JAPAN Law and Practice Contributed by: Atsushi Oishi and Makoto Sakai, Mori Hamada & Matsumoto
2.5 Transfer of Property The cost basis of a property transferred by inheritance or gift will not change for income tax purposes. 2.6 Transfer of Assets: Vehicle and Planning Mechanisms The transfer of assets to a spouse would usually be exempt from inheritance tax (not gift tax). If certain requirements are met, a transferor can fix the fair value of the transferred assets for inheritance tax purposes by gifting the same assets to the trans - feree before their death and paying 20% of the fair value (after certain deductions) as gift tax at the time of the gift. In this case, the transferee must pay the inheritance tax (after deduction of the gift tax already paid) at the time of inheritance, but the amount of the inheritance tax is calculated by using the fair value at the time of the gift. With respect to gift tax (not inheritance tax), there are special tax treatments for transferring assets to younger generations for education, residence acquisi - tion and other purposes. 2.7 Transfer of Assets: Digital Assets Cryptocurrency is subject to inheritance tax and gift tax in Japan. The fair value of cryptocurrency is deter - mined by its market price. If the market price is not clear, other valuation methods may be used, such as the sales price used by other parties. 3. Trusts, Foundations and Similar Entities 3.1 Types of Trusts, Foundations or Similar Entities Trusts and foundations are usually used in Japan for tax and estate planning purposes. Trusts For Japanese income tax purposes and depending on its legal character, a trust is treated as: • transparent; • not transparent but not a taxable entity; or • a deemed corporation.
Trusts that are used for wealth management purposes are mostly categorised as transparent trusts. When an individual acquires a trust beneficiary interest upon the death of the decedent, inheritance tax would be imposed on the individual. If the trust is deemed a corporation, it is subject to corporation tax, at a rate of approximately 30%. In this case, when a settlor entrusts property to a trus - tee, any unrealised gains in the property are subject to capital gains tax. Foundations As there is no ownership interest in a foundation, the assets acquired by the foundation would not be included in the estate of the decedent, and thus would not generally be subject to inheritance tax upon the death of the founder. Although these entities are gen - erally subject to corporation income tax on gains by donation, the income could be exempt from corpora - tion income tax if certain conditions are met. When a founder makes a certain donation (other than cash) to a foundation, there could be capital gains taxation, although there are some exceptions if certain condi - tions are met. 3.2 Recognition of Trusts Trusts are recognised and respected by the Trust Law of Japan, where the term “trust” typically refers to a settlor entrusting property to a trustee based on con - fidence in that trustee, who administers and disposes of the property in its own name in accordance with the trust agreement between the settlor and the trustee for the benefit of the beneficiaries. With respect to the tax treatment of trusts, see 3.1 Types of Trusts, Foundations or Similar Entities . 3.3 Tax Considerations: Fiduciary or Beneficiary Designation Trusts A beneficiary of a trust (including a foreign trust) who is a Japanese resident is subject to Japanese indi - vidual income tax on the income of the trustee, as long as the trust is treated as transparent for tax purposes. If the trust is treated as a deemed corporation for tax purposes, the beneficiary is generally not subject to Japanese individual income tax on the income of the
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