Japan signals a friendlier crypto regime with sweeping tax reform plans

• Current crypto profits can face tax rates of up to 55% under the miscellaneous income system.
• Only specified crypto assets under Japan’s financial framework will qualify for the lower rate.
• A three-year loss carry-forward for crypto investments will begin in 2026.

Japan is preparing to recalibrate how cryptocurrency gains are taxed, marking a notable change in its long-standing approach to digital assets.

Under the government’s 2026 tax reform plan, profits from certain crypto investments could be taxed at a flat rate of 20%, replacing a system that currently treats crypto gains as miscellaneous income.

That classification has pushed effective tax rates as high as 55%, drawing sustained criticism from investors and industry participants.

The proposed reform suggests that policymakers in Japan are moving toward a framework that recognises crypto as part of the broader financial market, while still maintaining firm regulatory controls.

A rethink of crypto taxation

For years, Japan’s crypto tax rules have stood apart from those applied to traditional investments. Shares and investment trusts benefit from a flat tax regime, offering clarity and predictability for investors.

Crypto, by contrast, has been subject to progressive income tax rates, often cited as a deterrent to participation.

The planned shift to a flat 20% rate aims to reduce this imbalance.

By aligning crypto gains more closely with equity taxation, the government appears to be addressing concerns that the current system discourages domestic trading and long-term holding.

The reform also reflects the growing role of digital assets in investment portfolios, moving beyond short-term speculation.

Scope and eligibility limits

The tax cut will not apply across the entire crypto market.

Instead, it will be limited to “specified crypto assets”, a category linked to digital assets handled by firms registered under Japan’s Financial Instruments and Exchange Act framework.

This structure is designed to ensure that only assets operating within a recognised regulatory perimeter benefit from the lower rate.

Major cryptocurrencies are widely expected to qualify, although authorities have yet to publish final criteria.

By narrowing eligibility, regulators can promote activity in established and liquid assets while maintaining tighter oversight of less transparent tokens.

Regulation alongside incentives

Tax reform is being paired with broader regulatory adjustments.

By bringing crypto under legal structures similar to those governing traditional financial instruments, Japan aims to strengthen investor protections.

Measures are expected to improve standards around custody, disclosures, and operational practices.

This approach signals that the government’s objective is not deregulation, but integration.

Clearer rules and stronger safeguards could make crypto participation more accessible to investors who have previously avoided the market due to uncertainty around compliance and risk.

Loss offsets and investment products

Another element of the 2026 reform is the introduction of a three-year loss carry-forward for crypto investments.

This would allow investors to offset future gains with past losses, a mechanism already familiar in equity markets but previously unavailable for crypto.

Japan is also expanding its range of crypto-linked investment products.

After launching its first XRP-linked exchange-traded fund, the country is reportedly considering additional funds tied to approved digital assets.

Together, these measures point to a gradual effort to embed crypto within the existing investment ecosystem rather than treat it as a parallel market.

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