Estate and Succession planning – 1-3. How to value the assets

Japanese business start-up consultant

The Japanese Law, tax system and inheritance system shall prevail in this blog.
Based on the above premise, the following rules will help you to understand the scheme in Japan. When proceeding this type of scheme, the case should be dealt with a tax accountant.


How to value the assets – For Inheritance Tax purposes

Importantly, the aim of this scheme is to pass on the property in the most effective way from an individual to a private company. Some of clients that come to seek an advice are not 100% confident about the detail of their property when starting a consultation. I can then assist them to create the list of their property. This problem is caused partly because of the format of the documents that are issued from different organisations.

 

1. Money in bank accounts
In Japan, many banks still use a bank book (See below), and the bank book records all banking transactions, so it is similar bank statement. In order to reduce paper use, the bank book may replace online banking statement, but it is still familiar to elderly people.
The remaining cash balance shall be valued when considering inheritance tax.

 

2. Stocks and shares
When stocks are listed on the market, they are valued based on their quotation on the Stock Exchange on which the stock is listed. The taxable time is the date on which the person died or his/her heir receives the gift. It is better to make a list of all the shares, including the name, nominal value and types of shares.

Unlisted private shares are valued as below.
If the person who acquires shares through inheritance or gifts is the person who already has the power to control the company, the net asset value method is used, which is the principle evaluation method.
If the acquiring person is not such a person, the dividend return method is used, which is a special evaluation method.
The valuation of unlisted private shares may be valued by a tax accountant because the evaluation method is crucial.

In this blog, a simple calculation method is stated.
A principle evaluation method (Net asset value method)
(Company assets – Company debt) / Number of issued shares x Number of shares to be inherited
A special evaluation method (Dividend return method)
{“(A) Annual dividend amount per share”/ 10%} × {“(B) Capital amount per share”÷ 50 Japanese yen}

 

3. Buildings
The value of a building for the inheritance tax calculation is the Fixed Assets Tax Evaluation price.

 

4. Land
In principle, the land value is the price which is published on the National Tax Agency website below, called Land Tax Assessment Value.
The roadside land price is the price per square meter of the residential land alongside the road in question, and the price is displayed in units of 1,000 Japanese yen.

https://www.rosenka.nta.go.jp/

 

5. Household and personal goods
The term ‘Household and personal goods’ means things such as furniture, paintings, TV, audio and video equipment, jewellery, cars, boats, antiques and so on.
You do not have to get a professional valuation for ordinary household and personal goods but if you do estimate the value, the open market value at the date of death is used. For this purpose, you may use an estimated figure.

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 – 1-2. 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

Japanese property system – Tax

Japanese business start-up consultant

The below is the Taxes to sort out during the conveyancing process in Japan.

1. Stamp Duty (印紙税)

Stamps shall be obtained at a post office.
For this transaction, the duty is 100,000 Japanese Yen for a Sales and Purchase Agreement of over 100 million Japanese Yen and less than 500 million Japanese Yen in principle but when the date of agreement is before 31 March 2022, the stamp duty is 60,000 Japanese Yen.

Regarding a contract, in the Civil Code, no written agreement is necessary but under the Real Estate Brokerage Act, Article 37(1), an estate agent must issue a document concerning a property sale.

2. VAT (Consumption tax) (消費税)

Land itself is tax-free but a building is taxable, so that VAT is required when acquiring a building.
VAT is 10% as of 2020.
In addition, VAT will be applied on brokerage fee for an estate agent on the amount of the fee base.

3. Registration and license tax (登録免許税)

The tax applies when registering rights of land and a building at the Legal Affairs Bureau.
The tax amount is calculated by multiplying the assessed value of the fixed assets by the tax rate 2% for a building and 1.5% for land.
“The assessed value of the fixed assets” is not the same of the market value. It is determined by a local council on the Standard Valuation Code of the fixed assets basis by the Ministry of Internal Affairs and Communications. This assessment is renewed once every three years.
The valued price is stated on a certificate of evaluation for fixed asset tax.

4. A pro rata payment for Fixed assets tax and City planning tax (固定資産税・都市計画税の精算金)

A taxpayer for Fixed assets tax and City planning tax is the person that is the owner or the real property as of 1st January, so that the taxpayer doesn’t change even though a real property is transferred after 1st January. It is common for a seller and a buyer to agree to prorate Fixed assets tax and City planning tax per diem based on the delivery date for real property transaction.

5. Acquisition tax (不動産取得税)

In principle, the tax amount is calculated by multiplying the assessed value of the fixed assets by the tax rate 4%.
However, the tax rate applied to the acquisition of residential land and a building is at 3% because of the special measures as of 2020.
A payment notice is issued after a few months of the delivery date.

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 – Seal (Inkan or Hanko)

Japanese business start-up consultant

Japanese people use Seal (Inkan or Hanko) instead of signature.

In Japan, generally, people have Seal(s) and perform stamping a document on a daily basis, such as collecting a parcel, opening a bank account, showing that a document is officially approved and so on.

