How to purchase real estate in Japan and pass it down to your family without dealing with problematic inheritance procedures
Buyers from all over the world are coming to the Japanese real estate market and subsequently the number of foreign buyers in Japan has been increasing in recent years.
Buyers who live in Taiwan, Hong Kong, China, Singapore and the USA, can purchase Japanese real estate in the same way as Japanese nationals.
However, foreign buyers may encounter difficulties when going through the purchasing procedures, and may face trouble with the management of the property after the purchase.
Problems foreigners may encounter when purchasing real estate.
Since important explanations and procedures are generally completely in Japanese, foreign buyers may miss out on receiving specialized information, such as information regarding the real estate ownership preservation system and taxation.
What documents are necessary for purchasing procedures differs based on the details of each case which further complicates things. Documents that are issued by foreign countries including: Certificates of Residence, affidavits, Certificates of Signature issued by the concerned country’s embassy in Japan or other associated authorities, tax payment administrator appointment documents, and notifications to the Bank of Japan in relation to the Foreign Exchange and Foreign Trade Act, are examples of documents that may be required for the purchasing procedures.
However, there is something even more important that foreigners should keep in mind when purchasing real estate in Japan.
Namely, you should think about how the real estate will be passed down to your family if you were to pass away, and how will the inheritance tax in Japan be even if you live outside Japan.
Inheritance procedures for real estate owned by foreign buyers
Japan has a real property registration system in which ownership of real estate is registered in ledgers managed by the Japanese government in order to preserve the ownership of real estate and ensure smooth transactions.
This real property registration system enables everyone to claim their right of the ownership for real estate, however, if an owner passes away their family cannot sell or rent the real estate unless the name of the deceased owner is changed through inheritance registration.
Inheritance registration requires that you collect family registries, and acquire certifications from public offices. It also requires specialist knowledge every step of the way in order to go from creating a valid agreement of division on inheritance to eventually filing the application for registration to the Legal affairs Bureau. This process is difficult even for Japanese people, and it is common to engage a specialist such as an attorney to navigate it on your behalf.
When foreign nationals who own real estate are involved in inheritance registrations in Japan the procedures become even more complicated and specialized. In the worst case scenario, if a foreign owner dies and ownership cannot be changed then the property may become a non-performing asset that could bring no merit to the inheritance since the property cannot be sold or leased without ownership changing to the heirs.
The inheritance registration process involves the following procedures.
For Hong Kong Buyers
The application of the law for Hong Kong-Japan inheritances
According to article 36 of Japan’s international private law, the Act on General Rules for Application of Laws (hereby “Act on General Rules”) “inheritance shall be governed by the national law of the decedent”. Taking a look at how Hong Kong handles inheritance, the law in Hong Kong has been influenced by common law and in most cases the assets of Hong Kong people are governed by the law of the decedent’s domicile if they are movables, and by the law of the place in which the assets are located if they are immovable.
In Japan, Article 41 of the Act on General Rules sanctions “renvoi”, meaning that when a foreign law states that Japanese law must be followed then only Japanese law will be applied, and the foreign law shall not be consulted. Accordingly, if someone from Hong Kong owns real property in Japan and they pass away then the Japanese Civil Code shall apply. Further, if a Hong Kong national passes away while they were living in Japan then bank accounts and other moveable assets may also have the Japanese Civil Code applied to them (however note that the common law concept of a “domicile” and the Japanese concept of “jyushochi” or “residence” do not completely coincide so the Japanese Civil Code may not apply in some cases).
If a Hong Kong national who wasn’t living in Japan passes away the following documents will be needed for the inheritance procedures:
The decedent’s birth certificate, marriage certificates and death certificate
The heirs’ birth certificates
An affidavit for each heir that certifies their relationship with the decedent for purposes of inheritance
You can acquire the birth certificates, marriage certificates and death certificates from Hong Kong’s Immigration Department. Also note that an affidavit must be authorized before a notary public.
Further, additional documents may be required depending on many factors such as the existence of a will, previous domiciles, history of naturalization, and family relationships.
If a Hong Kong national passes away while they have an address in Japan they will also need to acquire the following documents in Japan on top of the documents listed above:
The decedent’s “certificate of registered matters on the foreign resident registration card”
The decedent’s deleted residence record and death certificate
The heirs’ “certificate of registered matters on the foreign resident registration cards”, certificates of residence, and certificates of registered seal
If naturalization is involved then multiple additional documents will also be required.
It is difficult to gather all of the documents listed above in a smooth manner, and a lot of the time inheritance procedures with the Legal Affairs Bureau and banks do not go forward quickly. In such cases, all of the confirmed heirs must submit other documents such as declarations and go through additional procedures.
Methods to ensure smooth inheritance of real estate
As discussed above, inheritance procedures become very complicated when a non-Japanese owner of real estate dies and unfortunately there are currently not many experts in this area in Japan.
However, you do not need to worry.
There is a simple way for foreign owners of real estate to pass on their properties while avoiding these complicated inheritance procedures.
Purchase real estate with a corporation!
Merits when purchasing with a corporation
If a corporation purchases real estate and their representative passes away, it is not necessary to change the name of the ownership on the real estate.
If the representative makes their heir an executive, the successor can take over the management of or sell the real estate after the representative passes away.
Unlike real estate, corporate stock does not require inheritance registration, and can therefore be smoothly inherited by the successor through the creation of an agreement of division on inheritance.
Taxes and dues in Japan, including inheritance tax, may become less accordingly.
For Those Who Are Planning to Purchase Japanese Real Properties, or Those Who Have Already Owned Japanese Real Properties
If you are considering of purchasing Japanese real properties, please be kindly aware of the potential differences of registration process and taxes and dues in Japan may vary a lot depending on the strategy of your purchase.
Besides, in some circumstances, loss in taxes might happen when purchasing rea properties with a Japanese corporation. We strongly suggest you contact our professionals in advance for further information.