marginal rate of 55.945 per cent. Permanent residents are also subject to Japanese capital gains tax, regardless of the source of the gain, at a rate of 20.315 per cent.

Non-permanent residents

Non-Japan citizens who have resided in Japan for more than one year but five cumulative years or less out of the past 10 years are considered non-permanent residents for Japan income tax purposes.

Up until April 2017, non-permanent residents were generally only subject to Japan income tax on Japan source income and income remitted into Japan. However, the government implemented changes to the Japanese income tax law in 2017 that substantially altered the scope of taxation for non-permanent residents. Effective 1 April 2017, non-permanent residents are also subject to Japan capital gains tax for the sale of non-listed securities, securities listed on a stock exchange in Japan and securities listed on a stock exchange outside of Japan that were acquired on or after 1 April 2017.

If a non-permanent resident is subject to Japanese ordinary income tax or Japanese capital gains tax based on the rules above, the non-permanent resident will be subject to ordinary income tax up to a top marginal rate of 55.945 per cent and a capital gains tax rate of 20.315 per cent.

Non-residents

If the facts and circumstances as a whole demonstrate that a person's centre of living is outside of Japan (i.e., he or she is not domiciled in Japan under the facts and circumstances test), and such person has not resided in Japan for a continuous period of one year or more, such person would be treated as a non-resident for Japan income tax purposes.

Non-residents are subject to Japanese income tax, normally at a flat rate such as 20.42 per cent, on Japanese-source income. If a non-resident earns Japanese-source income, the non-resident is generally subject to Japanese withholding tax at the time the Japanese-source income is paid in Japan or paid by a foreign entity that has a permanent establishment in Japan.

Japan exit tax

Based on the rules above, individuals may wish to establish that they are not domiciled in Japan so that they are classified as non-resident for Japan income tax purposes. However, effective 1 July 2015, Japan now imposes an exit tax on Japanese citizens who hold assets subject to exit tax of ¥100 million or more.

The exit tax can also extend to non-Japan citizen individuals with certain visa status who were resident in Japan for more than five years out of the past 10 years prior to exit, and who hold assets subject to the exit tax of ¥100 million or more on the date of exit.

Generally, the assets that are subject to the Japan exit tax are securities such as stocks and bonds and tokumei kumiai 2 interests. Such assets will be subject to a 15.315 per cent tax if Japan exit tax is applicable. Notably absent from the list of assets subject to exit tax are real estate and personal property such as art.

An important exception from the exit tax includes non-Japan citizen individuals who for the period they lived in Japan have held a visa type listed in Table 1 of the Immigration Control and Refugee Recognition Act (Table 1 visa). Based on the current list of Table 1 visa holders, persons holding the following examples of visas are exempt from exit tax: investor or business manager, legal or accounting services, engineer, specialist in humanities or international services, and intra-company transferee. This list covers the visas issued to foreign expat individuals who are residing in Japan under work-type visas.

In contrast, a non-Japan citizen who has lived in Japan for more than five years out of the past 10 years on a visa listed in Table 2 of the Immigration Control and Refugee Recognition Act (Table 2 visa) is subject to exit taxation. Based on the current list of Table 2 visa holders, persons holding the following examples of visas could be subject to exit tax: spouse, child or permanent resident. Thus, a foreigner residing in Japan for the requisite period of time under a spousal or permanent resident visa and holding assets subject to the exit tax of ¥100 million or more would not be able to depart Japan and establish non-resident status for Japan income tax purposes without triggering the Japan exit tax.

The Common Reporting Standard

If an individual is a permanent resident for Japan income tax purposes, such individual is required to submit a foreign asset report to the NTA if he or she owns foreign (i.e., non-Japan situs) assets valued at more than ¥50 million in the aggregate. The foreign assets report aids the NTA in improving income tax compliance by permanent residents, who are subject to Japan income tax on their worldwide income.

