The Japanese government supports reforms! The tax on profits from Crypto Assets has plummeted, now levied at 20% similar to stocks.

Japan's Financial Services Agency (FSA) first proposed a tax reform plan in mid-November, with plans to present relevant legislation in early 2026. Both the government and the ruling coalition have now expressed their support. The new regulations aim to align the tax rules for Crypto Assets with those of other financial products (such as stocks and investment funds), which have a unified profit tax rate of 20%, regardless of the amount of profit.

A historic shift from a 55% heavy tax to a unified tax rate of 20%

(Source: The Nikkei)

According to current laws, the taxation of cryptocurrency trading in Japan falls under the scope of individual and corporate income tax, classified as “other income.” The tax rate ranges from a minimum of 5% to a maximum of 45%, with high-income earners potentially facing an additional 10% resident tax. This means that the actual maximum tax rate faced by Japanese cryptocurrency investors could be as high as 55%, which is one of the most stringent cryptocurrency tax regimes globally.

At the same time, assets such as stocks and investment trusts are taxed separately, with a unified profit tax rate of 20%, regardless of the profit amount. This rate difference has created a significant unfairness. If an investor profits 1 million yen from stock investments, they only need to pay 200,000 yen in taxes. However, if the same 1 million yen profit comes from Crypto Assets trading, high-income earners may have to pay 550,000 yen in taxes, leaving them with only 81.8% of the after-tax income compared to the former.

This discriminatory tax system severely suppresses the development of Japan's Crypto Assets market. Changes in tax policies may benefit the domestic Crypto Assets market, as higher tax rates could deter potential investors. Many Japanese Crypto Assets investors choose not to realize profits or transfer funds overseas to avoid heavy tax burdens, which not only harms government revenue but also hinders the healthy development of the market.

The new regulations aim to align Japan's tax rules for Crypto Assets with those of other financial products, such as stocks and investment funds. According to a report by Nikkei Asia on Sunday, both the government and the ruling coalition—parties that control the National Diet (parliament)—have expressed support for this reform. This bipartisan support indicates that the tax reform has gained broad political consensus, making its passage highly likely.

Current Tax System vs. New Tax System Comparison

Current System: Crypto Assets profits are included in “Other Income”, with a tiered tax rate of 5%-45%, plus a resident tax of 10%, for a maximum of 55%.

New System: Crypto Assets profits are taxed separately at a unified tax rate of 20%, the same as stocks and investment trusts.

Impact: High-income investors see a 35 percentage point reduction in tax burden, greatly enhancing investment attractiveness.

For high-income Japanese Crypto Assets investors, this reform means a tax burden reduction of over 60%. Assuming an investor makes a profit of 10 million yen (approximately 65,000 USD) through Crypto Assets trading, they would need to pay 5.5 million yen in taxes under the current system, leaving a post-tax income of 4.5 million yen. Under the new system, they would only need to pay 2 million yen in taxes, resulting in a post-tax income of 8 million yen, which is equivalent to an additional 3.5 million yen. This significant difference in tax burden will fundamentally alter the investment motivations and capital flows in the Japanese Crypto Assets market.

Japan Blockchain Association's three-year lobbying efforts have finally yielded results

The Japan Blockchain Association (JBA) is a major non-governmental lobbying group in the field of Crypto Assets in Japan, which has been calling for these changes for the past three years. In July 2023, the Japan Bankers Association (JBA) published a letter to the government on its website outlining key tax reform demands to support the industry, calling for a tax rate of 20% to align with the tax rates of other investment tools.

The letter stated: “This letter calls for a review of the taxation on Crypto Assets, which is the biggest obstacle faced by companies operating Web3 businesses in Japan and is also a hindering factor for the public's active ownership and use of Crypto Assets.” This statement highlights the deadly impact of high tax rates on Japan's cryptocurrency industry. Not only do individual investors hesitate due to heavy tax burdens, but companies also choose to leave the Japanese market due to the tax complexities and high costs associated with cryptocurrency-related businesses.

Although it is unclear whether JBA had a direct influence on FSA's thoughts, this financial regulatory body indeed started to accept the idea and promote reforms in September 2024. From the initial public appeal in July 2023, to FSA starting to promote it in September 2024, and then officially proposing a plan in November 2024, this timeline shows that JBA's continuous lobbying gradually changed the attitude of the regulatory agency.

This successful case of industry lobbying is noteworthy in the global Crypto Assets regulatory history. It shows that even in countries with relatively conservative regulations, industry organizations can still drive policy changes through professional, continuous, data-driven, and logical lobbying. JBA's strategies include: providing detailed tax impact analyses, showcasing best practices from other countries, emphasizing the harm of unreasonable tax systems on industry and national competitiveness, and seeking bipartisan political support.

