When purchasing real estate in Japan, you must consider the tax implications. It’s not just the purchase price or yield that matters, but also the inheritance tax in Japan for foreigners. This becomes essential if you plan to keep the property for the long term.

Your financial analysis should include estimating future acquisition and property taxes. You should also consider rental income. However, if you plan to keep the property for a long time, it’s crucial to consider the tax implications for your family, particularly inheritance tax.

This article provides an overview of the Japanese inheritance tax system and the tax implications for heirs when a property owner in Japan dies. Plaza Homes, our sponsor, is a bilingual real estate agency with over 50 years of experience in the Greater Tokyo Area.

In Japan, heirs pay tax, not the inheritance tax. The number of heirs affects the tax calculation.

Tax is calculated based on each heir’s legal share. It doesn’t matter whether the heir actually receives this share or not. Even if a person is excluded from a will, they may still be liable for tax.

It is possible to file separate inheritance tax returns. However, a single tax return is generally filed for all heirs. The deadline for filing is ten months after death or after becoming aware of the tax liability.

Heirs must also register their inheritance within three years of becoming aware of their acquisition.

In Japan, legal heirs always include the surviving spouse, who cannot be disinherited.

The rules of succession are as follows:

If no one inherits, an administrator will be appointed by the court to manage the estate.

Once the heirs have been identified, the tax base (the value of the assets after deductions) is distributed among the legal heirs.

The tax is applied to the share received by each heir. The more heirs there are, the lower the tax rate will be.

Some deductions allow you to reduce inheritance tax:

Assets are valued at their market value on the day of death. However, some assets, such as real estate, follow specific valuation rules.

Generally, real estate owned in Japan is a taxable asset upon the death of the owner.

The application of tax on other assets depends on several criteria:

For non-resident foreign investors with no other ties to Japan, a common strategy is to acquire the property through an offshore company. This allows them to avoid Japanese inheritance tax.

This article provides you with a general overview of the tax implications of owning real estate in Japan.