Japan has also adopted legislation providing for the automatic exchange of information under the Organisation for Economic Co-operation and Development's Common Reporting Standard (CRS), committing to its first exchange with other CRS participating countries in 2018. Japan received its first information exchange in September 2018, which included information on financial accounts held by Japan residents in foreign countries.

Upon receipt and review of this information, the NTA has significantly increased its number of audits of Japan permanent residents who may have underreported or failed to report foreign assets or foreign income based on a comparison between the information received under the CRS information exchange and a permanent resident's tax return or foreign assets report. The NTA has announced that its audits will focus on high-net-worth individuals who have foreign source income or foreign situs assets.

It is expected that Japan will continue to audit individuals who are permanent residents for Japan income tax purposes based upon the information it receives on foreign financial accounts under the CRS regime.

ii Gift tax

The applicability of Japan gift tax to gratuitous transfers generally depends on the citizenship and domiciliary status of both the donor and donee and the situs of the asset being gifted. Japan recently revised its tax law to narrow the scope of gratuitous transfers by non-Japan citizens that are subject to Japan gift tax, indicating Japan's policy shift towards increasing foreign investment in Japan through more favourable tax treatment of foreigners living in Japan.

Gift tax law prior to 1 April 2021

As stated above, Japan generally looks at the citizenship and domiciliary status of both the donor and donee to determine whether Japan gift tax applies to a gratuitous transfer. Prior to 1 April 2021, individuals were generally treated as a Japan person if they were a Japan citizen who was currently domiciled in Japan or had been domiciled in Japan at any time during the past 10 years; or a non-Japan citizen who was currently domiciled in Japan and had been domiciled in Japan for more than 10 years during the past 15 years on a Table 1 visa (the 10 year tail), or a non-Japan citizen who was currently domiciled in Japan on a Table 2 visa (regardless of the amount of time spent domiciled in Japan).

In addition, prior to 1 April 2021, individuals were generally treated as a non-Japan person if they were a Japan citizen who was not currently domiciled in Japan and had never been domiciled in Japan at any time during the past 10 years; or a non-Japan citizen who was not currently domiciled in Japan or was currently domiciled in Japan but for 10 years or less during the past 15 years on a Table 1 visa.

If either the donor or the donee of the gift was a Japan person at the time of the gift, both Japan situs and non-Japan situs gifts were subject to Japan gift tax up to a top marginal rate of 55 per cent.

If both the donor and the donee of the gift were non-Japan persons at the time of the gift, only Japan situs gifts were subject to Japan gift tax up to a top marginal rate of 55 per cent.

In addition to the rules above, it is important to note that prior to 1 April 2021, if a non-Japan citizen who was a Japan person departed Japan (thereby becoming a non-Japan person), made a gift to a non-Japan citizen domiciled outside of Japan (also a non-Japan person) within two years of departure, and then returned to live in Japan within two years of departure, such gift would be subject to Japan gift tax regardless of the situs of the asset gifted (the two year recapture rule). The two year recapture rule brings gifts made by such donor within back into the scope of Japanese taxation, whereas based solely on the rules above (i.e., where both the donor and donee are non-Japan persons), only Japan situs assets would be subject to Japan gift tax.

Gift tax law effective 1 April 2021

Effective 1 April 2021, Japan significantly relaxed the rules on taxation of gifts by non-Japan citizens living in Japan. As of 1 April 2021, if the donor of a gift is a non-Japan citizen who is domiciled in Japan on a Table 1 visa, the donor is treated as a non-Japan person, even if he or she has been domiciled in Japan for more than 10 years during the past 15 years. In other words, a non-Japan citizen donor domiciled in Japan on a Table 1 visa no longer has the 10 year tail for Japan gift taxpayer status.

Accordingly, if such donor makes a gift to a donee who is a non-Japan person at the time of the gift, the gift will be subject to Japan gift tax only if the gift is a Japan situs gift.

The new rule essentially allows non-Japan citizen donors domiciled in Japan on a Table 1 visa to make gifts of non-Japan situs assets to donees who are non-Japan persons free of Japanese gift tax. Prior to this rule, if such donor had been domiciled in Japan for more than 10 of the past 15 years, the gift would be subject to Japan gift tax regardless of the situs of the asset gifted.

