Tax information for Japan

Tax on full or partial encashment

The cash value of both full or part encashments will be taxed as occasional income as follows:

Encashment value less premium paid less ¥500,000 = occasional income amount.

Occasional income amount divided by 2 = taxable amount. The taxable amount is subject to progress rates up to 50%.

Tax on maturity

If the premium was paid by the policyholder, then the maturity benefit is taxed in the same way as a full encashment. If the premium was paid by a different individual, then the maturity benefit could be subject to gift tax.

Tax on death of the life assured

The taxation of the death benefit depends on the relationship between the policyholder and the life assured and also who paid the premium. The following table summarises:

Case  Life assured  Policyholder  Premium paid by  Taxation applying
1          A                   B                  B                          Income tax
2          A                   B                  A                          Inheritance tax
3          A                   C                  B                          Gift tax

• Case 1
The cash value of the death benefit is taxed as ‘occasional income’ and calculated as follows:

Death benefit value less premium paid less ¥500,000 = occasional income amount. Occasional income amount divided by 2 = taxable amount.

The taxable amount is subject to progress rates up to 50%.

• Case 2
Where the life assured (A) paid the premium, the death benefit is subject to inheritance tax.

• Case 3
Where the life assured (A), policyholder (B) and the person who paid the premium (C) are all different, gift tax is imposed on the death benefit which is paid to the policyholder.

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There is no tax payable in respect of pledging a policy; however assignment of the legal ownership of a policy is likely to trigger capital gains tax (‘juoto-syotoku’) which is a part of individual income tax paid by Japanese residents. The amount of the gain which will be taxable depends on the length of time the policyholder assigning the policy has held the policy.

• Under six years, the full market value less the premium paid then minus the allowance of ¥500,000 is the amount taxable. If this results in a loss, it is treated as zero. The loss cannot be used.

• Six years or more, 50% of the market value less the premium paid, then minus the allowance of ¥500,000 is the amount taxable. If this results in a loss, it is treated as zero. The loss cannot be used. Where a policy is assigned for less than market value, gift tax may apply to the assignment, payable by the policyholder assigning the policy.

Fund switching

There is no tax payable in respect of fund switches.

Policy loans

There is no tax payable in respect of policy loans.

There are no exemptions or reliefs which apply for any of the local taxes.

The value of the policy is determined by the value of the units of the funds to which the policy is linked. We accept no responsibility for the investment performance of the funds. The value of units of the funds will depend on the performance of the assets of the funds. The value of the units can fall as well as rise. It should be noted that units and bank deposits, could, in exceptional circumstances, become valueless (this could either be temporarily because of suspension, or permanently). In addition, should any assets be denominated in a foreign currency, there will be exchange rate risks.

Depending on the assets of the funds, there may be limits on the liquidity of the assets. In the event that there are problems liquidating any assets of the funds, the company may defer any transactions involving allocation, cancellation or fund switch until such time as we consider appropriate.

By requesting investment into particular fund or funds the client accepts these investment risks.

It is for you and your client to decide which funds are most appropriate to their needs. We do not give advice.