We are Murata Sogo Tax & Accounting Office, a tax accounting firm specializing in inheritance and international taxation, with offices in Osaka City.
In some cases, foreign nationals residing in Japan receive foreign currency deposits inherited from a decedent residing overseas and remit them to Japan and receive them in yen. In this case, the question arises whether the difference between the amount received in yen and the exchange rate on the date of inheritance of the foreign currency deposit should be recognized as foreign exchange gains or losses. The question arises as to whether the difference between the amount received in yen and the exchange rate on the date of inheritance of the foreign currency deposit should be recognized as exchange gains.
This issue is especially important in the current economic environment where foreign exchange gains are more likely to be recognized due to the continuing depreciation of the yen.

In conclusion, under the Income Tax Law, it is difficult to tax as foreign exchange gains, and no income tax is imposed. Below is a summary of our thinking.

1. Inheritance does not fall under the category of foreign currency transactions as defined in Article 57-3 of the FIEA.

Article 57-3 of the FIEA provides that “transactions denominated in foreign currencies (meaning sales and purchases of assets, provision of services, lending and borrowing of money, and other transactions in which payment is made in foreign currencies. The same shall apply hereinafter in this Article). Inheritance of foreign currency deposits itself does not fall under the definition of foreign currency transactions as stipulated in this article.

Article 57-3 of the Act is based on corporate accounting standards, and the definition of a foreign currency transaction under IFRS is “a foreign currency transaction is a transaction that requires settlement in a foreign currency (IAS 21.20),” and the acquisition by inheritance is not a transaction that requires settlement. The definition of “foreign currency transaction” is “a transaction that requires settlement in a foreign currency (IAS 21.20)”.

2. Even if inheritance from a decedent to an heir is a foreign currency transaction, it does not fall within the scope of Article 57-3 of the Income Tax Act.

Article 57-3 of the Income Tax Act provides that “transactions denominated in foreign currencies (meaning sales and purchases of assets, provision of services, loans and borrowings of money, and other transactions in which payment is made in foreign currencies. The same shall apply hereinafter in this Article). (hereinafter the same shall apply in this article)”, the decedent residing abroad was a nonresident under the Income Tax Law, and therefore, the decedent was not subject to the provisions of Article 57(3) of the Income Tax Law.

3. No round-trip currency exchange transactions have occurred

According to the National Tax Agency's Question and Answer Sample, “Generally, exchange gains or losses arise from the exchange of different currencies (round-trip). Therefore, although a round-trip exchange of currencies is necessary to recognize foreign exchange gains or losses, in this case, the foreign currency deposit inherited through inheritance was converted to Japanese yen, and there is no object to compare the exchange rate because it was a one-way transaction.

National Tax Agency, “Treatment of exchange gains/losses when a foreign currency held is converted to another foreign currency.”

https://www.nta.go.jp/law/shitsugi/shotoku/02/41.htm, (reference 2024-09-12)

Based on the above, since the inheritance does not constitute a foreign currency transaction and cannot be compared to the exchange rate at the time of remittance or conversion to yen, no exchange gains or losses can be recognized and no taxation will be imposed.

The tax treatment of foreign currency transactions is a topic that often divides the opinions of experts and tax authorities. If you have any questions or concerns, please contact us using the Inquiry Form.