The changes made to the Japan gift tax law effective 1 April 2021 also eliminated the two year recapture rule. Accordingly, if a non-Japan citizen who was a Japan person departed Japan and made a gift to a non-Japan citizen domiciled outside of Japan, such gift would be subject to Japan gift tax only if the asset gifted was a Japan situs asset. This rule would apply even if the donor made the gift and returned to live in Japan within two years of departing Japan.

If a gift is subject to Japan gift tax, under Japanese tax law, a basic exemption of ¥1.1 million per donee per year may be applied to reduce the tax base of the gift.

iii Inheritance tax

Like the Japan gift tax, the applicability of Japan inheritance tax also generally depends on the citizenship and domiciliary status of both the decedent and the person inheriting the assets, as well as the situs of the asset being transferred at death. Japan's inheritance tax law is analogous to Japan's gift tax law discussed above, and the same recent legislation effective 1 April 2021 has also narrowed the scope of transfers at death by non-Japan citizens that are subject to Japan inheritance tax, providing for more favourable tax treatment of foreigners living in Japan.

Inheritance tax law prior to 1 April 2021

Prior to 1 April 2021, individual were generally treated as a Japan person if they were:

  1. a Japan citizen who was currently domiciled in Japan or had been domiciled in Japan at any time during the past 10 years; or
  2. a non-Japan citizen who was currently domiciled in Japan and had been domiciled in Japan for more than 10 years during the past 15 years on a Table 1 visa, or a non-Japan citizen who was currently domiciled in Japan on a Table 2 visa (regardless of the amount of time spent domiciled in Japan).

Prior to 1 April 2021, individuals were also generally treated as a non-Japan person if they were:

  1. a Japan citizen who was not currently domiciled in Japan and had never been domiciled in Japan at any time during the past 10 years; or
  2. a non-Japan citizen who was not currently domiciled in Japan or was currently domiciled in Japan but for 10 years or less during the past 15 years on a Table 1 visa.

If either the decedent or the person inheriting the asset was a Japan person at the time of the decedent's death, both Japan situs and non-Japan situs assets were subject to Japan inheritance tax up to a top marginal rate of 55 per cent.

If both the decedent and the person inheriting the asset were non-Japan persons at the time of the decedent's death, only Japan situs assets were subject to Japan inheritance tax up to a top marginal rate of 55 per cent.

Inheritance tax law effective 1 April 2021

As it did with its gift tax, Japan has also significantly relaxed the rules on taxation of transfers at death by non-Japan citizens living in Japan. As of 1 April 2021, if the decedent is a non-Japan citizen who was domiciled in Japan on a Table 1 visa at the time of his or her death, the decedent is treated as a non-Japan person, even if he or she has been domiciled in Japan for more than 10 years during the past 15 years. In other words, a non-Japan citizen decedent domiciled in Japan on a Table 1 visa no longer has the 10 year tail for Japan inheritance taxpayer status.

Therefore, if such a decedent transfers assets at death to a person who is a non-Japan person taxpayer at the time of the decedent's death, Japan inheritance tax will apply only if the assets transferred are Japan situs assets. Prior to the new law, if such a decedent had been domiciled in Japan for more than 10 of the past 15 years at the time of his or her death, the inheritance would be subject to Japan inheritance tax regardless of the situs of the assets.

If assets are subject to Japan inheritance tax, under the Japanese tax law, a basic exemption of ¥30 million plus ¥6 million times the number of statutory heirs may be applied to reduce the tax base of the assets subject to inheritance tax. Further, if a decedent is survived by his or her spouse, a spousal credit of the larger of the statutory share of a surviving spouse or ¥160 million may be available to reduce the Japanese inheritance tax due.

Succession

Japan has enacted a succession law that allows for the passing of a decedent's assets to his or her heirs in a simple manner, generally without the requirement of probate.

