Estate and Succession planning – 1-2. Inheritance Tax and Succession scheme

Japanese business start-up consultant

The Japanese Law, tax system and inheritance system shall prevail in this blog.
When proceeding this type of scheme, the case should be dealt with a tax accountant.


In Japan, there are two types of typical private companies: Private share company, the so called KK (Kabushiki Kaisya) and Limited liability company, the so called GK (Godo Kaisha).

The private share company (hereinafter called KK) is the traditional company type, but the Limited liability company (hereinafter called GK) is popular these days because the initial cost of setting it up is cheaper than the one for a KK.

In theory, a characteristic of the GK is that ownership and management are not separated, a GK is chosen where it is less likely a dispute will happen among family and relatives when an inheritance occurs.

A KK is chosen when its divided ownership right and management of the company is a safeguard to emphasising business continuity.

In the case of a GK, in principle, the ownership rights can be realised when the inheritance occurs and the heirs can obtain the refund of the amount of their capital. However, the original owner can make provision in the articles of the company who will take over the ownership right to continue its business activities. In principle, when the original owner dies, the ownership right is withdrawn and his heir(s) can obtain only for the refund of its capital amount which was provided by the original owner.
However, the original owner can state in the articles of the corporation that who takes over the ownership right to continue its business activities.

In addition, in Japan, the GK is not a transparent entity and pass-through tax rules do not apply, therefore, corporation tax will be imposed to the GK.
Corporation tax considerations are important, but if family members become company officers, their legitimate salary can be deducted from company profit, and it effects to reduce their income tax.

Even though the Limited liability company (LLC) is named after a USA entity, its organisational framework varies from country to country. Knowing the system of the country is crucial.

 

I hope the information is useful.

I will update every Monday.

For more information
Japanese business start-up consultant
Shihoshoshi Lawyer
(Judicial Scrivener)
Akiko HORI

How to Buy a property in Japan

Estate and Succession planning – 1-1. Inheritance Tax and Succession scheme

Japanese business start-up consultant

Japanese Law, tax system and inheritance system shall prevail in this blog.
When proceeding this type of scheme, the case should be dealt with a tax accountant.


1. Inheritance Tax System

In Japan, inheritance tax is applied on the amount by which the value of property after certain exemptions acquired by inheritance exceeds the tax-free amount calculated below.
30,000,000 Japanese Yen + 6,000,000 Japanese Yen x The number of heirs.
Thus, the average family in Japan (of a Husband, Wife and 2 children) where the husband/wife owns net property of more than 48,000,000 Japanese Yen will have to pay inheritance tax.
There are many enquires about how inheritance tax measures are dealt with in Japan.

The calculation is complication and I will provide the information as a separate topic. At this time, I would like to explain how Japanese people use a legal entity as a measure to reduce inheritance tax measures.

2. Scheme Overview

Under this scheme, a private company is used in combination with the purchase of a real property investment, and provides an inheritance measure for wealthy people. The basic scheme is as follows.

A private company is set up by the owner and/or their designated heirs-to-be. Its board members are family members, so it is called ‘A family-only company’. This private company uses its capital or borrows money from Bank for these matters.
For example;
1. Investment on new real property
2. Ownership transfer from individually owned real property to the private company**
** The value of the assets in the estate should be assessed before this scheme.

The company profits distributes its profits to the family as dividends while running the property business and, at the time of inheritance, the inheritance tax is calculated based on the company’s share price, which normally less than the value of the physical real property. The gap between the value of the physical real property and the share price will result in an inheritance tax benefit.
By doing the above, it is possible to improve the profitability of assets, advance the time of business succession, and further reduce the tax burden at the time of inheritance.

To be continued..

I hope the information is useful.

I will update every Monday.

For more information
Japanese business start-up consultant
Shihoshoshi Lawyer
(Judicial Scrivener)
Akiko HORI

How to Buy a property in Japan

Japanese property system – Post-completion

Japanese business start-up consultant

After completion of the registration of the ownership:Post-completion

1.  Certificate for Registration Identification(登記識別情報)

When the Legal Affairs Bureau has completed the registration of the ownership, a Certificate for Registration Identification is given to a person entitled to register it.
This document identifies who is a rightful legal owner and as a proof of ownership, the PIN code is provided.

