Japan is considering a significant change to its crypto tax code, potentially lowering the tax rate on cryptocurrency earnings to a flat 20%. This would substantially reduce the current rates, which can go as high as 55% for some investors.
Currently, Japan taxes cryptocurrency earnings under a miscellaneous income category. According to crypto accountants TokenTax, crypto profits in Japan are taxed between 15% and 55%. The highest rate of 55% can apply to earnings over 200,000 Japanese yen ($1,377), but it varies depending on the individual’s income tax bracket. In comparison, profits earned from stock trading only incur a tax rate of 20% at the highest levels.
Corporate crypto holders must pay a flat 30% tax rate on their holdings at the end of the financial year, even if they haven’t made a profit through a sale.
The country’s financial regulator, the Financial Services Agency (FSA), has recently proposed a reform that could lower the tax rate on crypto profits to a flat 20%. The proposal was outlined in an August 30 request for tax reform, part of a broader review of the fiscal code for 2025.
The FSA is advocating for treating cryptocurrencies as traditional financial assets, making them more accessible for public investment. "Cryptocurrency should be treated as a financial asset and an investment target for the public," the FSA stated in its report.
The high tax rate can apply to earnings over 200,000 Japanese yen, making it a significant burden for many crypto investors. In contrast, stock trading profits are capped at a 20% tax rate, which the FSA suggests should be applied to cryptocurrency as well. Additionally, corporate holders of crypto assets are required to pay a flat 30% tax on their holdings, regardless of whether they sell their assets at a profit.
The process of changing tax laws in Japan involves several steps. First, government ministries submit tax reform requests to the ruling political party. These requests are then passed to the tax system research committee before being considered by the national legislature. Both the House of Representatives and the House of Councillors must approve any reforms before they become law.
Advocates within Japan's crypto industry have long been pushing for a revision of the tax regime. In 2023, the Japan Blockchain Association (JBA) formally requested the government to reduce the tax burden on crypto assets. Their proposals included a flat 20% tax rate and a year-loss carryover deduction to encourage growth in the sector. However, previous efforts have not yet led to concrete policy changes.
Japan's use of crypto is expected to grow rapidly, with the number of people trading crypto daily rising from 350,000 to around 500,000 by the end of this year, according to a Bitet study. The surge would place Japan's market size between those of Turkey and Indonesia and about two-thirds the size of South Korea's market.
"Japan, with its high awareness for crypto, is a dynamic and rapidly evolving landscape," said Gracie Chen, CEO of Bitet. She added that exciting possibilities and current trends in Japan make it a prime area for new technologies and widespread use.
If the proposed changes are implemented, they would offer some relief to both individual and corporate investors, making the tax landscape for crypto more favorable. This could further boost the growth of the crypto market in Japan, making it an even more attractive environment for investors.