If a person passes away without having executed a will, his or her assets will be divided among his or her heirs pursuant to the allocations specified under the Japanese succession law, called the 'statutory shares,' and the heirs would need to come to an agreement as to which heir receives which property.3 Family relationships and status as a statutory heir (i.e., those entitled to a statutory share) are verified through a family registry of the decedent.4 In addition to succeeding to the assets of the decedent, statutory heirs also succeed to the debts of the decedent. As such, there is no concept of an estate in Japan.

If a decedent executed a will during his or her lifetime, the allocation of assets set forth in the will would prevail over the allocations set forth in the Japanese succession law. Although assets may pass without probate based upon the statutory shares, a will could be used to provide clear guidance on the distribution of a decedent's assets, such as which specific assets are to be distributed to which specific heirs. By providing for further clarity in a will, the decedent may avoid delays that could arise if the heirs are left with such decisions after the decedent's death, or cannot agree on how to divide the assets.

Despite the advantages of executing a will, many Japanese citizens tend to rely on the statutory provisions in the Japanese succession law to govern the division of their assets at death. However, the use of a will is particularly important for Japan citizens who wish to provide further clarity on the disposition of their assets (i.e., which asset goes to which heir) or for non-Japan citizens to whom Japanese succession law may not apply, as discussed below.

i Intestacy in Japan

If a decedent passes away without having executed a valid will, the decedent's assets will be divided according to the statutory shares prescribed in the Japanese Civil Code as follows:

  1. If the decedent is survived by a spouse and children or other remoter issue:5
    • the spouse is entitled to 50 per cent of the decedent's assets; and
    • the children are entitled to 50 per cent of the decedent's assets in equal shares, with the children of a predeceased child taking the share of their deceased parent, and so forth.
  2. If the decedent is survived by a spouse and parents or other ascendants, but no children or remoter issue:
    • the spouse is entitled to approximately 67 per cent of the decedent's assets; and
    • the parents, or other ascendants if both parents predecease the decedent, and so forth, are entitled to approximately 33 per cent of the decedent's assets.
  3. If the decedent is survived by a spouse and siblings, or children of a sibling if his or her sibling predeceased him or her, but no parents, children, or other ascendants or remoter issue:
    • the spouse is entitled to 75 per cent of the decedent's assets; and
    • the siblings are entitled to 25 per cent of the decedent's assets, with the children of a predeceased sibling taking the share of their deceased parent.
  4. If the decedent is survived by a spouse, but no siblings, children of siblings, parents, children, or other ascendants or remoter issue, the spouse is entitled to 100 per cent of the decedent's assets.
  5. If the decedent is survived by children or remoter issue, but no spouse, the children are entitled to 100 per cent the decedent's assets, with the children of a predeceased child taking the share of their deceased parent, and so forth.

If a Japan citizen desires to provide further clarity on the disposition of his or her assets, or if a non-Japan citizen, to whom Japanese succession law may not apply, wishes to devise assets in a certain allocation upon his or her passing, such persons may wish to execute a will to clearly establish his or her intent on the disposition of his or her assets.

ii Testamentary dispositions in Japan

Testamentary dispositions in a will are recognised under Japanese succession law. Two common types of Japanese wills include a Japanese notarial deed will and a Japanese holographic will. A Japan citizen, or a non-Japan citizen living in Japan, may wish to execute a Japanese will to provide for an efficient transfer of assets upon his or her passing.

Japanese notarial deed will

A Japanese notarial deed will is typically executed at a notary office in Japan. Testators will convey to the notary their desired contents of the will, verify that the draft conforms to their wishes, and then will execute the will in the presence of two witnesses, who will also execute the will. The notary then prepares the will, the original of which will be retained at the notary's office.

Japanese holographic will

A Japanese holographic will is a will written in the testator's handwriting.6 The Japanese holographic will must be signed by the testator and dated, and affixed with the testator's seal if the testator is a Japanese citizen, but there is no requirement for any witness signatures or notary. Effective 10 July 2020, the original of a Japanese holographic will may be submitted to the Legal Affairs Bureau for safekeeping.

