We received the following inquiry from a client living overseas.
An individual owning real estate in Japan died, leaving real estate located in Japan to an heir who did not need the property since she lived outside Japan. Instead, she wanted the property sold and the sales proceeds distributed to her. She wanted the sales proceeds remitted to her overseas bank account after making deductions for various expenses from the sales proceeds.
We would like to explain the procedures involved in a matter like this based on this case study.
The Procedures Involved
In this case, the decedent was a German citizen who died in Germany. Our office received a call from a lawyer who had been appointed as the executor in the will. The lawyer-executor wanted the real property sold and the proceeds remitted to Germany.
Before consulting with our firm, the lawyer-executor consulted with another legal professional, who closed the bank account. However, since that legal professional was not familiar with the sale of real property, the lawyer-executor decided to consult with our firm.
These are the procedures that we took.
- Changed the name on the real property registration to that of the heir
- Sold the real property
- Filed a tax return for the capital gains tax (includes paying the tax)
- Remitted the sales proceeds after appropriate deductions
Registration of Inheritance
Since real property registered in the name of the decedent cannot be sold in Japan, it is first necessary to change the name of the registered holder to that of the heir.
Before undertaking this registration, it is first necessary to confirm which country’s laws apply to the inheritance. In addition, documents evidencing the death of the decedent and the status of the heirs must be prepared and submitted with the application for registration of the inheritance. At this point, prior to submitting the registration application, we consulted with the Bureau of Legal Affairs, which has jurisdiction over these matters, as we moved forward.
Based on the EU’s inheritance rules, Germany’s inheritance laws applied. Since the executor of the will was a lawyer, the exchange of documents went smoothly. Naturally, however, the foreign lawyer (and executor of the will) had many questions about why certain documents were required.
Sale of the Real Property
We asked a real estate broker to sell the real property. While our office worked on the registration of the inheritance, the real estate broker started to work in parallel to find a buyer [for the real property.]
If a buyer is found, a purchase and sale agreement will be concluded. Although the purchase and sale agreement was prepared only in Japanese, our office had it translated into English so we could explain the contents to the executor of the will, and after receiving the approval of the executor of the will, the purchase and sale agreement was sent to Germany for the signature of the executor. On the settlement day for the sale, our office received the purchase price [for the real estate] and concluded the sales transaction.
Filing a Tax Return for Capital Gains Taxes
If the sale of the real property results in capital gains, then a tax return for capital gains must be filed. In addition, transfer income taxes may be withheld from the sale price when the seller is a non-resident [of Japan]. For example, this occurs when the buyer is a corporate entity or when the sales prices exceeds 100 million Japanese yen. When there is a withholding, the amount of tax is determined in the subsequent income tax report. If the withheld amount is insufficient, the seller needs to make an additional payment. However, in the case of overpayment, the excess amount will be refunded.
In this case, there was a withholding since the buyer was a corporate entity, and the buyer received a tax refund in the subsequent income tax report. Further, when there is no withholding from the purchase price due to the fact that the sale of the real property did not generate any profit, it is not necessary to file a tax return for capital gains taxes.
Deductions and remittance
Finally, after deducting our firm’s fees and expenses, the balance was remitted overseas. If a taxing filing for inheritance taxes is required in Japan, then payment of the inheritance taxes will also be required. In this case, while the procedures are moving forward, the filing process for payment of the inheritance taxes can be undertaken in parallel.
Kobe Legal Partners provides support to heirs outside Japan for the sale of the real property located in Japan. We are linked to a nationwide network of real estate brokers and can provide assistance regardless of where in Japan the property is located.
Please do not hesitate to contact us if you have any questions.