Japan is moving ahead with significant tax reform that aims to change how cryptocurrency gains are taxed. The Financial Services Agency (FSA) has proposed changes that would reduce the tax on crypto profits from the current progressive rate (up to ~55%) to a flat 20%.
If approved, these reforms are expected to take effect in fiscal year 2026.
Current System
- Crypto income in Japan is currently taxed as “miscellaneous income”, not as capital gains or securities income. This means profits from selling, exchanging, staking, airdrops, etc. are added to one’s overall income and taxed at progressive income tax rates.
- The maximum rate under this miscellaneous classification reaches about 55% (which includes national income tax plus local taxes).
What the Proposed Reform Would Do
- Flat 20% Tax Rate
Reclassify cryptocurrency gains under a separate bracket so they are taxed at a uniform 20% rate, similar to profits from stocks. Cointelegraph - Reclassify Crypto Assets Legally
The reform includes recognizing crypto assets under the Financial Instruments and Exchange Act (FIEA) rather than the Payment Services Act. This would treat crypto more like securities or financial products. - Allowing Loss Carry-Forward
Industry bodies are asking that losses from crypto be allowed to be carried forward (for about three years) to offset future gains under the new system. - Support for ETFs and Institutional Participation
The reform is expected to make it easier for crypto exchange-traded funds (ETFs) to be launched domestically, aligning tax treatment with that of equities, which already enjoy the 20% tax treatment.
Why It Matters
- Investor Appeal: A flat 20% rate would likely attract more retail investors and encourage more trading and investment in cryptocurrencies. It could reduce the tax burden considerably for many who currently pay high progressive rates.
- Clarity & Efficiency: Moving from miscellaneous income to a defined tax bracket simplifies tax reporting, reduces ambiguity, and improves compliance.
- Global Competitiveness: Japan has been cautious with crypto regulation. These reforms could help it compete with other jurisdictions that have more favorable crypto tax regimes and regulatory clarity.
- Institutional Entry: With a clearer legal classification and tax treatment, institutional players may feel more comfortable entering the market (e.g. via ETFs).
Concerns & Uncertainties
- The reform is not yet law—it is still in proposal stages. Laws need to be passed through the legislature before implementation
- How “crypto gains” will be defined, what events trigger taxation (e.g. selling, swapping crypto-to-crypto, staking rewards) may still require clarification.
- Tax loss carry-forward adoption is still under negotiation; without it, some investors could still face high volatility in tax liability.
- The shift in legal classification (under FIEA) might also bring additional regulatory obligations (compliance, reporting, insider trading laws, etc.).
Timeline & Next Steps
- The FSA is expected to formally submit its request for tax reform by end of August 2025, targeting implementation in fiscal 2026.
- Legislation to amend relevant laws (like FIEA) will need to be drafted, debated, and passed in parliament.
