Japan

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Find legal, tax and practice information for Japan, and search for branches, firms and members in the jurisdiction. If you have any comments on the report please contact [email protected]
*Updated August 2016*
Editorial Board
Yujiro Kishimoto, Ritsumeikan University, Kyoto, Japan
New developments
- The Japanese Government brought in a bill for the revision of the law of obligations, which is a part of the Civil Code in March 2015 to the Diet (The Japanese Parliament) in the current ordinary session. The bill is, however, likely to be shelved even in the regular session in 2016 in advance of the Upper House election, and is still supposed to be re-submitted at the next extraordinary Diet session. The Trust Act will be revised to fit the revised Civil Code, i.e. stipulations for fraudulent trust, restriction on compulsory execution against property that comes under trust property, limitation to term for claims pertaining to liability to compensate for losses, trust fees for trustee, assignability of beneficial interest and assignability of beneficial interest.
- In June 2016, the provisions of the Civil Code regarding marriageable age and the period of prohibition of remarriage were amended. Article 731 and 733 has revised from 'A man who has attained 18 years of age, and a woman who has attained 16 years of age may enter into marriage.' to 'Who has attained 18 years of age may enter into marriage.' and, from 'A woman may not remarry unless six months have passed since the day of dissolution or rescission of her previous marriage.' to 'A woman may not remarry unless one hundred days have passed since the day of dissolution or rescission of her previous marriage.' respectively.
Quick links
- Legal system
- Inheritance and succession
- Estate planning
- Taxation
- Residence and domicile
- Other relevant information
Legal system
The Japanese legal system is based on statute law, primarily the Constitution of Japan (1946), the Civil Code (1896), the Criminal Code (1907), the Commercial Code (1899), the Code of Civil Procedure (1996), and the Code of Criminal Procedure (1948). These are referred to as the Six Codes.
Inheritance and succession
Succession
i) Statutory share in inheritance
Article 900 of the Civil Code stipulates as follows: If there are two or more heirs of the same rank, their shares in inheritance shall be determined by the following items:
- If a child and a spouse are heirs, the child’s share in inheritance and the spouse’s share in inheritance shall be one-half each.
- If a spouse and lineal ascendant are heirs, the spouse’s share in inheritance shall be two-thirds, and the lineal ascendant’s share in inheritance shall be one-third.
- If a spouse and sibling(s) are heirs, the spouse’s share in inheritance shall be three-quarters, and the sibling’s share in inheritance shall be one quarter.
- If there are two or more children, lineal ascendants, or siblings, the share in the inheritance of each shall be divided equally; provided that the share in inheritance of a child out of wedlock shall be one-half of the share in inheritance of a child in wedlock, and the share in inheritance of a sibling who shares only one parent with the decedent shall be one-half of the share in inheritance of a sibling who shares both parents.
By way of an example: A dies without having made a will, and leaves behind him an estate worth JPY60 million. The spouse of the decedent (B) will always be an heir (article 890 of the Civil Code). Together with the spouse, any children they have are the inheritors of first order. In the event that they have two children in wedlock, C and D:
- Spouse B = JPY60 million x ½ = JPY30 million
- Child C = JPY60 million x ½ x ½ = JPY15 million
- Child D = JPY60 million x ½ x ½ = JPY15 million.
In the event that A has no children, but has a spouse and A’s mother G the calculations are:
- Spouse B = JPY60 million x ⅔ = JPY40 million
- Mother G = JPY60 million x ⅓ = JPY20 million.
In the event that A has neither children nor lineal ascendants, but has a spouse, an elder brother and a younger sister:
- Spouse B = JPY60 million x ¾ = JPY45 million
- Elder brother H = JPY60 million x ¼ x ½ = JPY7.5 million
- Younger sister I = JPY60 million x ¼ x ½ = JPY7.5 million
ii) Inheritance through wills
Those who do not wish to follow the inheritance method described above are able to previously stipulate another method in accordance with the formalities provided in the Civil Code (article 960). This method is the will. The creation of a will may be carried out in exceptional conditions (such as on a ship meeting disaster) (article 967 proviso), or under normal circumstances.
In order to make a will by holograph document the testator must write the entire text, the date, and his/her name in his/her own hand and affix his/her seal (a will by holograph document). When the testator revises the will, he/she must indicate the place of alteration, make a specifically signed addition to the effect that it has been changed, and affix his/her seal to the place that has been altered (article 968). This method has the benefit of allowing the testator to make a will without the knowledge of any other party, but anxieties remain about just how adequate its contents are from a legal perspective.
