Japan, one of the world’s most technologically advanced nations, has proactively regulated cryptocurrencies. While this approach has fostered innovation and adoption, it has also introduced a complex landscape of crypto taxation for both residents and non-permanent residents.
Cryptocurrency in Japan is classified as miscellaneous income, falling under the NTA purview. The taxation of crypto gains depends on your income bracket, with tax rates ranging from 5% to 45%. Additionally, an inhabitant tax of 10% is levied on top of the income tax, resulting in an effective tax rate ranging from 15% to 55%.
This detailed guide explores the ins and outs of crypto taxes in Japan, giving you a straightforward and easy-to-understand summary of the laws, tax rates, and reporting rules.
Crypto Taxes In Japan
In Japan, cryptocurrencies are considered property by the National Tax Authority (NTA) and are subject to taxation. They fall under Miscellaneous Income, regulated by the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA).
Miscellaneous income is earnings that don’t fit into predefined categories such as interest, dividends, real estate, business, salary, retirement, forestry, capital gains, or temporary income.
When residents and non-resident Japanese taxpayers purchase, hold, or transfer cryptocurrencies between wallets, they are not subject to crypto taxes in Japan. However, if cryptocurrency transactions have offered you a profit exceeding ¥200,000, declaring them on the income tax return is mandatory.
Additionally, any cryptocurrency obtained through mining, staking, interest, or airdrops must be reported and taxed like profits generated from crypto trading.
Crypto Tax Rates In Japan
As mentioned, earnings from cryptocurrency activities exceeding ¥200,000 are categorized as “miscellaneous income,” subjecting you to potential crypto taxes in Japan of up to 45%, depending on your income tax bracket.
Crypto taxable transactions include profits from cryptocurrency trading, mining, and DeFi lending for permanent residents. Notably, the NTA applies a flat 20% tax rate on stock profits, making the cryptocurrency tax rates comparatively high.
The tax on miscellaneous income in Japan is progressive, ranging from 5% to 45% on profits. Additionally, Japanese taxpayers must pay an inhabitant tax of 10% on profits, comprising a prefectural rate of 4% and a municipal rate of 6%.
Consequently, the effective tax rate on cryptocurrency earnings in Japan is 15% to 55%.
Taxable Crypto Events In Japan
Here are some transactions that attract crypto taxes in Japan.
Selling Crypto For Fiat Currencies
As per the NTA, selling cryptocurrency into fiat currency, like the Japanese Yen (¥), is taxable. Any profit gained from the sale of cryptocurrency is subject to taxation as miscellaneous income.
Example:
- Akira acquired 0.1 Ethereum in August 2022 for ¥2,000 and later traded it in September 2022 for ¥4,000. Consequently, she realizes a total profit of ¥2,000. If her total crypto income crosses ¥200K, she will be liable to pay tax on this crypto.
- Suzuki acquired 3 ETH for ¥800,000 and subsequently sold it for ¥1,300,000, yielding a profit of ¥500,000. This profit falls under miscellaneous income for the tax year and is subject to taxation. The calculation of tax payable by Suzuki involves considering the profit, basic exemption, and taxable profit.
The breakdown is as follows:
- Profit: ¥500,000
- Basic exemption: ¥200,000
- Taxable profit: ¥300,000
With a tax rate of 5% applicable since the profit is below ¥1,960,000, Suzuki’s tax payable is computed as follows: Tax payable = ¥300,000 * 5% = ¥15,000. Additionally, the inhabitant tax, set at 10%, amounts to ¥30,000. Therefore, the total tax payable by Suzuki is the sum of these two components: ¥15,000 + ¥30,000 = ¥45,000.
Swapping One Cryptocurrency For Another
In Japan, exchanging one cryptocurrency for another, such as ETH to BTC, is considered a taxable event and is subject to crypto taxes in Japan. The NTA treats this trade as two distinct transactions.
Even if you don’t physically receive any Yen, you are still obligated to pay taxes on the sale of the ETH. The acquired coins’ fair market value in ¥ (JPY) determines the taxable gain.
In cases where the received cryptocurrency cannot be precisely valued, the market value of the crypto you sold at the time of the transaction must be considered for tax purposes.
Example:
- You acquired 0.1 Ethereum for ¥500 in September 2022. By February 2023, you traded 0.05 Ethereum for 2 Litecoin. The market value of 2 Litecoin at that point was approximately ¥1,200.
As a result, your capital proceeds amount to ¥1,200, with an acquisition cost of ¥250. In simpler terms, your income gains would be ¥950.
- In August 2021, Hana purchased 10 ETH for ¥3 million. In January 2023, she exchanged these 10 ETH for 12 STETH. This transaction is subject to taxation. The capital proceeds from the exchange, equivalent to the market value of 12 STETH, amount to ¥3.5 million.
Hana’s initial acquisition cost for the 10 ETH was ¥3 million. Consequently, the taxable value for tax calculation is ¥0.5 million. The applicable tax rate is 5%, with an additional 10% for inhabitant tax, resulting in an effective tax rate of 15%. The calculated tax payable on this transaction is ¥75,000.
Gifting Crypto
When you give someone cryptocurrency as a gift, it’s treated like selling it. This means it’s considered a taxable event, and you must pay miscellaneous income crypto taxes in Japan. The amount you’ll be taxed on is the cryptocurrency’s fair market value in Japanese Yen on the day you gave the gift.
