The Japan Considers Tax Reform for Cryptocurrencies from 2025
Japan, known for having one of the strictest financial regulation in the world, is planning to modify its tax regime for digital assets starting from 2025.
According to a recent proposal by the Financial Services Agency (FSA), the Japanese financial authority, this project could provide significant relief to cryptocurrency holders in the country, who currently face one of the highest tax rates in the world.
In its official request for tax reform submitted on August 30, 2024, the FSA proposed treating digital assets in the same way as traditional financial assets. This adjustment aims to encourage public investments in cryptocurrencies, positioning them on the same level as stocks or bonds.
A Current Tax System Considered Penalizing
To date, profits generated from crypto transactions in Japan are considered miscellaneous income and are subject to a progressive scale of taxation, ranging from 15% to 55%. The latter, the highest rate, applies to gains exceeding 200,000 yen (approximately $1,377).
In comparison, gains from stock trading are only taxed at a maximum rate of 20%. This disparity is seen as a hindrance to the growth of investments in cryptocurrencies.
Companies are also not exempt. They have to pay a flat 30% tax on their cryptocurrency holdings at the end of the fiscal year, whether they have made profits or not. This taxation on unrealized profits has drawn strong criticisms from entrepreneurs and investors.
The FSA and the Future of Crypto Taxation
The FSA’s proposal is clear: cryptocurrencies should be treated as full-fledged financial assets, thus encouraging the public to consider them as investment instruments. The FSA has emphasized the need to reexamine the issue from this perspective, with the aim of energizing investments in the sector while ensuring appropriate regulation.
However, for such reform to become a reality, the legislative process remains complex. Tax reform proposals are first examined by the ruling party before being submitted to a tax research committee. If approved, they still have to go through both chambers of the Japanese Parliament: the House of Representatives and the House of Councillors.
Active Lobbying for Reform for Several Years
Advocates for the crypto industry in Japan have long been calling for a revision of the tax regime imposed on digital assets. The Japan Blockchain Association (JBA), an influential organization in the sector, officially requested a reduction in crypto taxes as early as 2023.
In July 2024, the association reiterated its demands in anticipation of the 2025 tax reform. Among the JBA’s flagship proposals are a flat 20% tax on cryptocurrency income and the ability to carry forward losses for a period of three years, a measure that would allow investors to offset long-term market underperformance.
Despite these pressures, the Japanese government has not yet taken concrete measures to ease the tax burden on cryptocurrencies. However, the FSA now seems ready to seriously consider the issue, particularly in response to the global cryptocurrency market trends and the rise of this asset in investor portfolios.
