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Japan government targets international inheritance, gift tax loophole

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by November 27, 2016 General

TOKYO – The government and ruling parties intend to strengthen taxation against wealthy emigrants in the fiscal 2017 tax system reform as a measure to prevent them from avoiding inheritance and gift tax payments by living overseas, according to sources.

Currently, when both descendent and that person’s heirs – such as their children – have lived outside Japan for more than five years, their overseas assets become exempt from inheritance taxes. The same five-year rule applies to gift taxes on transfers between living people. In the upcoming tax system reform, the required stay overseas is set to be extended to more than 10 years.

In Japan, inheritance and gift taxes are imposed on those who acquire assets whose values exceed certain levels. The maximum tax rate stands at 55 percent for both taxes.

There recently have been widespread tax avoidance cases seen among wealthy people who move their assets overseas and live there to make those assets non-taxable. For example, if a person transferred their assets to Singapore, which has no inheritance tax, and moved and lived there for more than five years with their child, there would be no tax imposed if the assets were then given to the child.

Such a tax avoidance scheme is possible only for the wealthy, and has been considered an issue to be tackled to ensure fair taxation. The government and ruling parties judged that, if the term to become eligible for non-taxation is extended from five years to 10 years, it will become necessary for taxpayers to stay outside Japan for a longer period of time, which is expected to deter tax avoidance to a certain degree, the sources said.

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