The PIN code shall be specified based on a combination of Arabic figures and other numbers for each real property and an applicant who has become a registered right holder.
The PIN code is sealed because it is strictly personal and it has never changed by a person.

Before 7th March 2005, Registration Identification was a stamp which was sealed by the Legal Affairs Bureau but the PIN code replaced now.
However the Identification document already issued is still valid and it is needed in case an owner of the real property sells the registered property.

 

2.  Registration system

The Registered ownership is a continuous record showing when the real property was first registered and all later purchases and sales, changes, division of the real property and so on. Now the system is computerised and the data is restored in the back-up computer system from time to time, so that to see all registration records, keeping track of the registered record is needed.

Property registration shall be made with regard to a physical description of real property or with regard to the following rights relating to the preservation, establishment, transfer, alteration, or extinction of a right.

1. Ownership
2. Superficies (Surface rights)
3. Farming right
4. Private easement (Servitude)
5. Priority privilege (Statutory lien)
6. Pledge
7 Mortgage
8. Lease
9. Mining right (Right of quarrying)

Lease right can be registered but traditionally and historically many owners of the land in Japan are not willing to register Lease right at the Legal Affairs Bureau and Lease right for the purpose of building ownership is governed by Act on Land and Building Leases. Practically the owner of the land and Lease Right holder are following the Act.

 

3. Notice of the acquisition tax

The tax payment notice of the acquisition tax takes time to be delivered to the registered owner. It generally takes about 4 to 6 months after the completion. The notice is issued from the local tax authority, which has jurisdiction over the area where the real property is located. The owner makes the payment at bank.

 

I hope the information is useful.

I will update every Monday.

For more information
Japanese business start-up consultant
Shihoshoshi Lawyer
(Judicial Scrivener)
Akiko HORI

How to Buy a property in Japan

Japanese property system – Real property transaction

Japanese business start-up consultant

In Japan, it is common and legally permitted for one estate agent to represent both a purchaser and a seller in the conveyancing process. It is called ‘Dual agency’.The whole responsibility of explaining the disclosure statement, such as Seller’s Property Information Form for the property is placed on an estate agent. Real Estate Brokerage Act regulates this.

1. Letter of Intent (LOI) (不動産購入申込書)

A letter of intent is prepared by a buyer to begin negotiations with a seller in real property transaction.
The document generally states the intentions, purchase price and the property details but payment terms and a date for an agreement is decided after consultation from the estate agent in charge. This procedure does not legally bind the buyer to buy the real estate.

2. Sale and Purchase Agreement and Property Information Form (売買契約書及び重要事項説明書)

A Sale and Purchase Agreement is a legally binding contract that is a valid agreement between the buyer and the seller of the real property.

Property Information Form is for the seller to give the detailed information about the real property, such as registered rights, the name of the owner, restrictions based on the law, regulation and so on.

The buyer generally delivers earnest money to the seller at the time of the agreement. The buyer may cancel the agreement by forfeiting his/her earnest money or the seller may cancel it by reimbursing twice its amount, until either party commences performance of the agreement. When the transaction is finalised, the earnest money is put toward the sales price.

3. The legal transfer of the real property (Conveyancing) (決済)

On the day of settlement, the buyer pays the remaining sum and other expenses, and then receives the keys and documents that come with the real property.
The Shihoshoshi lawyer takes a Registration Form to a Legal Affairs Bureau.

In Japan, property transaction will take effect only to the extent of the parties’ intention, which means property registration follows the principle of contract registration. The buyer needs to register his/her right in order to assert such a right to a third party but the registration is not indefeasible as it can be altered or cancelled, unlike registration systems in some countries, such as the Torrens system. However, in practice, there are few cases in which the registered rights are invalid and safety of transactions is impaired.

I hope the information is useful.

I will update every Monday.

For more information
Japanese business start-up consultant
Shihoshoshi Lawyer
(Judicial Scrivener)
Akiko HORI

How to Buy a property in Japan