Forced heirship rules in Japan

Although a will may be used in Japan to provide for a testator's desired allocation of assets, it should be noted that certain heirs are entitled to a statutorily prescribed share of a decedent's assets (the legally reserved share) as follows:

  1. spouses, children and remoter issue of the decedent, and parents and ascendants of the decedent, are entitled to a legally reserved share of 50 per cent of their statutory share except if parents or other ascendants are the only living heirs; and
  2. parents and other ascendants are entitled to a legally reserved share of approximately 33 per cent of their statutory share.

Under Japanese succession law, these heirs may request that the devisees of a will pay them the cash equivalent of the infringed amount of their legally reserved share.

Acceptance of foreign wills in Japan

As an alternative to the common Japanese wills discussed above, a non-Japan citizen who owns assets in Japan and resides outside of Japan may prefer to execute a foreign will instead of a Japanese will (e.g., a will subject to the laws of his or her country of citizenship or residence).

Ratifying the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions, Japan enacted domestic law known as the Act on the Law Applicable to the Form of wills,7 Article 2. This Law provides that a foreign will is valid in Japan if it complies with the law of:

  1. the place where the testator executed the will;
  2. the place where the testator had citizenship at the time the testator executed the will or at the time of the testator's death (or the place of the state within the United States that had the closest connection with the testator at the time the testator executed the will or at the decedent's death);
  3. the place where the testator resided at the time the testator executed the will or at the time of the testator's death; or
  4. the place where the real property is situated, in the case of a will concerning real property (together, the acceptable laws).

Based on the above, both Japan and non-Japan citizens are provided with much flexibility as to their choice of form of will (i.e., foreign or Japanese) they execute. However, from a practical perspective, the Japanese notarial deed will is recommended over other forms of wills as it will allow for the inheritance procedure in Japan to proceed in a smoother and more time-efficient manner.

iii Succession law applicable to non-Japan citizens and conflict of laws

Although a foreign will is valid in Japan if it complies with any of the acceptable laws, it should be noted that in Japan, matters of inheritance are generally governed by the law of the decedent's country of citizenship (law of citizenship).8 Accordingly, certain issues such as whether forced heirship rules apply are determined by the law of citizenship.

However, if the law of citizenship provides that Japanese succession law applies to a decedent or to certain assets of the decedent (e.g., due to the decedent's domicile at the time of death or the location of the decedent's assets), it is possible that Japan law could apply to a non-Japan citizen. A careful analysis under conflict of laws principles must be carried out to determine which law applies to each of the non-Japan citizen's assets.

From a practical perspective, if a foreign will or a Japanese will of a non-Japan citizen is valid in Japan, the executor generally has the authority to collect the assets and distribute the assets to the devisees of the will. Financial institutions and the Legal Affairs Bureau generally allow for the authority of the executor in the will once they have confirmed the validity of the will.

The law of citizenship may, however, be relevant in certain cases, such as when an heir wishes to override the provisions of a will. For example, if the law of citizenship contains forced heirship provisions, an heir could use the forced heirship provisions to enforce his or her statutory right to seek a distribution contrary to the provisions in the will.

Based on the above, non-Japan citizens living in Japan, and non-Japan citizens who own assets in Japan, should obtain legal advice to ensure that the form of the will they intend to execute complies with one of the acceptable laws, and that the content of the will they intend to execute complies with the law of their citizenship. A legal opinion to this effect, obtained during the testator's lifetime and kept with the will, could serve to avoid delays in the disposition of the testator's assets upon their demise.

Wealth structuring and regulation

There are several wealth planning structures that may be used to increase Japanese tax efficiency. The most commonly used structures include holding assets in offshore trusts and offshore companies.

i Trusts

Trusts may be used by individuals to pass on wealth to future generations in a tax-efficient manner.

