Gifting Crypto in Japan: Gift Tax and the Donor's Trap

Giving crypto to a family member looks like the simple case. It is not. Japan taxes it on both sides of the transfer, and the side people never expect is the giver's.

The recipient: gift tax

FAQ section 4-1 states that where a person acquires crypto by inheritance, bequest or gift, inheritance tax or gift tax is charged, because the Inheritance Tax Act taxes any property with economic value measurable in money and crypto meets that description under the Payment Services Act.

Under the calendar year method, NTA Tax Answer No.4402 explains that gift tax is charged on the total value of property received between 1 January and 31 December, less the calendar year basic deduction of 1,100,000 yen. Where the total exceeds that, the recipient files and pays between 1 February and 15 March of the following year. Verify current figures with the NTA before relying on them.

How the gifted crypto is valued

FAQ section 4-2 covers gifts as well as inheritance. Crypto with an active market is valued at the trading price published by the crypto exchange service provider the taxpayer deals with, as at the valuation date, by analogy to foreign currency under paragraph 5 of the property valuation circular. A balance certificate from the exchange is accepted, the sell side price is accepted where a dealer publishes both, and where several exchanges are used the taxpayer may choose one. Crypto with no active market is valued individually on its nature and actual dealings.

The trap: the giver may owe income tax

This is the part that surprises people, and it is stated plainly in FAQ section 2-10.

Where an individual transfers crypto by gift or bequest, other than a gift taking effect on death to an heir and other than a comprehensive bequest or a specific bequest to an heir, the market value of the crypto at the time of the transfer must be brought into the transferor's gross revenue. The transferor has received nothing, and still has income to declare. The same section cites article 40 of the Income Tax Act and article 87 of its enforcement order.

So an ordinary lifetime gift of appreciated crypto can produce two liabilities at once: gift tax for the recipient on the value received, and income tax for the giver on that same value. Since crypto income is miscellaneous income taxed at progressive national rates of 5% to 45% plus a flat 10% resident tax, the giver's side is not small.

The same section also has a related rule for sales at an undervalue. A transfer for consideration below 70% of market value is treated as a transfer at a significantly low price, and the difference between 70% of market value and the actual consideration is added to gross revenue. Selling crypto to a relative cheaply is therefore not a way around the gift rules.

The recipient's cost basis

Section 2-10 states that where an individual acquires crypto in the gift or bequest situation above, their acquisition cost on a later disposal is the market value at the time of the gift or bequest. That is a genuine reset, and it is precisely what an ordinary inheritance by an heir does not get, because inheritance by heirs is excluded from that rule by the same brackets.

This asymmetry between lifetime gifting and inheritance is real and it is the reason the two cannot be planned as if they were the same event.

Before you transfer anything

• Establish the market value at the intended transfer date from the exchange you use, and keep the evidence.
• Work out the giver's income tax position first, since it is the one that is usually missed.
• Check whether the transfer is a gift, a gift taking effect on death, or a bequest, and whether the recipient is a statutory heir. The rule that applies changes with the answer.
• Record the transfer on both sides, so the recipient can prove their acquisition cost years later.

Our Japan crypto tax guide covers the income side, and finding a crypto tax accountant covers who should sign off a family transfer.

General information, not tax advice. The treatment depends on the exact form of the transfer. Confirm with the National Tax Agency or a qualified tax professional before acting.