The recent victory of Japan's Crypto Assets industry may provide a blueprint for similar efforts in other countries. Many countries' Crypto Assets tax systems also have unreasonable aspects, and industry organizations can draw on the experience of JBA to promote tax reform through professional lobbying.

Broader Regulatory Framework for the 2026 Bill

According to a report by the Japanese news media “Nikkei Asia” on Sunday, the Financial Services Agency will submit the bill at the regular session of the National Diet in 2026 to promote stricter regulation of cryptocurrency trading in Japan, including prohibiting the handling of non-public information and more stringent investment disclosures. The bill proposed by the Financial Services Agency, aimed at amending the Financial Instruments and Exchange Act, will introduce a “robust investor protection framework” and potential reforms on cryptocurrency taxation.

This combination strategy of “lowering taxes with one hand and strengthening regulation with the other” is extremely astute. Lowering taxes is aimed at attracting investors and businesses, stimulating market development. Strengthening regulation is intended to protect investors and prevent fraud and market manipulation. The combination of the two can promote industry development while maintaining market order, and this balanced regulatory philosophy is worth learning from by other countries.

The prohibition on handling non-public information targets the prevalent insider trading issue in the Crypto Assets market. In traditional securities markets, insider trading is a serious criminal offense. However, in the Crypto Assets market, due to regulatory gaps, many project parties, exchanges, and early investors profit from information asymmetry, harming the interests of ordinary investors. Japan has included this behavior in its regulations, demonstrating its commitment to investor protection.

Stricter investment disclosure requirements address the issue of insufficient information disclosure for Crypto Assets projects. Many Crypto Assets project white papers lack key information, exaggerate technical capabilities, or conceal risks. Japan's demand for stricter investment disclosure will force project teams to provide more transparent and comprehensive information, helping investors make more informed decisions.

This comprehensive regulatory framework reform shows that Japan is not simply lowering taxes to attract Crypto Assets investment, but is attempting to establish a healthy, sustainable, and protected Crypto Assets market. This long-term strategic vision makes it possible for Japan to potentially become one of the Crypto Assets centers in Asia and even globally in the future.

The Profound Impact on the Japanese Crypto Assets Market

The changes in tax policies may be beneficial for the domestic Japanese Crypto Assets market, as higher tax rates may deter potential investors. A unified tax rate of 20% will have multiple positive effects. First, it will significantly reduce the tax burden on high-income investors, making Crypto Assets investments more attractive compared to other asset classes. Second, a unified tax rate simplifies tax calculations and declarations, reducing compliance costs and the risk of errors.

For local Crypto Assets companies in Japan, this reform could reverse the trend of talent and capital outflow. In recent years, many Japanese Crypto Assets startups have chosen to register and operate in regions with more favorable tax systems, such as Singapore, Hong Kong, or Dubai. With Japan's tax rate falling to levels comparable to international standards, these companies may reconsider returning to the domestic market.

For international Crypto Assets companies, the attractiveness of the Japanese market will significantly increase. Japan is the world's third-largest economy, with a highly developed financial market and a technologically mature group of investors. If tax barriers are eliminated, Japan could become one of the most important Crypto Assets markets in Asia, attracting multiple international CEXs to increase their investments and business expansion in Japan.

For the Japanese government, although this reform may reduce tax revenue in the short term (due to the lower tax rate), it could increase total tax revenue in the long term. A lower tax rate will stimulate more trading activity and profit realization, expanding the tax base. In addition, attracting the Crypto Assets industry will create jobs, drive innovation, and inject new growth momentum into the Japanese economy. This “tax cuts to promote growth” strategy has ample theoretical and empirical support in economics.

After the bill is officially passed in 2026, it is expected to trigger explosive growth in Japan's Crypto Assets market. Trading volume, number of users, and number of business registrations are likely to increase significantly. This growth will not only benefit the Crypto Assets industry itself but also drive the development of related industries such as software development, legal services, and accounting auditing. Japan could potentially transform from a “tax haven” for Crypto Assets into an “innovation hub” in the coming years.

However, the success of the reform ultimately depends on the execution details. The specific scope of the unified 20% tax rate, the calculation method for the tax base, the rules for deducting losses, the tax treatment of cross-border transactions, and other details need to be clearly defined in the legislation. If the execution details are poorly designed, it may create new unfairness or loopholes. Therefore, the industry and investors should closely monitor the specific provisions after the bill is submitted in early 2026 and actively participate in the public consultation process.