Receiving Foreign Assets

[yahoshua]

I’m in a bit of a weird situation and am not really sure what I need to do. My mom is inheriting her deceased father’s properties and businesses in the Philippines. She spent years fighting off family for the inheritance and wants to transfer everything to my S.O and I soon(ish) so that we don’t run into similar issues in the future. Would this transfer of property be subjected to the gift/inheritance tax?

Neither my S.O nor I have ever been to the Philippines and don’t’ really plan on living there, but I would have to go back and forth from Japan to learn how the family businesses works. These properties will also generate another source of income for us, will this factor into the inheritance tax somehow or is that a separate issue?

To be honest my S.O and I are still pretty young and the situation is a kind of overwhelming. My mom flipped out the last time I told her that we’d probably have to pay taxes in Japan, and tried to guilt me into not reporting the assets... Obviously I'm grateful to be receiving all this, especially at my age, but I just want to do everything properly and not get into trouble with the J-taxman, which is why I'm here asking these questions...

Also I’m sure this is relevant somehow, but my S.O is Japanese and I’m from North America and have been here on a spousal visa for a few years.

Thanks in advance!

 

[kristhuy]

@yahoshua

Would this transfer of property be subjected to the gift/inheritance tax?

Yeah it sounds like you would have a potential Japanese gift tax liability. You're on a spouse visa so your gift tax liability includes assets located outside Japan.

You may want to look into the possibility of treating the gift as an early inheritance, as discussed recently in this thread. But I would recommend professional advice before adopting that kind of strategy.

will this factor into the inheritance tax somehow or is that a separate issue?

Sounds like a separate issue. Once you're the owner of the company/property, the revenue they generate for you would be income (taxable via income tax) not a gift.

 

[dolphinsdream]

@yahoshua As far as i know you need to have the philippine passport to recieved asset especially land as it is stipulated in the law.

 

[yahoshua]

@dolphinsdream Yes, I still have to apply for my Philippines passport.

 

[dolphinsdream]

@yahoshua Just a question though is the income that big enough? Why not liquidate it and transfer it in cash thru remitances ?

 

[yahoshua]

@dolphinsdream I can't really liquidate it because my parents are moving back to the Philippines to manage and further develop the land. Apparently the yearly income generated is quite sizeable so my parents will use whatever for living expenses and the rest will go to my S.O and I.

 

[rogueebear]

@yahoshua As others have mentioned this is certainly a gift, but also has potential to be classed as an early inheritance should you choose to take that path.

Should it go down as a gift it's taxable after 1.1 million JPY.

Should it go down as an inheritance then you're both liable for Japanese inheritance tax because your spouse is a Japanese citizen holding tax residency in Japan and you're a tax resident of Japan on a "Table 2" visa so you're not exempt form the "10 year rule" which "Table 1" visa holders can utilize.

Should the value of the properties exceed 50 million JPY and/or push your total overseas assets value over 50 million JPY then you after year 5 in Japan you're going to have to also look into OAR (Overseas Asset Reporting).

Neither my S.O nor I have ever been to the Philippines and don’t’ really plan on living there, but I would have to go back and forth from Japan to learn how the family businesses works. These properties will also generate another source of income for us, will this factor into the inheritance tax somehow or is that a separate issue?

Will you be actively engaging in the operations of the business (both in Japan and Philippines) if so then as tax resident of Japan this becomes "Domestic sourced income". This means it's taxable regardless if it's remitted to Japan or not.

Should this just be passive income i.e you have no direct input/engagement in the running of the business whilst you remain a tax resident of Japan then it would be considered "Foreign sourced income"

Also I’m sure this is relevant somehow, but my S.O is Japanese and I’m from North America and have been here on a spousal visa for a few years.

Your Japanese spouse is a "Resident for tax purposes" because Japanese citizens residing in Japan gain that status from year 1 of residency in Japan. Therefore, if the income the business generates is "Foreign sourced income" then your Japanese spouse's portion is taxable for your Japanese spouse regardless if they remit it to Japan or not.

However, you're not a Japanese citizen. Therefore, if you have been in Japan for under 5 years (of an aggregated 10) then you still hold "Non-Permanent Resident for tax purposes" (NPR) status. This means for your portion of the "Foreign sourced income" you will only need to declare it should you remit it to Japan within the same tax year it's earned. After 5 years in Japan you then become a "Resident for tax purposes".