Japan

Individual income tax

Implementation of new measures for significantly high individual income (Minimum Tax)

An additional tax burden will be imposed on individuals who have a significantly high level of income. Specifically, if the minimum tax (threshold) calculated based on the following formula (1) is greater than the individual’s income tax liability for the year, such excess (i.e., (1) minus (2) ) will be added to (2), the income tax liability for the year.:

(1)Threshold -22.5% multiplying [Standard taxable income - JPY 330 million]
(2)Income tax liability for the year

For example, where income in a given year is only capital gains with the amount of JPY 3 billion (subject to separate taxation at a rate of 15.315% including surtax), the excess of 150 million (JPY 600 million minus JPY 450 million, as illustrated below) will be levied as an additional tax liability.

(1) (JPY 3 billion - JPY 330 million) x 22.5% = approx. JPY 600 million
(2) JPY 3 billion × 15.315% = approx. JPY 460 million

This revision will apply to individual income tax for tax year 2025 onwards.

Inheritance tax and gift tax

(1) Revision to the taxation system for settling gift taxes at the time of inheritance

Under the current rule, if assets are gifted to an heir of a decedent and the special measures for settlement at the time of inheritance apply, the value of the gifted assets as of the time of the gift is added to the value of inherited assets and is subject to the inheritance tax. (The gift tax already paid at the time of the gift is deducted from the inheritance tax.) Under this special measure, a special deduction of JPY 25 million is applied in calculating the taxable amount of the gift tax.

Under the 2023 tax reform, an additional special deduction of JPY 1.1 million will be available in addition to the previous special deductions of JPY 25 million.

(2) Add-back period for gifts received prior to inheritance

Under the current inheritance tax law, the value of the assets acquired by heir(s) by way of gift from the decedent within three years prior to the inheritance should be added back to the taxable amount of the inheritance.

Under the 2023 tax reform, the add-back period of three years will be extended to seven years, and a deduction of JPY 1 million will be applied in calculating the taxable amount of the inheritance. (Note that if the assets are acquired by gift within three years prior to the inheritance, this deduction of JPY 1 million is not applicable.)

(3) The above two revisions will be applied to the inheritance tax on assets acquired by gift on or after 1 January 2024.