Japan Wealth Management - Latest Developments

Edwin Whatley and Akihiro Kawasaki, 8 July 2021


Here is an outline of important recent legal, tax and regulatory developments affecting wealth managers conducting business with or in Japan.

Here are further guides to legal, regulatory and tax developments across Asia as they affect wealth managers, private client lawyers and their clients. The overviews come from Baker McKenzie.

The authors of this item are Edwin Whatley, partner, and Akihiro Kawasaki, senior associate. The editors are pleased to share these views and invite responses. The usual editorial disclaimers apply. Email

See the previous overviews on Singapore and Malaysia and Hong Kong here. 

Reform of Inheritance Law
To solve issues related to inheritance, the Civil Code stipulates basic rules, including on who will be the heir, what will be the legacy, and how the rights and obligations of the decedent will be succeeded. The part in the Civil Code that contains these provisions is referred to as the "Inheritance Law (or Sozoku Ho)."

There has been no major reform to the Inheritance Law since 1980. Recently, the law was amended for the first time in order to address issues related to the ageing population in Japan and other changes in social circumstances.

The main elements of this amendment to the Inheritance Law are as follows:
--  the new spousal residence right;
--  relaxation of the requirement to write by hand the assets lists attached to a holographic will; 
--  retention of holographic wills by the Legal Affairs Bureau; and
--  compensation for family members who contributed to the care or nursing of the decedent.

Spousal residence right (effective from 1 April 2020)
The spousal residence right allows the spouse of the deceased to use a house owned by the deceased free of charge for the spouse's entire life or for a certain period of time, if the spouse was living in the house at the time of the death of the deceased.

Where there is more than one heir with regard to a house, the regime enables a spouse to acquire the spousal residence right and an heir other than the spouse to acquire onerous ownership rights at the time of division of the estate. The spousal residence right does not give rise to full ownership rights; the spouse will not have a right to dispose the house or lend the house to others at the spouse's discretion. As the value of a spousal residence right is lower than that of a full ownership right, the spouse may be entitled to more assets at the time of division of the estate, ensuring the spouse's subsequent financial stability.

Relaxation of the requirement to write by hand the assets lists for holographic wills (effective from 13 January 2019)
Previously, for a holographic will, it was necessary for the testator to prepare the assets list in handwriting. The assets list may now be prepared in other ways (e.g., using a personal computer or attaching a copy of a bankbook).

Retention of holographic wills at the Legal Affairs Bureau (effective from 10 July 2020)
Holographic wills are often kept at home, where they may be lost, abandoned, or rewritten. In order to prevent inheritance disputes arising from these problems and make it easier to use holographic wills, the Legal Affairs Bureau will be retaining holographic wills.

Compensation for family members who contributed to the care or nursing of the decedent (effective from 1 July 2019)
In some cases, non-heir relatives (e.g., a spouse of a child) may have been involved in taking care of or nursing the decedent. Before the reform of the Inheritance Law, it was not possible to distribute inherited property to such non-heir relatives.

In order to eliminate such inequities, non-heir relatives can now claim compensation from the heirs if the non-heir relatives contributed to the care and nursing of the decedent free of charge or made a special contribution to the maintenance or increase in value of the decedent's property.

Implementation of CRS and information exchange in Japan
Japan passed legislation giving effect to the Common Reporting Standard (CRS) in 2015, under which certain financial institutions operating in Japan are obliged to report certain financial account information regarding account holders to the Japanese tax authorities. (1) The CRS system came into effect in Japan on 1 January 2017, and the first reports were submitted by financial institutions by 20 April 2018.

According to an announcement from Japan's National Tax Agency (NTA), the NTA had gathered information on 2,058,777 foreign accounts held by Japanese residents, from 86 countries, primarily in Asia and Europe, by the end of June 2020. The NTA had provided information on about 473,699 accounts held in Japan to 65 countries and regions by the end of June 2020.

This compares with a paltry 10,652 filings made in 2019 in compliance with Japan's overseas asset requirement, under which individuals holding assets with a value of JPY 50 million or more ($462,000), including assets held in trusts, are required to report information regarding such assets in their tax returns. This data may be a sign that there were many assets that Japanese residents have failed to properly declare.

It still remains to be seen precisely how the Japanese tax authorities will use the data collected from information exchange under the CRS during audits. The first case of criminal accusation occurred in May 2019. In this case, the taxpayer did not declare income tax on sales proceeds that were remitted to the taxpayer's overseas bank accounts (as well as bank accounts where the nominees were not the taxpayer). Although there was a considerable amount of cash in the overseas bank accounts, exceeding the reporting threshold of $462,000, the taxpayer failed to submit the overseas assets report (or Kokugai Zaisan Chosho) by the due date, without a justifiable reason. The tax authority imposed penalties on the taxpayer for non-compliance with the overseas assets report requirement.

Additionally, the NTA has publicly announced through its website that it is focusing on undertaking audits of high net worth individuals and their international transactions. Given the consequences of non-compliance, there is clearly an incentive now for Japanese resident persons to comply with the Japanese overseas asset reporting requirements (and for non-residents holding assets in Japan to comply with their local country's asset reporting requirements). 

Japanese gift and inheritance tax rules
In 2017, the Japanese inheritance tax rules were amended such that, where a foreign national who had lived in Japan for 10 years (in the aggregate) out of the last 15 years died outside Japan, the foreigner national's heirs would be subject to Japanese inheritance tax on the foreign national's assets located both in Japan and elsewhere (a similar rule also applies for gift tax purposes).

This rule resulted in a situation where Japanese inheritance tax may still apply to a foreign national's worldwide assets even if the foreign national had left Japan, for up to five years after the expatriation. The fact that Japanese inheritance tax could "follow" a foreign national for up to five years after they left Japan caused great concern among Japan's expatriate community and threatened to derail the Japanese Government's efforts to attract successful foreign talent to live and work in Japan.

In Japan's 2018 Tax Reform, the Japanese Government abolished the above rule applying to foreign nationals (2), subject to certain anti-avoidance measures in the context of gift tax. This change applies to inheritance taxable events that occur on or after 1 April 2018.

Register for WealthBriefingAsia today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes