Tokyo Governor Yuriko Koike is trying to ease the impact of harsh inheritance rules that could deter expats from working in Japan as part of her bid to make the city a global financial hub.
Expats working in Japan had better stay alive, as the government subjects long-term foreign residents to inheritance tax of up to 55 percent on their worldwide assets — meaning heirs could be forced to give up their family homes or businesses, even if they have never set foot in Japan.
Koike’s city government on Friday released a report urging a review of the rule, together with other measures aimed at attracting asset managers to Tokyo instead of rival centers, such as Hong Kong and Singapore.
Yet there is no guarantee that Japanese Prime Minister Shinzo Abe’s government will heed Koike’s call on the tax, especially since it only just amended the law in April.
“Japan doesn’t seem to want long-term residents anymore,” said Paul Hunter, secretary-general of the Tokyo-based International Bankers Association, which represents about 50 overseas financial institutions and has been lobbying against the rule. “Why would you do that at a time when you’re doing Tokyo as an international financial center?”
When the inheritance tax was introduced in 2013 — mainly to target Japanese nationals who give up their citizenship to avoid paying taxes on their overseas assets — it potentially applied even to short-term foreign residents. In April, the rule was tweaked to restrict it to people who have lived in Japan for more than 10 years.
At the same time, the government added a “tail” clause that allows tax authorities to claim a former resident’s global assets even if he or she dies within five years of leaving Japan.
Expatriates “can’t die in this country,” Shigesuke Kashiwagi, Japan head of the Bitish investment company Schroders PLC, told Koike in June at a meeting of a panel formed last year to advise the local government on luring financial firms to Tokyo.
Not only will the tax prompt talented people to hesitate about coming to Japan, it could also force financial-industry veterans already living there to leave, Hunter said. Ten years is “not a long time out of a working career” and the tail provision is “really, really bizarre,” he said.
Japanese National Tax Agency Deputy Director Keiichiro Inui said the amendment eases the impact on short-term foreign residents.
“We will monitor the situation with the new framework and consider any revisions if necessary,” Inui said.
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