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

The Liberal Democratic Party of Japan and the Japan Reform Association announced the "Reiwa 8 (2026) Tax System Reform Outline" on December 19, clearly proposing to reposition crypto assets (virtual currencies) as "financial products that contribute to the formation of national assets" and plan to introduce a separate tax declaration system.
(Preliminary summary: Japan’s encryption supervision plans to shift to a “securities” framework: IEO and unregistered platforms are facing the strictest era, and the tax rate will be halved to align with stocks)
(Background supplement: Japan’s regulatory upgrade “forces the promotion of liability reserves”, and cash deposits required for transactions are reserved to compensate users)

The Liberal Democratic Party of Japan and the Japan Reform Association announced the "Reiwa 8th Year (2026)" on December 19 "Annual) Tax System Reform Outline" clearly proposes to reposition crypto assets (virtual currencies) as "financial products that contribute to the formation of national assets" and plans to introduce a separate taxation reporting system. This change is seen as an important step for the Japanese government to actively embrace digital assets, aiming to reduce the tax burden on investors, activate the domestic market, and integrate with traditional financial products such as stocks and investment trusts.

Currently, income from cryptocurrency trading in Japan is classified as miscellaneous income and is subject to comprehensive taxation. The tax rate is based on the total income, up to 55% (income tax 45% plus resident tax 10%). This not only places a heavy tax burden on high-value traders, but is also considered to be one of the main reasons hindering the development of the domestic crypto market. The announcement of this outline responds to the long-standing demands of the industry and investors and marks a shift in the tax system towards a friendlier direction.

The specific content of the separate taxation system

The outline states that for "national asset-forming crypto assets" (encrypted assets that contribute to the formation of national assets), income generated from spot transactions, derivatives transactions, and ETFs shall be subject to separate taxation declarations. The tax rate is uniformly 20% (income tax 15%, resident tax 5%), the same as income from stock transfers. This means that no matter how high an individual’s total income is, the relevant crypto trading benefits are calculated at a fixed tax rate, significantly reducing the tax burden on high income earners.

In addition, in order to enhance investment flexibility, the Outline has created a loss recovery control system for the first time. If an investor incurs a loss in a specific transaction, the loss can be carried forward three years and deducted from similar income thereafter. This measure is similar to the treatment of stock and FX transactions, helping investors to more actively manage risks and avoid the dilemma of being unable to deduct losses due to a single year.

However, this offer is not available for all crypto transactions. The outline emphasizes that the scope of application is limited to "specific crypto assets," which mainly refers to currencies handled by domestic exchanges registered under the Financial Instruments and Exchange Act (such as mainstream currencies such as Bitcoin and Ethereum). Overseas exchanges, DeFi (decentralized finance), staking or lending remuneration, NFT transactions, etc. are likely to still maintain comprehensive taxation or miscellaneous income treatment. The calculation of profits and losses between spot and derivatives transactions may also be inconsistent due to different income differences.

Application schedule and precautions

This tax reform is premised on the amendment of the Financial Instruments and Exchange Act and other relevant laws and regulations, and is expected to be implemented as soon as January 2028 (starting the following year after the law is amended). The government plans to introduce relevant bills through Congress in 2026, which will further clarify the scope and details of "specific crypto assets".

Experts remind investors to sort out their transaction records as soon as possible and pay attention to the risk that overseas platforms or non-mainstream transactions may not enjoy preferential treatment. In addition, if crypto-assets are included in more stringent financial product supervision in the future, tax implications when traveling abroad (exit tax) may also apply, so special attention is required.