A will by notarised document is a good way of clearly establishing the existence and content of a will (article 969). This provides peace of mind even in the event that, for example, the document is lost in a fire, because a notary public (a legal professional) checks the content of the will and records the details on a notarised document. However, as the attendance of at least two witnesses is required, the existence of the will and its content will become known to at least those two persons. The method that serves as a compromise between the two described above is a will by sealed and notarised document (article 970). In this method the testator signs and affixes his/her seal to the certificate, uses the same stamp to seal the document and submit it before one notary and at least two witnesses, with a statement to the effect that it is his/her own will. The existence of a will is thereby known, but its contents remain confidential.
As mentioned above, a testator may be able to avoid the statutory share in inheritance through wills. However, article 1028 of the Civil Code stipulates as follows. Heirs other than siblings shall receive, as legally reserved portion, an amount equivalent to the ratio prescribed in each of the following items in accordance with the divisions listed therein:
- In the case where only lineal ascendants are heirs, one-third of the decedent’s property.
- In cases other than that referred to in the preceding item, one-half of the decedent’s property.
By way of using the above example under statutory share in inheritance:
Even if A has left D out of the will to bequeath JPY30 million to B and C respectively, D may be able to claim for abatement of the testamentary gift (JPY30 million to B and C, respectively), to the extent necessary to preserve his legally reserved portion, i.e. JPY7.5 million (= JPY15 million x ½).
Family law and defined inheritance rules
No. The Civil Code has parts on relatives and inheritance.
Probate process
A custodian of a will, after coming to know of the commencement of inheritance, shall without delay submit the will to the family court and apply for probate. In the case where there is no custodian of a will, the same shall apply after an heir discovers the will. A person who fails to submit a will pursuant to the provisions of the preceding Article, executes a will without passing through probate, or opens a sealed will in a place other than a family court shall be made subject to a civil fine of not more than JPY50,000.
Mental capacity
With respect to any person who constantly lacks the capacity to discern right and wrong due to mental disability, the family court may order the commencement of guardianship at the request of the person in question, his/her spouse, any relative within the fourth degree of kinship, the guardian of a minor, the supervisor of the guardian of a minor, the curator, the supervisor of the curator, the assistant, the supervisor of the assistant, or a public prosecutor. Key legislation: section 2, chapter 2, Part I of the Civil Code.
Estate planning
Use of trusts in estate planning
Trusts have not been fully exploited in estate planning. Presently being studied.
Use of foundations in estate planning
It is not uncommon to see people in the wealthier categories set up foundations since a grant to foundations is tax-exempt.
Types of entities
Medical corporation, general incorporated associations, general incorporated foundations, educational corporation, joint-stock company, auditing firm, health insurance association, public interest incorporated foundations, public interest incorporated associations, limited partnership company, employees’ pension fund, limited liability company, general partnership company, local governments, social welfare corporation, religious corporation, political party, mutual company, investment corporation, specified non-profit corporation, specific purpose company, Japanese Red Cross Society, Japan Federation of Bar Associations, Japan Broadcasting Corporation, and so on.
Taxation
Income tax system
In Japan, income tax is based on the self-assessment system, under which the tax amount is primarily determined through the filing of a return by each taxpayer. Under this system, taxpayers, who best know the state of their own income, are responsible for calculating the amount of taxable income and the tax payable for the income amount by themselves and filing proper returns.
Personal income tax rates
Taxable Income | Rate |
JPY1.95m or less | 5% |
JPY3.3m or less more than JPY1.95m | 10% |
JPY6.95m or less more than JPY3.3m | 20% |
JPY9m or less more than 6.95m | 23% |
JPY18m or less more than 9m | 33% |
More than JPY18m | 40% |
Corporate income tax rates
25.5 per cent.
Capital gains tax
Long term (five years): 20 per cent.
Short term: 39 per cent.
Non-residents
- All income from sources in Japan.
- All income from sources abroad but paid in Japan.
- Regarding income from sources abroad paid abroad, all for permanent residents and only the portion deemed remitted to Japan for non-permanent residents.
Withholding tax rate (non-treaty)
- Land disposition: 10.21 per cent on transfer value.
- Interest: 15.315 per cent.
- Dividend: 10.147 per cent for listed company (20.315 per cent on and after 1 January 2014).