Trusts are recognised in Japan under the Japanese Trust Act (Trust Act of 2006).9 Note, however, that there are fundamental differences between a common law jurisdiction trust (e.g., English law trust) and a Japanese trust because of the differences between common law and the Japan civil law legal system. One difference in particular is that personal trusts historically have not been commonly used in Japan, with most trusts being used for commercial purposes. From a practical perspective, Japanese people tend to use wills to dispose of their assets if they were to execute any type of estate planning structure during their lifetime. Since succession of assets in Japan, as discussed above, does not generally require probate, there is no need to create trusts to avoid it.

Trusts for estate planning or succession purposes are handled mostly by trust banks. Still, the Trust Act of 2006 aimed at facilitating the use of trusts by individuals and introduced a new provision, Article 90, stipulating the use of trusts as will substitutes. Personal trusts gained more popularity after the enactment of the Trust Act of 2006 as a method of estate planning for wealthy individuals, but are still far less commonly used in Japan than in the United States or the United Kingdom.

Individuals use personal trusts for:

  1. making lifetime gifts to relatives;
  2. making gifts upon one's death (as a will substitute);
  3. separating voting powers from economic interests in closely held corporations; and
  4. having trustees manage one's property without interruption when the grantor loses capacity.

Note, however, that the terms of such personal trusts entrusted with trust companies and trust banks are mostly standardised and simple. For instance, one of the most popular products offered by Japan trust banks used as will substitutes typically enable grantors to entrust a trust bank with money, designating themselves as the beneficiary during their lifetime with provision for the trustee to pay the residual amount upon their death in a lump sum or in instalments to a designated beneficiary or beneficiaries.

Based on the lack of history of the use of trusts in Japan, and any case law by the Japanese courts providing further authority on matters of trust law, most individuals with ties to Japan use offshore trusts to hold their assets for future generations in a tax-efficient manner. A careful analysis of the proposed grantor's and beneficiaries' citizenship and residency status, and whether they are Japan persons or non-Japan persons, would be required to determine whether an offshore trust may be used in a tax-efficient manner.

ii Offshore companies

Offshore companies may also be used to hold assets for future generations in a tax-efficient manner. As explained above, even if both a decedent and a person inheriting a decedent's assets are non-Japan persons, any Japan situs assets transferred by the decedent at death are subject to Japan inheritance tax. However, if the Japan situs assets are transferred to an offshore company during the decedent's lifetime, the situs of the asset is changed such that it is not subject to Japan inheritance tax. Each individuals' particular situation should be analysed by Japan tax counsel to determine the tax implications of the transfer of the Japan situs asset to the offshore company.

Outlook and conclusions

As discussed above, the government recently implemented new tax laws that favour foreigners, encouraging long-term residency in Japan. Non-Japan citizens living in Japan on a Table 1 visa no longer have to fear costly Japan gift and inheritance taxes when gifting or bequeathing non-Japan situs assets to non-Japan persons. Based on these recent changes to Japanese tax law, we can expect Japan to continue providing incentives that will encourage foreign investment in Japan.

Footnotes

1 Erin Gutierrez is an associate at Withers Gaikokuhou Jimu Bengoshi Houjin and Takeo Mizutani is a tax partner at Withers Bengoshi Houjin.

2 Silent partnerships.

3 If the heirs cannot reach an agreement, they may file for mediation or a court order at a Japanese family court.

4 The Japanese family registry, known as the koseki, is a record of all family members in a household, including dates of birth and death, for Japanese families.

5 Under the Japan Civil Code, children include both legitimate and illegitimate children.

6 Under the Japan Civil Code, the main provisions of a Japanese holographic will, including the date and signature, must be written in the testator's own handwriting. However, the list of the decedent's assets set forth in an exhibit attached to the Japanese holographic will may be typed using a word processor. Each page of the list of assets must be signed by the testator, and affixed with the testator's seal in the case of a Japanese citizen testator.

7 Act No. 100 of June 10, 1964.

8 Act on General Rules for Application of Laws, Article 36.

9 Act No. 108 of 2006.

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