Japan plans to introduce a cryptocurrency "separate taxation system": spot, derivatives, and ETF trading will be taxed separately, with a unified tax rate of 20%.

The Liberal Democratic Party of Japan and Nippon Ishin no Kai announced the “Reiwa 8 Fiscal Year (2026) Tax System Reform Outline” on December 19, clearly proposing to reposition crypto assets (virtual currencies) as “financial products that contribute to national asset formation,” and planning to introduce a separate declaration tax system.
(Background: Japan’s crypto regulation shifting towards a “securities” framework: IEOs and unregistered platforms face stricter regulation, with tax rates halving to align with stocks)
(Additional background: Japan’s upgraded regulation “strongly promotes responsibility reserves,” requiring exchanges to reserve cash deposits for user compensation)

The Liberal Democratic Party of Japan and Nippon Ishin no Kai announced the “Reiwa 8 Fiscal Year (2026) Tax System Reform Outline” on December 19, clearly proposing to reposition crypto assets (virtual currencies) as “financial products that contribute to national asset formation,” and planning to introduce a separate declaration tax system. This reform is seen as an important step for the Japanese government to actively embrace digital assets, aiming to reduce investors’ tax burdens, invigorate the domestic market, and align with traditional financial products such as stocks and investment trusts.

Currently, income from cryptocurrency trading in Japan is classified as miscellaneous income, subject to comprehensive taxation, with tax rates depending on total income, reaching up to 55% (45% income tax plus 10% resident tax). This not only results in heavy tax burdens for high-volume traders but is also considered one of the main obstacles to the development of the domestic crypto market. The announcement of this outline responds to longstanding demands from industry and investors, marking a move toward a more friendly tax system.

Specifics of the Separate Taxation System

The outline states that for “crypto assets contributing to national asset formation” (有助國民資產形成的加密資產), income from spot trading, derivatives trading, and ETFs will be subject to a declaration-based separate taxation. The tax rate will be unified at 20% (15% income tax and 5% resident tax), the same as stock transfer gains. This means that regardless of an individual’s total income, profits from related crypto transactions will be taxed at a fixed rate, significantly reducing the tax burden for high-income earners.

In addition, to enhance investment flexibility, the outline introduces a loss carryforward deduction system for the first time. If investors incur losses in certain transactions, they can carry those losses forward for 3 years and deduct them from similar income in subsequent years. This measure is similar to the treatment of stock and FX trading, helping investors manage risks more actively and avoid situations where losses in a single year cannot be offset.

However, this benefit does not apply to all crypto transactions. The outline emphasizes that the scope is limited to “specific crypto assets,” mainly referring to currencies handled by domestic exchanges registered under the Financial Instruments and Exchange Act (such as Bitcoin, Ethereum, and other mainstream coins). Transactions on overseas exchanges, DeFi (decentralized finance), staking or lending rewards, NFT buying and selling, etc., are likely to remain under comprehensive taxation or miscellaneous income treatment. Profit and loss offsetting between spot and derivatives trading may also be restricted due to different income classifications.

Implementation Timeline and Precautions

This tax reform depends on amendments to laws such as the Financial Instruments and Exchange Act, with the earliest implementation expected in January 2028 (the year following the law’s enactment). The government plans to submit relevant bills to the Diet in 2026, at which point the scope and details of “specific crypto assets” will be further clarified.

Experts advise investors to start organizing their trading records early and to be aware of the risks that overseas platforms or non-mainstream transactions may not qualify for the benefits. Additionally, if crypto assets are later subjected to stricter financial product regulations, capital gains tax upon leaving the country (exit tax) may also apply, requiring special attention.