U.S.-Japan Cross Border Inheritance Tax Guide
Last updated: 29 Sep 2025
Japan × USA: Estate & Gift Tax Treaty – Situs, Credits & Unified Credit
The Japan–USA Estate & Gift Tax Treaty coordinates situs (where assets are deemed located), provides tax credits to relieve double taxation, and grants a proportional US unified credit for Japanese decedents with US-situs assets. State-level taxes are not covered and must be checked separately.
At a glance
What the treaty does
- Art. III defines situs for key asset classes (immovables, tangibles, claims, stock, aircraft/ships, business intangibles).
- Art. IV grants a proportional US specific exemption (unified credit) to Japanese decedents with US-situs assets.
- Art. V provides credit mechanisms to mitigate double taxation.
- Arts. VI & VIII cover information exchange and mutual agreement procedures.
Key implications
- US-situs assets typically face US federal estate tax first; Japan usually grants a credit for that US tax.
- If US federal estate tax is effectively zero (e.g., unified credit covers it), there’s nothing to credit in Japan (or Germany).
- US state taxes are outside the treaty—check formation/domicile and asset location.
Treaty situs rules (who taxes which asset)
| Asset class | Treaty situs (Art. III) | Primary taxing right (federal) | Notes |
|---|---|---|---|
| US real estate | Where the property is located | USA | Japan generally credits US tax on this asset. |
| Tangible movables (incl. cash) | Where located (in transit → destination) | USA if located in the US | Location at death controls. |
| Claims/Deposits/Insurance | Residence/place of management of the debtor | USA if debtor is US-resident | Bank accounts & insurance often fall here. |
| Corporate stock / membership interests treated as stock | Place of incorporation/organization | USA for US corporations/stock | See LLC classification below. |
| Aircraft & ships | Country of registration | USA if US-registered | Registration at death is relevant. |
| Business intangibles (goodwill, IP used in a business) | Where the business is carried on / rights exercised | USA if exploited in the US | Fact-dependent; documentation essential. |
| All other property | Fallback: domestic law determines situs | Depends | Use US/Japanese domestic rules as applicable. |
Tip: On small screens you can scroll the table horizontally.
Credits & the proportional US unified credit
The treaty applies two relief layers:
- US proportional unified credit (Art. IV): Japanese decedents receive a US federal exemption proportional to the ratio US-situs estate / worldwide estate. If all assets at death are US-situs, the decedent effectively enjoys the full US basic exclusion (inflation-indexed) on the federal level.
- Mutual credits (Art. V): Where both countries tax the same US-situs asset, Japan typically grants a credit for US federal estate tax actually paid on that asset (subject to caps). If the US federal liability is reduced to zero by the unified credit, there is generally no foreign tax to credit in Japan.
US LLC classification: Corp vs. Disregarded/Partnership
Your US-LLC’s classification election (Form 8832; “check-the-box”) can shift situs and therefore the treaty outcome:
- LLC taxed as a corporation: the shares are typically US-situs stock under Art. III. The US may tax federally (often reduced/neutralised by the proportional unified credit); Japan then applies its credit rules.
- Disregarded entity / partnership: look-through to the underlying assets. If those are not US-situs, federal US estate tax exposure may be minimal to none; but then there is also no US tax to credit in Japan.
Classification also impacts income tax and state consequences; model scenarios before electing.
State estate/inheritance taxes (not treaty-covered)
The treaty binds the federal level. Several US states levy estate or inheritance taxes under their own rules. Many states do not tax non-residents’ intangibles, but real or tangible property in-state can trigger state tax. Always check formation, domicile and asset location before concluding there is no state exposure.
Planning checklist (no legal/tax advice)
- Inventory & classify assets by treaty category (Art. III) and by US state.
- Model the unified credit (Art. IV) using the US-situs/worldwide ratio; test thresholds.
- Decide LLC classification with estate/gift and income tax in mind; document elections (Form 8832).
- Anticipate credits: Japan credits only actual US federal tax paid on US-situs assets (Art. V).
- Check state exposure for real/tangible property and resident ties; treaties don’t protect you at state level.
- Paper the file: valuations at death, situs evidence, federal/state returns, payment proofs for credit claims.
FAQ
Does the treaty give Japan taxing rights over US-situs assets?
No. The treaty allocates primary taxation to the US for US-situs categories and then provides credits so Japan does not tax the same value twice.
How does the proportional unified credit work?
The US grants a federal exemption proportionate to US-situs / worldwide. If all assets are US-situs, the decedent effectively receives the full US basic exclusion.
Are state estate/inheritance taxes covered by the treaty?
No. The treaty addresses federal estate/gift taxes only. State-level taxes must be checked separately.
Do US bank accounts count as US-situs?
Yes—claims are generally sited where the debtor (the bank) is resident; US banks usually create US-situs property under Art. III.
What about a single-member LLC?
If taxed as a corporation, its shares are typically US-situs. If disregarded, you look through to the underlying assets—potentially reducing US estate exposure but also eliminating US tax credits in Japan.
Talk to us & downloads
We can model the treaty mechanics (Art. III/IV/V), test LLC classifications, and quantify federal/state exposures.