Withholding tax rate (treaty)
Interest: Hong Kong : 0 per cent
Singapore: 0 per cent to 10 per cent
Dividend: Hong Kong : 0 per cent
Singapore: 5 per cent to 15 per cent
Taxation at death
- Capital gains: not applicable.
- Rollover basis: not applicable.
- Estate tax: not applicable.
- Succession duty: as of January 2015, duty varies from 10 per cent to 55 per cent depending on taxable estate amount (after deduction of JPY30M + JPY6M x the number of legal heirs).
- Probate fees: not applicable.
Other taxes
Gift tax: varies from 10 per cent to 50 per cent depending on amount of gift.
Tax treaties
According to the National Tax Agency, 45 as of June 2004 including former USSR and former Czechoslovakia, both of which are applied to Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan, and Czech and Slovak Republics, respectively.
Tax information exchange agreements
NOT APPLICABLE.
Residence and domicile
Special rules on becoming resident
To qualify for permanent residency as a single person, you need to have lived in Japan for ten years or more, with five or more of those years on a work visa or other resident visa (working holiday or student visas don’t count).
Special rules on ceasing residence
NOT APPLICABLE.
Domicile concept for gifts and inheritance
If the heir (collectively means, hereinafter, heir, devisee and donee) owns his/her domicile in Japan, regardless of the domicile of the ancestor (collectively means, hereinafter, ancestor and donor), all the estates in Japan and abroad are taxable. If the heir does not own his/her domicile in Japan and is not a Japanese national, regardless of the ancestor’s domicile, only the estates in Japan are taxable. If the heir has Japanese nationality, all the estates in Japan and abroad are taxable except when neither the heir nor ancestor has had domicile in Japan for more than five years, in case of which only the estates in Japan are taxable.
Taxation of holdings by non-residents on death and of gifts
- Gifts: not applicable.
- Death: not applicable.
Other relevant information
Asset protection laws
Civil Provisional Remedies Act the purpose of which is to preserve the fulfilment of a right comprising the merits of a civil suit.
Foreign currency restrictions
Paragraph 1, article 27 of the Foreign Exchange and Foreign Trade Act stipulates as follows:
when a foreign investor intends to make an inward direct investment, etc. specified by Cabinet Order as being likely to fall under inward direct investment, etc., which requires examination pursuant to paragraph 3*, he/she shall notify in advance, pursuant to the provisions of Cabinet Order, the Minister of Finance and the competent minister for the business of the business purpose, amount, time of making the investment, etc. and other matters specified by Cabinet Order with regard to the inward direct investment, etc.
Foreign ownership restrictions
There are no restrictions on individuals and corporations investing in the incumbent PTO(s) in Japan. However, foreign capital participation, direct and/or indirect, in NTT Corp is restricted to less than one-third. There is a screening system under the Foreign Exchange and Foreign Trade Act. When a foreign investor, which is not only a foreign affiliate resident in Japan, but also any foreign investor resident in foreign country, intends to make an inward direct investment specified by Japan’s regulations, he or she shall notify in advance the Minister of Finance and the minister having jurisdiction over the business, including the Ministry of Internal Affairs and Communications, of the business purpose, amount, time of making the investment, etc. and other matters specified by Cabinet Order in regard to the inward direct investment.
AML/due diligence and other requirements and regulatory procedures for advisors
- To establish a trust: in case of entrustment of construction products, the trustee should be careful to ensure that there is no building-code violation on them.
- For incorporation: a large-scale enterprise (with a capital of JPY100M or more) cannot receive the variety of preferential treatments SMEs enjoy, for example the corporate tax rate is higher than that for SMEs, any entertainment expense cannot be a tax write-off.
- To open a bank account: know-your-client, etc.
Key resources for further information
WEBSITES
Japanese law translation database system: http://bit.ly/18GebQ2
The Civil Code: http://bit.ly/JbfuwT and www.japaneselawtranslation.go.jp/law/detail/?ft=2&re=01&dn=1&yo=civil+code&x=74&y=11&ky=&page=4
The Trust Act: http://bit.ly/1kDo8jz
The Companies Act: www.japaneselawtranslation.go.jp/law/detail/?ft=2&re=01&dn=1&yo=&x=16&y=25&kn[]=%E3%81%8B&ky=&page=4
and http://bit.ly/JbfZa9
STEP branches in Japan
We do not currently have a STEP branch in Japan. Other branches in Asia include:
Firms in Japan
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Members in Japan
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