Toward a Lighter Touch: Japan’s Crypto Tax Overhaul and ETF Ambitions

Main Points：

• Japan’s Financial Services Agency (FSA) proposes introducing separate, flat-rate taxation (approx. 20%) for crypto gains starting in FY2026.
• Reclassification of crypto as financial instruments under the Financial Instruments and Exchange Act (FIEA) to align regulatory treatment with stocks and bonds.
• Encouragement of domestic cryptocurrency ETFs via tax and legal reform.
• Industry groups (JVCEA, JBA) request broader tax reforms, including loss carry-forward, clearer donation and inheritance rules, and easing of exchange taxation.
• Strategy is part of wider “New Capitalism” initiative to promote digital asset innovation and investor participation in Japan.
• If enacted, reforms would reduce entry barriers, boost market activity, and attract institutional investors.

1. Introduction: Why the Reform Matters

Japan’s tax system currently classifies profits from cryptocurrency transactions—such as selling crypto, swapping tokens, paying with crypto, or earning via staking and mining—as “miscellaneous income.” This subjects them to a progressive tax rate of up to 45%, plus local inhabitant tax of roughly 10%, leading to a maximum effective rate of 55%, one of the highest in global markets.

Such a steep tax burden discourages participation by individual investors and startups, stifling growth in Japan’s crypto market. Recognition of this problem has fueled wide calls for reform from both regulators and industry groups.

2. FSA’s Proposal: Flat Tax and Reclassification as Financial Products

Flat-Rate Separate Taxation (~20%)

In its 2026 tax reform proposal, the FSA recommends moving crypto gains to a separate taxation system, similar to that applied to stocks, introducing a flat tax rate around 20%. This would sharply reduce the current burden of up to 55%.

Reclassifying Crypto under the FIEA

Simultaneously, the FSA is moving to reclassify crypto assets under the Financial Instruments and Exchange Act (FIEA) rather than the Payment Services Act. This change aims to regulate crypto like securities—bringing disclosure, insider trading rules, and ETF creation into scope. A bill to amend applicable acts is expected in early 2026.

3. Driving Investment: ETF Development & Market Access

The transition of crypto into the FIEA framework opens the door for cryptocurrency ETFs, including Bitcoin ETFs, to be offered domestically. Currently, legal hurdles have hindered ETF formation in Japan. Tax and legal reforms are expected to foster new financial products and broaden market access.

The broader narrative is tied to Japan’s “New Capitalism” initiative, announced in June 2025, which underscores tax reform—including separate taxation—as a critical lever for promoting economic innovation.

4. Industry Voices: JVCEA & JBA’s Wish List

Crypto industry associations have presented detailed proposals to FSA and the government. These include:

1. Separate taxation with 20% flat rate + three-year loss carry-forward
2. Clarification for crypto-based donations—avoiding obstacles to philanthropic use
3. Reforming inheritance and valuation rules—allowing cost-basis adjustment and clearer asset evaluation on inheritance
4. Exchange taxation reform—avoiding tax upon crypto-to-crypto exchange
5. Review of income classification—rethinking “miscellaneous income” status.

JBA and JVCEA argue that such reforms would encourage broader participation, lead to increased transaction volumes, and ultimately expand taxable income—benefiting both the market and the tax base.

5. Broader Context: Global Comparison and Investor Appetite

Image: Global comparison of crypto taxation—Japan’s current taxation stands among the highest; proposed reforms could reposition Japan more competitively.

Compared globally, Japan’s current crypto taxes (max ~55%) far outpace jurisdictions with flat capital gains rates, like the U.S. (0–20%), UK (20%), or investor-friendly nations such as Germany, Hong Kong, and Switzerland, which often tax crypto like other investments or charge no tax at all.

A survey also showed that 84% of existing crypto holders would expand their holdings under a flat 20% tax system, and even 12% of non-holders would enter the market under that tax regime.

6. Regulatory Timeline

• 2016–2017: Adoption of PSA, regulatory framework begins (post–Mt. Gox).
• 2018: Self-regulation by JVCEA; FSA steps up oversight after Coincheck hack.
• 2020–2023: Updates to PSA/FIEA; stablecoin regulations introduced.
• June 24, 2025: FSA proposes reclassification of crypto as financial instruments.
• 2026: Target year for implementing tax reforms and legal classification changes.

7. Implications: Lower Barriers, Broader Participation, Institutional Entry

With progressive taxation replaced by a flat 20% regime and regulatory clarity provided by FIEA treatment, individual and institutional investors alike could more comfortably engage with crypto. The reforms promise to:

• Reduce compliance complexity and tax burdens.
• Encourage product innovation, especially ETFs.
• Attract domestic and international institutional capital.
• Strengthen Japan’s position as a technological and financial hub aligned with Web3 initiatives.

8. Conclusion

Japan is at a turning point. By embracing a more balanced regulatory and tax framework—flattening crypto gains taxes to around 20%, reclassifying crypto as financial instruments, and paving the way for ETFs—it stands to revive its crypto market. Beyond easing investor burdens, this reform aligns with broader policy goals to drive innovation, decentralization, and economic digitization under the “New Capitalism” agenda. If executed wisely, Japan could reclaim its position as a leading digital asset hub.