Japan is weighing a reform of its cryptocurrency tax code, one that, if enacted, could drastically cut the tax burden on crypto investors. A new proposal by the Financial Services Agency-or FSA-could lower the tax on crypto gains to a flat 20%, bringing it into line with the tax rate on more traditional financial assets like stocks.
It had been spelled out in a request from the FSA at the end of August, part of a wider review of the Japanese fiscal code for 2025. This would represent a major evolution in how cryptocurrencies might be treated under Japanese tax law.
FSA Argues Crypto Should Fall Under Traditional Financial Assets
So far, the FSA has maintained that virtual currencies should be treated and taxed like any other traditional financial assets such as stocks, bonds, and investment funds. “Cryptocurrency should be treated as a financial asset and an investment target for the public,” the agency stated in its reform proposal.
Currently, Japan taxes cryptocurrency as if it were a form of miscellaneous income, meaning the asset class faces a progressive tax rate between 15% and 55%, based on the individual’s total income. The result being, some investors pay more than 50% in tax on crypto earnings. That contrasts with profits from stock trading, which has a maximum tax of 20%.
This will, in return, greatly reduce the tax burden for crypto investors and make it a very friendly environment for both individual and corporate crypto asset holders.
Relief to Corporate and Individual Crypto Investors
Presently, corporate investors of Japan pay a flat 30% tax on their crypto holdings, irrespective of which asset is being sold and whether or not any profit is made from it. The new changes, when implemented, could bring much-needed relief for such corporate holders so that their position gets aligned with the taxation of traditional financial assets.
This would mean that, with the reforms in place, individuals and companies would pay less in taxes, even to an extent that this might spur investors to participate more in the land of the rising sun’s budding cryptocurrency market.
Any real reform would be the result of a multi-stepped process. Government ministries propose reform requests that are considered and debated by the nation’s ruling political party and its committee for tax system research. Once that is complete, it must pass both houses of the national legislature.
Japan’s Crypto Industry Advocates Push for Reform
Crypto tax reform is nothing new. In early 2023, the Japan Blockchain Association formally pressed the government for change to the crypto tax regime. The proposal advanced by the JBA called for a flat tax rate of 20%, as applied in the case of stock trading, coupled with the establishment of a three-year loss carryover deduction that would encourage growth within the blockchain sector.
While these attempts have been made to develop some reforms, nothing substantial has been changed so far. But with the FSA now proposing official reforms, the notion of reduced tax burdens is picking up steam.
Japan’s Crypto Trading Population Poised to Grow
The new reforms have been proposed when the cryptocurrency market in the country is growing at an unmatched pace. If the recent study published by crypto exchange Bitget is any indication, daily cryptocurrency traders in the country would surge from the current number of 350,000 to about 500,000 by the end of 2024.
This swelling crypto adoption makes Japan become one of the leading players in the global crypto landscape, rivaling major markets such as Turkey and Indonesia. “Japan is a fast-moving landscape that’s one of the most highly aware in terms of crypto awareness,” said Gracy Chen, CEO of Bitget.
Besides all this, major Japanese companies are not shying away from the crypto market. This month, Sony Group declared plans to take over the crypto company Amber Japan-only the most recent example of traditional Japanese technology companies’ growing interest in the country’s digital asset market.
