The Japanese government recently announced its "Tax Reform Outline for 2026," and one of the measures most anticipated by the crypto industry is a significant adjustment to the taxation of cryptocurrency gains. In the future, investment income in crypto assets will be subject to a separate 20% tax rate, aligning with stocks and investment trusts, officially ending the long-standing situation of heavy taxation reaching as high as 55%.
Japan once had the highest cryptocurrency tax rate in the world.
Currently in Japan, cryptocurrency gains are classified as "miscellaneous income" and are included in personal income tax calculations (source: Japan Handbook). Under the highest tax bracket, including local taxes, investors' actual tax burden can reach as high as 55%, making it one of the strictest cryptocurrency tax systems among major global economies. This system not only deters high-net-worth investors but also leads to a significant outflow of Japanese cryptocurrency startups and trading volume overseas.
The Japanese government plans to incorporate cryptocurrencies into a new regulatory framework.
This reform plan, supported by high-level government officials and financial regulators, aims to revitalize the domestic cryptocurrency market, attract capital repatriation, and enhance Japan's international competitiveness in the Web3 and blockchain industries. According to Nikkei, the government plans to include cryptocurrencies in a new, independent tax framework, no longer taxing them as miscellaneous income, but treating them as financial products.
Kimihiro Mine, CEO of Finoject, who is familiar with the trend of crypto taxation, said that with cryptocurrencies being formally included in the revised Financial Instruments and Exchange Act, the government is strengthening investor protection mechanisms on the one hand, and lowering the threshold for participation for the general public by rationalizing the tax burden on the other, bringing about structural changes to the market.
The new system is only open to specific crypto assets.
However, this tax reform does not apply to all virtual assets. The report indicates that the new system only covers "certain crypto assets" operated by companies registered in the Register of Financial Instruments Operators. The market generally believes that mainstream cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH) have a high probability of being included, but the specific definition and business conditions still await further clarification from regulatory authorities.
It is worth noting that the reform also introduces a loss carry-forward system, allowing cryptocurrency trading losses to be carried forward for three years starting in 2026. This is an important mechanism that has long been lacking in Japan's past cryptocurrency tax system and is seen as a significant step towards aligning with mature financial markets. (Source: Ernst & Young Tax Co. )
Looking back at Japan's history of cryptocurrency taxation, the government quickly strengthened regulation after Bitcoin was recognized as a legal means of payment in 2017. However, the tax system design was relatively conservative, resulting in a "compliant but unfriendly" market environment. For years, industry insiders and investors have been calling for reform, pointing out that high taxes have not only failed to effectively protect investors but have also stifled innovation.
As many countries around the world have relaxed or clarified their tax systems for crypto assets, Japan has also begun to adjust its policy direction in recent years. In addition to tax reform, Japan has allowed the establishment of investment trusts that include cryptocurrencies and launched its first XRP exchange-traded fund (ETF), and plans to launch more ETFs with specific crypto assets as underlying assets in the future.
If the tax reform is implemented as scheduled, Japan will not only be able to get rid of the shadow of "high taxes scaring away funds", but also is expected to become an important hub for crypto finance in Asia with the support of clear regulation and compliance system.
This article, titled "Japan Announces 2026 Cryptocurrency Tax Reform, Reducing Tax Rate to 20%", first appeared on ABMedia, a ABMedia .