However, there is no law about Seal itself.
The system is operated by council ordinances and regulations. There are no uniform standards for a stamp.
In Japanese, Seal is called different words, such as Inkan(印鑑), In (印), Hanko (判子), Insho (印章).

Types of a stamp

1. Mitomein (認め印)
Most Japanese people own a Mitomein Just for convenience.
Also a Japanese legal entity generally possesses it for a daily business transaction.

2. Ginkoin (銀行印)
The stamp is used to open a bank account for an individual and a company.

3. Jitsuin(実印)
The stamp is the official stamp for an individual and a company and is registered at the local council where an individual person resides and at the Legal Affairs Bureau as a company to legally authenticate company documents.
After the registration is done, a certificate is issued.

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

Japanese business start-up consultant

The buyer should prepare the documents below.

1. A certificate of a corporate registry certificate
2. A certificate of Buyer’s corporate seal impression

1. A certificate of a corporate registry certificate
(Rirekijikouzenbu Shomeisho 履歴事項全部証明書(謄本) in Japanese)

Time for preparation: Less than 1 day.
Cost: 600 Japanese Yen (At the desk of the bureau)
480 Japanese Yen (Online + at the desk of the Legal Affairs Bureau)
500 Japanese Yen (Online + Post)

When requesting a registry certificate, online is possible but to request it online, installing special software is necessary, so that many people go to the Legal Affairs Bureau to obtain it.

Since 2008, a corporate registry certificate can be received at any registry office nationwide because of a registration information exchange system.

When submitting an application form for a real property registration, if the applicant is a corporation, there is no need to attach the corporate registry certificate (3 month before the registration application), subject to providing the description of the corporate registration number on the application form since 2 November 2015.

However before submitting an application, it is common for a seller and buyer to confirm the official existence of a corporate entity, so that parties generally obtain each certificate.

2. A certificate of Buyer’s corporate seal impression
(Inkan Shomeisho (法人)印鑑証明書 in Japanese)

Time for preparation: Less than 1 day.
Cost: 450 Japanese Yen (At the desk of the bureau)
390 Japanese Yen (Online + at the desk of the Legal Affairs Bureau)
410 Japanese Yen (Online + Post)

When a buyer buys a real property in cash, there is no need to obtain this.

I hope the information is useful.

The below is my thought.
At present, the global economy is suffering from a financial crisis due to coronavirus.
The number of infected people and deaths in Japan is relatively low.
The UK seems to be taking a strategy to delay the onset of the peak of the disease until the summer months (BBC News).

Considering this situation, I am always thinking that I want to deal with a situation in a way that I make sense for my decision as far as possible even if the future results are not as expected.
Because after making a decision, all I can do is to wait for the future results regardless the decision that I previously do is recognised right or not.
No one knows what the future holds.

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

The seller should prepare the documents below.

1. A certificate of seal impression
2. A certificate of evaluation for fixed asset tax
3. Information for registration identification

Regarding other documents, such as the cadastral map, parcel area survey drawing and so on, relate to the real property, the estate agent in charge should prepare and check.
In Japan, an estate agent prepares many conveyancing documents.

1. A certificate of seal impression
(Inkan Shomeisho 印鑑証明書 in Japanese)

Time for preparation: Less than 1 day.
Cost: 300 Japanese Yen (At the desk of the local council).
Place to go: The local council where the sellers register their residential addresses.

2. A certificate of evaluation for fixed asset tax
(Koteisisan Hyoka Shomeisho 固定資産評価証明書 in Japanese).

Time for preparation: Less than 1 day.
Cost: 400 Japanese Yen per one land and one building
(It might differ from a council.).
Place to go: The local tax office which charges on the real property.

3. Information for registration identification
(Touki Shikibetsu Jyoho 登記識別情報 in Japanese)

It is a Title Deed which proves a person is a legal holder of a registered right. Under the current system, it is a 12-digit PIN code but before March, 2005, it was issued with stamp from a legal Affairs Bureau and it is still valid. It is a piece of paper but a lawyer normally files it with other relevant documents.

Most nations follow one of two main legal systems and Japan based its Civil Code. The information recorded on a title is legally assumed to be correct and is the best evidence of ownership. The Japanese treatment of land and buildings differs from that of most Western countries, where a building and the land it occupies form one estate. The Japanese law of property treats the land and any building on it as separate estates, subject to separate systems of registration.

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

Japanese property system

The below is a case study for conveyancing process in Japan.

For example, I am supporting my client, a limited liability company, to purchase property in Tokyo.
This includes a transfer of the property.

1. People involved
The buyer is a limited liability company that is registered at the Legal Affair Bureau in Japan, but whose representative is non-Japanese and resides in Tokyo.
The sellers are individuals who jointly owned the property.

2. Target property
The property consists of land and a three-storey building. The land area is 382.12 square meters (4,113.10 square feet) and the building has a total area of 477.70 square meters (5,141.92 square feet).
The value of the whole property is JPY 140,000,000 (roughly equivalent to GBP 1,000,000).
The property has no mortgages attached to it.
The seller has owned the property for the past 7 years.

How is this transaction dealt with?
I will update every Monday.

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