Inheritance Tax in Japanese Culture: Leave Something Behind!

Japanese inheritance tax, also called estate tax, is infamously the highest in the world. Asking Japanese friends about the tax, they say it is designed to prevent extremes of inequality and generational wealth from becoming unfair advantages for elites. I suspect the tax is also a lucrative source of government revenue.

Indeed, they say that a family fortune disappears in three generations because of the tax. Only death and taxes are inevitable, so why not profit from each?

This may be cynical, but Japan is the oldest society in the world, and in the coming decades, it will lose tens of millions of citizens. Since a significant number of people meet the threshold for inheritance tax, it's not a bad payday for a country struggling with debt, population decline, and a stagnant economy.

Currently, the tax contributes merely a single-digit percentage to government revenues. However, it should grow in importance as the deductions decrease and the number of people passing away increases.

Residency With Responsibility

Although superficially aware of the tax, it seemed irrelevant in my own life ー until I began the process of applying for permanent residency. My research revealed that for permanent residents of Japan, inheritance tax laws apply to estates inherited globally. In other words, what you inherit anywhere is subject to tax in Japan.

Now, I understand the need to contribute to society. I fastidiously pay all taxes from working, owning a company, or employing people in Japan. I pay health insurance, nenkin (social security), sales taxes, and property taxes without a hint of complaint. In fact, I approve of taxes because I want to contribute, justify my residency, and make Japan better.

But dipping their hands into fortunes obtained abroad with little connection to Japan seems like government overreach. Why does Japan have a right to the estate that my parents built in America?

Japan's counterargument would be that as a permanent resident, one is treated in every way (except the right to vote) as a Japanese citizen. Japanese citizens are subject to inheritance tax globally, so permanent residents are, too. You cannot have equality without obligation.

*The author and his son share a baked yam together.*

Choosing Japan

After long deliberation, I decided that for me, Japan is home, and it's worth the penalty. I'm unsure if I'll inherit anything, but I don't want to spend my life applying for 3-year visa extensions at the mercy of a change in immigration policy or an underpaid government bureaucrat who has the right to deny me entry.

On a work visa, I am ultimately just a guest. With permanent residence, I belong and have the right to stay, in addition to other benefits like a mortgage. Hopefully, I'm a long way from inheriting anything, so I'll cross that bridge later. Nevertheless, for others, and depending on the amount in question, it's worth seriously considering the options and hiring professional counsel before coming to a conclusion. Permanent residence sounds ideal, but it comes with ramifications.

Contrasting Cultural Values

The process of researching inheritance tax made me think about the different cultural values that built these systems. Diverging views on inheritance reveal much about how countries regard work. Likewise, they highlight differences in what societies consider the most valuable assets citizens leave to their children.

In the United States, a desirable inheritance typically includes a house, stocks, a trust, or a large sum of cash. The idea is to pass enough down so that beneficiaries no longer need to worry about money. Perhaps they can even live in luxury, or at least comfort, for the rest of their lives. As Forrest Gump would say, "One less thing."

Appropriately, estate tax rates remain low because decision-makers don't want their entire inheritance to disappear.

Although Japan is changing, historically, for small businesses, especially, the ideal has been to pass down the business itself. The skills, title, prestige, notoriety, and security provided by the company were considered the most valuable inheritance.

In other words, in the West, the best thing you could provide your heirs was freedom from work. In the East, the most valuable asset to pass down was the security of permanent work. One values the outcome, while the other values the process. That observation alone goes a long way toward describing divergent aspects of work culture in America and Japan.

*The entrance to the Toko Sake Brewery in Yamagata, Japan. (©Daniel Moore)*

A 15-Generation Business

The responsibility of inheriting a small business became apparent to me when I visited the Toko Sake Brewery in Yamagata Prefecture. Family-owned for 15 generations, the brewery was established before the Tokugawa Shogunate. It is the 13th-oldest sake brewery in Japan.

With the owner, I discussed the pressure of inheriting such a business. Each generation faced its own challenges, and the brewery almost went bankrupt several times. However, a common theme was that each generation considered the needs of the business more important than their own personal preferences or dreams. With even one break in the chain, the company might have vanished.

The level of self-sacrifice and long-term mentality is mind-boggling from a Western perspective. Although several heirs did not want to brew sake, no generation wanted the blight of being the last of the line. Societal pressure is intense in Japan, but familial pressure, especially paternal pressure, has historically been even stronger. I suspect the brewery has continued for 15 generations due to the right mix of pressure, cultural indoctrination, incentives, and coercion.

*A group enjoys a Japanese garden in Nagano. (©Daniel Moore)*

A Multigenerational Garden

At the same time, building upon a family business or project is intensely rewarding. On tours in rural Nagano, we regularly visit an open Japanese garden lovingly cared for by a friendly farmer. When he happens to be present, he shows us around the garden, occasionally even inviting us into his home.

In the garden are massive stones, surrounded by hand-pruned pine trees, manicured moss, a bush fastidiously shaped into a dragon over 30 years, springs with potable water, and a pond with koi and sturgeon. He tells us often about the part of the garden that his grandfather planted, expanded by his father, and now himself. He wishes his son would build upon the family project, but he lives in Tokyo and has a good job.

I never sensed that he took up gardening out of obligation or responsibility. Rather, he conveyed joy and privilege for the chance to tend the garden that previous generations had planted. There is something to be said for continuing something bigger than yourself.

Leaving a Better Place

While I am hopefully a very long way from passing along any inheritance (if any), it does make me consider what to pass along to my own child. Neither a wad of cash nor the obligation of doing something he does not enjoy sounds like the ideal parting gift. But if he wants it, being able to pass along the opportunity to build upon something his father began is something that I would be interested in sharing.

Ultimately, the next generation will do what they want. However, a conversation is in order, long before it's too late, about the legacy that a parent wants to leave and the future that a child wants to carry forward. That way, any assets or a business that remain to be passed on can be used to make the world a better place.