The new tax bill was passed through Diet and the law was put into force since April 1, 2018. Because the Japanese government wants to keep its economy as active as possible, and because there have been many many companies or businesses who decided to shut down because they don’t have successors and the tax is heavy (sometimes prohibitive), finally the government decided to come on the rescue of SMEs and loosen the requirements to exempt successors of the business from the heavy inheritance tax.
What is the tax benefit?
The gift/inheritance tax on shares of a private company given to a representative director from (at maximum) the top three shareholders will be suspended and later on will be forgiven by 100%.
For example, if you own a company and its valuation is 500 MM yen. (The valuation of a company and its shares are strictly defined by Inheritance Tax Law.) Traditional ways to reduce inheritance tax on a company are mainly to reduce the profitability of a company or try to make a loss to the company. But those methods actually will “hurt” the company.
This new law is very epoch-making. You don’t have to reduce the value of your company but you only have to submit a plan to the government.
What you need to do
You need to submit a business succession plan to the governor of your prefecture between April 1, 2018 to March 31, 2023 and get an approval. The plan has to be
You need to transfer shares (in a form of gift or estate) to the successors in 10 years.