We are Murata Sogo Tax & Accounting Office specializing in inheritance and international taxation, with offices in Osaka City, Japan.
Today, we would like to summarize the treatment of receiving a U.S. survivor's pension in Japan, which we are often asked about.

１．Basic taxation of survivor's pensions

In Japan, survivor's pensions and survivor's benefits paid to survivors under the National Pension Law, Employees' Pension Insurance Law, National Public Service Mutual Aid Association Law, etc. are not subject to income tax.
This is due to the fact that each law states that “taxes and other public charges cannot be imposed on money received as insurance benefits as a standard.
For example, the Employees' Pension Insurance Law stipulates this in Article 41.

2. Receiving a survivor's pension in the U.S. in Japan

As mentioned in the previous section 1, laws such as the Employees' Pension Insurance Law do not cover survivor's pensions based on foreign systems.
On the other hand, under the Income Tax Law, pensions received by surviving family members based on service are exempt from taxation under the Income Tax Law (Article 9-3(b) of the Income Tax Law).
Since foreign pensions are also included in this category (Section 35(3)-3 of the Income Tax Act, Section 82-2(2)-1 of the Order of the Ministry of Justice, and Section 72(3)-9 of the same Order), U.S. survivor pensions paid “based on service” are exempt from income tax and do not require a final income tax return in Japan.

However, since survivor's pensions that are not based on service are not within the scope of tax exemption, it is necessary to examine the details of the pension.

3. Treatment in Japan for Inheritance Tax 

“I have started receiving a survivor's pension from my husband who worked in the U.S. in the past, will this be subject to inheritance tax?”

We have been receiving such questions frequently recently.
In this case, the consultation often follows the pattern below.

(i) Both the decedent and the heir reside in Japan, and the survivor's pension benefits started to be received a long time (more than 5 years) after the decedent's death. 

In the U.S., the requirement for receiving the survivor's pension benefits is that the heir must reach a certain age, and there are many cases in which the survivor's pension benefits start to be paid after a long time has passed since the decedent's death. In many cases, the payment of the survivor's pension begins after a long period of time has elapsed since the inheritance.
In such cases, there is no need to be concerned because the period for correction of inheritance tax (in principle, 5 years from the due date of filing an inheritance tax return) has already passed.

(ii) Cases where both the decedent and the heir resided in Japan and started receiving the survivor's pension within 5 years of the decedent's death. 

In this case, too, the payment of the survivor's pension is not subject to inheritance tax because it is undetermined at the time the inheritance begins.

(iii) Cases where both the decedent and the heir reside in Japan and started receiving the survivor's pension at the same time the decedent passed away. 

In this case, the right to receive the survivor's pension is subject to inheritance tax because it is a “right concerning periodic payments not based on a contract” as defined in Article 3 (i) (vi) of the Inheritance Tax Law.

(iv) Cases in which both the decedent and the heir resided abroad for more than 10 years at the time of commencement of receipt of the survivor's pension 

In this case, the taxpayer is not subject to inheritance tax.

The above is a description of the income tax treatment of receiving a U.S. survivor's pension in Japan. Although the term “U.S.” is used, the treatment is the same in all countries.
If you would like to discuss or file a tax return for income received from overseas, including the treatment of such pensions, please contact us using the Inquiry Form.