14 September 2026 · International taxation
The tax treaty with Japan covers taxes on income, and Japanese inheritance tax sits outside it
Israel and Japan have one convention for the avoidance of double taxation, concluded in 1993, and it applies to taxes on income. Japanese inheritance tax, which reaches 55 per cent and is charged to the heir, is not within it, and Israel has no estate tax against which it could be credited. The same is true of the Japanese exit tax on unrealised gains.
The convention of 1993
The Convention between Japan and the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income was signed in Tokyo on 8 March 1993, ratified in Japan on 17 May 1993 and in Israel on 11 November 1993, and entered into force on 24 December 1993. Its provisions apply from 1 January 1994, the date given in Israeli Income Tax Circular 6/94 and in the Jetec Technologies judgment. No new convention has been concluded between the two states since. It has been updated by another route, through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, known as the MLI.
Article 2 of the convention lists the taxes to which it applies. In Israel, income tax under the Ordinance and the tax on gains from the transfer of land under the Land Appreciation Tax Law; in Japan, the income tax, the corporation tax and the local inhabitant taxes. The article adds that the convention also applies to future taxes that are identical or substantially similar to those. Japanese inheritance tax is not among them, and it is charged to the heir on a transfer of assets rather than on income. The Japanese exit tax is charged on a gain that has not been realised, so whether it falls within the similarity test in Article 2 is an open question on which no ruling was found.
Withholding rates
The convention caps the tax the source state may withhold on payments leaving it to a resident of the other state. The rates under Articles 10 to 12:
| Payment | Maximum rate | Condition |
|---|---|---|
| Dividends | 5% | A company owning at least 25 per cent of the voting shares |
| Dividends, any other case | 15% | No holding requirement |
| Interest | 10% | Recipient is the beneficial owner. Exemptions for government bodies and certain financial institutions |
| Royalties | 10% | Recipient is the beneficial owner |
The rates are taken from the text of the convention as published by the Ministry of Foreign Affairs of Japan. A person outside the protection of the convention pays the domestic rate, which in Japan reaches 20 per cent on royalties and in Israel is higher than that on some categories of income.
What the MLI changed
Both states deposited their notifications and reservations in September 2018, and the MLI entered into force for both on 1 January 2019. Israeli Income Tax Circular 1/2022 records that as at 1 January 2021 it applies in relation to Japan both for withholding taxes and for other taxes. It applies eleven sets of provisions to the bilateral convention, among them fiscally transparent entities, the determination of residence of a person resident in both states, the definition of a permanent establishment, and corresponding adjustments following a transfer pricing adjustment.
The change that touches most transactions is the principal purpose test. A benefit under the convention is denied if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of an arrangement or transaction, unless granting it in those circumstances accords with the object and purpose of the relevant provisions. Instead of asking only whether the technical conditions of an article are met, the reason the structure was created is examined as well.
| State | Withholding taxes | Other taxes |
|---|---|---|
| Japan | Payment events from 1 January 2019 | Taxable periods beginning on or after 1 July 2019 |
| Israel | The first taxable period beginning after 1 January 2019 | Taxable periods beginning on or after 1 January 2020 |
Japanese inheritance tax is charged to the heir
Japan levies an inheritance tax, and it is built differently from an estate tax. It is charged to the person who receives the assets rather than to the estate, and the rates run from 10 to 55 per cent, the top rate applying to amounts above 600 million yen. A basic exclusion of 30 million yen plus 6 million yen for each statutory heir is deducted from the computation.
The extent of the charge follows the connection of the deceased and of the heir to Japan. A person who had a domicile in Japan within the preceding ten years is charged on assets anywhere in the world. A foreign national holding a Table 1 visa, the category of work visas, who has had a domicile in Japan for fewer than ten of the preceding fifteen years, is not charged on assets outside Japan where the other party is also a non-Japanese national or another temporary foreigner. Permanent resident status, spouse or child of a Japanese national, and long-term resident status are not within Table 1. An asset situated in Japan, an apartment in Tokyo for instance, is charged even where neither the deceased nor the heir ever lived there.
In Israel the Estate Tax Law of 1949 was repealed in 1981, and since then there has been no Israeli tax on transfer by inheritance. Two consequences follow: there is no Israeli tax for the Japanese tax to collide with, and there is no Israeli tax against which the Japanese tax paid can be credited. The 1993 convention does not reach this tax, because it applies to taxes on income alone.
The exit tax on unrealised gains
Japan taxes unrealised gains of a person leaving the country where two conditions are met together: holding financial assets with a total value of 100 million yen or more, and residence in Japan for more than five of the ten years preceding the date of departure. Financial assets for this purpose include securities, interests in silent partnership contracts, unsettled derivative transactions, and financial assets held outside Japan.
The rate on the unrealised gain is 15 per cent, and on interests in a silent partnership the progressive rates of 5 to 45 per cent apply. Payment may be deferred for five years, and on a further application for up to ten, subject to appointing a tax agent in Japan, filing the return on time, and providing collateral equal to the tax and the interest. Several work visas, among them Highly Skilled Professional, Business Manager and Intra-company Transferee, are not counted towards the residence test.
Three tiers of residence in Japanese tax
The extent of income taxable in Japan follows the residence tier of the individual rather than nationality alone.
| Status | Who falls within it | What is taxable |
|---|---|---|
| Resident | A person domiciled in Japan, or present there continuously for one year or more | Income from any source worldwide |
| Non-permanent resident | A resident of non-Japanese nationality present in Japan for five years or less within the preceding ten | Japanese source income, and foreign source income paid in Japan or remitted to it |
| Non-resident | Anyone outside the definition of resident | Japanese source income only |
The third rule in the table is the one that calls for attention in the early years. Foreign source income accruing to a non-permanent resident and not brought into Japan is not taxable there, and a remittance to Japan in the same year, even one made for an entirely different purpose, is treated as a remittance of that income up to the amount transferred. Buying an apartment in Japan with funds from a foreign account is the practical example.
Sources
Israeli Income Tax Circular 6/94 on the Israel Japan tax treaty · Israeli Income Tax Circular 1/2022 on the MLI · ITA 1255/02 Jetec Technologies v. Assessing Officer Kfar Saba · Convention between Japan and the State of Israel for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, 8.3.1993, Articles 10 to 12 · Ministry of Finance, Japan, Application of the MLI to the Tax Treaty between Japan and Israel · National Tax Agency, Japan, Taxpayers and the scope of taxable income · PwC Worldwide Tax Summaries, Japan, Individual, Other taxes · Grant Thornton Japan, Tax Bulletin, Exit tax when individuals leave Japan, 6.2022 · Estate Tax Law, 1949, repealed in 1981
General overview. The figures are correct as at the date of writing, 14 September 2026. The figures on Japanese inheritance tax, the exit tax and the residence tiers rest on publications of the Japanese tax authority and on the professional sources listed above, and are not a substitute for specific advice on Japanese law.