On December 19, the Liberal Democratic Party of Japan and the Japan Innovation Party announced the "Outline of Tax Reform for Fiscal Year 8 (Fiscal Year 2026)," which explicitly proposes to reposition crypto assets (virtual currencies) as "financial products that contribute to the formation of national assets" and plans to introduce a separate tax filing system . This reform is seen as an important step by the Japanese government to actively embrace digital assets, aiming to reduce the tax burden on investors, revitalize 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 and subject to comprehensive taxation, with the tax rate depending on the total income and reaching a maximum of 55% (45% income tax plus 10% resident tax). This not only places a heavy tax burden on high-net-worth traders but is also considered one of the main obstacles to the development of the domestic cryptocurrency market. The release of this outline responds to the long-standing demands of the industry and investors, marking a shift towards a more favorable tax system.
Specific details of the separate taxation system
The outline states that for "crypto assets that contribute to the formation of national assets," income from their spot trading, derivatives trading, and ETF transactions will be subject to separate taxation. The tax rate will be uniformly 20% (15% for income tax and 5% for resident tax), the same as income from stock transfers. This means that regardless of an individual's total income, related crypto trading profits will be taxed at a fixed rate, significantly reducing the tax burden on high-income earners.
Furthermore, to enhance investment flexibility, the outline introduces a loss carryforward exclusion system for the first time. If an investor incurs a loss in a specific transaction, that loss can be carried forward three years and deducted from subsequent income of the same type. This measure, similar to the handling of stock and FX trading, helps investors manage risk more proactively and avoid the predicament of being unable to offset losses in a single year.
However, this benefit does not apply to all crypto transactions. The outline emphasizes that its scope is limited to "specific crypto assets," primarily referring to cryptocurrencies processed by domestic exchanges registered under the Financial Instruments and Exchange Act (such as Bitcoin, Ethereum, and other mainstream cryptocurrencies). Overseas exchanges, DeFi (decentralized finance), staking or lending rewards, and NFT trading will likely still be subject to comprehensive taxation or miscellaneous income treatment. Furthermore, the cross-referencing of profits and losses between spot and derivatives trading may not be offset due to different income classifications.
Applicable Timeline and Precautions
This tax reform is contingent upon amendments to the Financial Instruments and Exchange Act and other related laws, and is expected to take effect as early as January 2028 (starting the year following the amendments). The government plans to introduce a relevant bill through Parliament in 2026, at which time the scope and details of "specific coded assets" will be further clarified.
Experts advise investors to organize their transaction records as early as possible and be aware of the risk that overseas platforms or non-mainstream exchanges may not offer preferential treatment. Furthermore, if crypto assets are subject to stricter financial product regulations in the future, the taxation of profits incurred when traveling abroad (exit tax) may also apply, requiring special attention.
