Brief overview of Japanese Inheritance and Gift Taxes vs. American Estate Gift Taxes

(2011 Update)

Estate Taxes

America 1. Citizens and Permanent Residents
  1. Tax on Worldwide property (credit for taxes paid to foreign countries)
  2. Exemption of $5,000,000 in 2011 and 2012 (theoretically back to $1,000,000 in 2013 if no change to Federal Estate Tax). For married couples, the exemption amount is $10,000,000 as a result of portability.
  3. Tax of 35% on amount over $5,000,000
  4. Unlimited Marital Deduction for Surviving Spouse if Surviving Spouse is a citizen
2. Non-Citizens/Non-Permanent Residents
  1. Tax only on Real Property and business interests in the United States (Cash in foreign banks and foreign stocks are not taxed)
  2. Exemption of $13,000
  3. Tax of between 18%-35% on amount over $13,000
  4. Unlimited Marital deduction if Surviving Spouse a citizen
Japan (Actually an Inheritance tax, not an estate tax) 1. Japanese Citizens and Permanent Residents
  1. Exemption of ¥50,000,000 + (¥10,000,000 for each statutory heir); Possible additional exemption for insurance money, retirement savings, and money left to handicapped individuals
  2. Additional exemption for life insurance received of ¥5,000,000 multiplied by the number of statutory heirs
  3. Tax between 10%-50% for statutory heirs; Tax between 30% to 70% for everyone other else (except charities);
  4. For property outside of Japan, a beneficiary that acquires property will be subject to Japanese inheritance tax if the beneficiary is a Japanese national and the beneficiary was domiciled in Japan at any time during the five years preceding the receipt of the inheritance.
  5. A surviving spouse is entitled to a tax deduction. This is a complex formula based upon who is living at the time of the Decedent’s death and where the money goes. Generally, a surviving spouse can deduct about 1/2 to 2/3 of the tax.
2. Non-Citizens/Non-Permanent Residents
  1. If beneficiary is not Japanese and not living in Japan and property is not in Japan, appears Country where property located will tax such property.
  2. If there is a tax, it appears a surviving spouse is entitled to the same marital tax deduction as for Japanese citizens.

Gift Taxes

America 1. Citizens and Permanent Residents
  1. Tax on all gift transfers of Worldwide property
  2. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
  3. An annual gift to a non-citizen, permanent resident spouse, of $136,000 is available.
  4. Lifetime exemption of $5,000,000 (for years 2011 and 2012)
  5. Gifts may be split with spouse
  6. Tax rate of 35% if lifetime gifts exceed $5,000,000
2. Non-Citizens/Non-Permanent Residents
  1. Tax on all gift transfers of US Property (including Cash and Stocks in US companies)
  2. Annual exemption of $13,000 per person/per donee (unlimited gifts for donees if different donors)
  3. No Lifetime exemption
  4. Gifts may be split with spouse
  5. Tax rate of 18%-35% if lifetime gifts exceed $13,000
Japan (Rates between 10%-50%) 1. Citizens and Permanent Residents of Japan
  1. Annual exemption of ¥1,100,000 for each beneficiary (beneficiary taxed after this)
  2. One time spouse exemption of ¥20,000,000
  3. For property outside of Japan, a donee that acquires property will be subject to Japanese gift tax if the donee is a Japanese national and the donee was domiciled in Japan at any time during the five years preceding the receipt of the gift.
2. Non-Citizens/Non-Permanent Residents
  1. Annual exemption of ¥1,100,000 for each beneficiary(unclear – enforcement is almost impossible)

Generation Skipping Taxes (Taxes on gifts or bequests to grandchildren)

America 1. Exemption of $5,000,000 in 2011 and 2012 (theoretically a return to a $1,000,000 exemption in 2013, but indexed for inflation) 2. Tax of 35% on rest
Japan 1. None
For more information on Japanese taxes, the Japanese government has a nice website in English with some helpful facts. This is a link directly to the inheritance tax information: http://www.mof.go.jp/english/tax_policy/publication/taxes2010e/taxes2010e_d.pdf 
It is worthwhile reading the Japanese publication if you have business interests in Japan or if one of other special circumstances (like a handicapped heir) as there are many credits available.

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