Useful Informatmion of Administrative & specialized procedures in Japan

When a parent living in Japan passes away, various procedures are required, including legal matters, arrangement of the property left by the parent, inheritance tax, and discussions among the remaining family members. In this column, we have already introduced some of the procedures related to inheritance. Please refer to them if you have time.

• What happens if I inherit my deceased Japanese parent's estate and have more debts than he/she owes?" (Sep. 23, 2024)
• Handling of Real Estate Inherited from Parents" (Oct.17. 2022)
• Gifts from Japanese Parents to Their Children and Grandchildren, Subject to Inheritance Tax" (Oct. 1,2021)
• Procedures When Someone Close to You Dies (Part 2)" (Oct. 11, 2017)

Needless to say, it is important to investigate and identify the inherited property and file an inheritance tax return in Japan, but in this column we will also introduce other taxes that must be considered. We will only outline the necessary procedures (filers, deadlines, etc.) in case you suddenly need to file an inheritance tax return far away in Japan. The details of each procedure (how to file taxes, documents to be submitted, deadlines, calculation of tax amounts, etc.) are not introduced here, so please contact us or our specialists individually.

What taxes should be considered after inheritance?

Depending on the content of the decedent's (deceased person's) estate, the following points are generally considered.

1. Inheritance Tax
2. Semi-Final Tax Return
3. Related Taxes (taxes on the disposal of property)

1. filing and payment of Inheritance Tax

The first step is to find all of the decedent's assets (including debts). If there is only cash and its location and amount are known, or if there is no living will, the procedure will go smoothly. In reality, however, there are many cases where there are assets other than cash, and their location, storage location, and amount (value and valuation) are not clear, so it is necessary to investigate all of them. In addition, if there is a will, certain procedures are required, such as obtaining the agreement of the heirs designated in the will and the legal heirs, which takes time. However, there are deadlines for filing and paying taxes. If these procedures are not carried out properly, the deadline will quickly come and go, so the first step is to cash out the assets that have been identified (by closing bank accounts, selling securities, etc.), and if more time is needed, file an inheritance tax return once only the assets have been identified. It is possible to apply for an extension of the filing deadline or to submit an amended tax return after the deadline (although delinquency tax may apply). Experts such as tax accountants and inheritance coordinators can advise you on how to proceed in this area. ※1

1) Due date

The deadline is 10 months from the day following the day on which the inheritance occurred (usually the day of the decedent's death). If it takes time to investigate the contents of the estate, or if the heirs are unable to reach an agreement, it is possible to file for an extension of the deadline.

2) The Taxpayer and the Tax Filing Destination

In Japan, unlike in the United States and other countries, inheritance tax is imposed on the heirs (while in countries like the U.S., it is imposed on the decedent).  However, the actual filing process is carried out by the heirs themselves, such as the spouse or children. If there are multiple heirs, each heir files a separate return, but since the return includes the amount of inheritance for all heirs, it is common for a representative of all heirs to file and pay taxes (payment to the National Tax Administration Bureau) for all heirs together. The actual filing address is the tax office with jurisdiction over the place where the inheritance occurred (the decedent's address), but if you ask a tax accountant or other specialist, they can file the return online (electronic filing).

3) Cases requiring declaration and tax payment

The filing and payment of inheritance tax do not occur for all assets (amounts) if there is inherited property; it only applies to the portion exceeding a certain threshold. Specifically, the amount is [30 million yen + number of legal heirs× 6 million yen]. Since up to this amount is exempt from taxation, there is no need to file a tax return if the total value of all property does not exceed this amount. However, professional advice is required because of liabilities and the difficulty in understanding how to value non-cash assets.

 2. Semi-Final Tax Return

It refers to the decedent's tax return for the period from January 1 of that year to the date of death. Note that it is surprisingly easy to forget to file in cases where a tax accountant or other professional is not retained.

1) Due date

Within four months from the day following the day on which the inheritance occurred.

2) The Taxpayer and the Tax Filing Destination

Heirs, surviving family members, etc., perform the work and submit it to the local tax office (online submission is also possible).

3) Cases requiring declaration and tax payment

Same as a regular tax return (if you have certain amount of income, file for tax benefits or preferential tax measures, etc.)

 3. Related Taxes (taxes on the disposal of property)

Ownership of inherited property is subject to inheritance tax because the decedent owns the inherited property. However, for items other than cash, such as real estate, that are inherited by the heir, inheritance registration (change of name from the parent to the heir) is required. In other words, what was previously the decedent's property becomes the heir's property. In this case, taxes on this real estate will be handled by the heir who is the owner of the property. Specifically, annual Property Tax payments and Tax Returns (Transfer Tax, Business Tax, etc.) at the time of sale or lending will be required.

1) Due date
- Property Tax: Due at the end of May each year. Payment can be made in installments thereafter.
- Tax Returns: In Japan, the tax filing period is from February 15 to March 15. Please note that the filing period differs from that of other countries.

2) The Taxpayer and the Tax Filing Destination
- Property Tax: The owner of the property as of January 1 of the current year. A payment slip (bill) will be mailed to you by the local government's tax collection division, and you must pay it at a bank or convenience store by the due date.
- Tax Return : Residents of Japan for tax purposes and foreign residents who had income in Japan, etc. Japan. Foreign residents who have sold real estate are also eligible.

3) Cases requiring filing and tax payment
- Property Tax: If you own real estate (land and buildings). Older buildings may not be eligible due to lack of property value.
- Tax Return: If you have a certain amount of income, or if you want to file for tax incentives, etc.

 4. Key points for overseas residents to know

• If a parent's estate is located in Japan and the heirs are foreign residents, tax returns may be required in both Japan and the country of residence. Japan has bilateral inheritance tax treaties with several major countries, including the U.S., allowing for the application of tax credits to avoid double payment of inheritance tax. Please consult with a specialist for more information.
• If your parents reside outside of Japan with you, or if you or your parents have acquired foreign nationality, the inheritance tax laws of the country of residence, not the Japanese inheritance tax laws, will govern. This is difficult to determine, and in some cases, a lawyer specializing in inheritance may be consulted.
• When selling Japanese real estate that has been registered as inherited and is now in the name of an overseas resident, withholding tax may be required at the time of sale, depending on the seller. In this case, please note that you may be required to claim a refund when filing your tax return the following year.

That’s all. I hope these explanations were helpful to you. As we always advise our clients, the secret of success in these complicated specialized procedures is to first understand the overall flow of the process, and then consult with specialists who are familiar with each procedure.

Remarks)
*1: In Japan, only specified qualified persons (accountants, tax accountants, lawyers) are allowed to file tax returns on behalf of clients.  (The heir may apply in person.)