Clear as mud
A couple of weeks ago we ran a post on the new inheritance tax rules. In that post I was not clear about the tax rules in Japan (in my defense, they are pretty convoluted and it seems few people understand and communicate them well).
Based on some excellent comments and feedback from readers, I hope this post is clearer and more accurate :)
Japanese citizens in Japan have to declare and pay tax on worldwide income and inheritances. Non-Japanese residents may have a different situation based on their length of stay in Japan and visa status.
The most important thing is that the rules on worldwide income and the rules on inheritance are different.
Every resident of Japan has to declare and pay tax on income from work in Japan. Newly arrived foreign residents do not have to do so for income outside of Japan.
After five years in Japan your status changes to permanently resident for tax purposes. From this point on you do have to declare and pay tax on income outside of Japan (including from work, rent, interest, dividends, royalties, etc.).
If you have assets abroad worth over 50 million yen, you have to declare them to the tax office, even if no tax is due. Failure to do so is a criminal offence with financial and penal consequences.
Newly arrived non-Japanese residents with work or similar short-term visas do not have to pay inheritance tax in Japan on overseas inheritances. After ten years they then become liable for Japanese inheritance tax on any inheritance worldwide. This liability then extends to ten years after they leave Japan.
Non-Japanese residents with spouse visas or permanent residence are liable for Japanese taxes on worldwide inheritances from day 1. They remain liable for ten years after leaving Japan.
As we mentioned at the end of the previous post, this is a new law and it is not very clear how the liability for inheritance tax is going to be handled for non-Japanese residents who leave Japan permanently. Time will tell.
So what do you think? Did we get the rules right this time? Are things a little bit clearer?