Example:
1. In January 2023, Alex purchased 0.5 BTC for ¥3,500. In June 2023, he gave his niece some cryptocurrency for her 21st birthday. On the birthday day, the value of the 0.5 BTC had risen to ¥7,000.
Although Alex didn’t convert his BTC back to Yen and essentially gifted the cryptocurrency, the increase in value of ¥3,500 represents the ‘gain’ he made.
Alex must account for the ¥3,500 gain when tax season arrives.
2. In May 2022, Ren acquired 5 BTC for ¥2.5 million. Later, in December 2022, he gave his mother a certain percentage of these Bitcoins. The market value of the 5 BTC amounted to ¥2.65 million in December 2022. Due to the transaction, Ren incurred a taxable gain of ¥0.15 million.
Concerning the tax liability for Ren, the taxable value is determined as ¥0.15 million. The applicable tax rate comprises 5% for regular income tax and an additional 10% for inhabitant tax, resulting in an effective tax rate of 15%. Consequently, Ren’s tax payable is calculated at ¥22,500.
Getting Paid In Bitcoins
Income tax is unavoidable whether you’re employed by a company or a freelancer who gets compensated in cryptocurrency. Any crypto received as earnings will be subject to taxation based on their fair market value in Japanese Yen at the time of receipt.
It’s essential to declare this crypto income on your income tax statement as additional miscellaneous income, thereby subjecting it to crypto taxes in Japan.
Example:
- Takashi is a freelancer who receives 0.5 BTC as payment for a project when the value of 1 BTC is ¥40,000. Consequently, the total income amounts to ¥20,000. This amount is less than the ¥200,000 threshold, so the income will be classified as “miscellaneous” and remain tax-free.
However, if the freelancer’s total income surpasses ¥200,000, including cryptocurrency gains, they must declare all earnings. In such cases, cryptocurrency income is subject to a progressive tax rate, with a maximum of 45% for miscellaneous income. - Hiroshi, a photographer, receives ¥3,000,000 as payment for a service rendered. Their total income is ¥3 million, so it’ll be liable to tax as miscellaneous income.
Taxable value = ¥3,000,000
Rate of tax applicable = 10% + 10% (inhabitant tax)
Effective rate = 20%
Tax Payable = ¥600000.
Crypto Mining And Airdrop
Crypto mining rewards are considered as taxable as per the NTA guidelines. You need to declare the fair market value of the coins at the time of receipt, which you received as a reward when filing your taxes. These will also be categorized under miscellaneous income like other crypto transactions.
Similarly, any rewards you receive as an airdrop are considered taxable income in Japan and will be categorized as miscellaneous income.
Example:
A Japanese miner earns ¥7,000,000 from mining cryptocurrency in 2023 alone. This falls under the category of miscellaneous income, which is taxed at a progressive rate ranging from 5% to 45%.
For ¥7,000,000, the tax rate applicable will be 23%, and inhabitants tax will be levied at 10%. Therefore, the effective tax rate will be 33%, bringing the tax payable amount to a total of ¥2,310,000.
Spending Crypto On Goods And Services
Unfortunately, using your Ethereum, Bitcoin, or any other cryptocurrency for purchases results in a taxable event in Japan. It is necessary to report this on your Income Tax statement as supplementary miscellaneous income.
Trading With A Stablecoin
A stablecoin is a type of cryptocurrency designed to maintain a steady value. This is achieved by tying the stablecoin to a reserve asset, typically a stable fiat currency such as USD or JPY.
From the perspective of the NTA, stablecoins like TrueUSD are treated similarly to other cryptocurrencies. Therefore, they follow the same tax rules, explicitly under miscellaneous income tax, just like regular crypto-to-crypto exchanges.
Signup And Referral Bonuses
It is considered taxable income if you receive cryptocurrency as a reward for signing up or referring others to a service. You must report this income on your Income Tax statement under the category of additional Miscellaneous Income.
Interests Earned From Defi/Staking/Lending Or Masternodes
Earning interest by lending out your cryptocurrency or staking it in a network protocol to earn rewards is also subject to taxation in Japan. It is necessary to report this income on your Income Tax statement as additional Miscellaneous Income.
Tax-Free Crypto Events
Here are some events on which you need not pay crypto taxes in Japan:
Purchasing Cryptocurrency
Buying cryptocurrency does not attract a crypto tax in Japan. However, you must maintain aan accurate record of your purchases. This ensures that you can determine the cost basis of the transaction when you eventually sell or ‘dispose’ of your crypto.
The tax obligation arises at the point of sale, and having accurate records helps in calculating the taxable amount.
Moving Your Crypto From One Wallet To Another
Transferring crypto between your wallets is considered a non-taxable event in Japan. This means you will not be subject to cryptocurrency taxes when you move your crypto assets between different wallets you control. The NTA views cryptocurrency as property, and transferring property between your accounts is not taxable.
Donating Crypto
In Japan, donating cryptocurrency to a recognized NPO (Non-Profit Organization) or other qualified charitable organization is considered a tax-deductible gift, allowing you to reduce your taxable income while supporting a cause you care about.
This is a valuable benefit that incentivizes philanthropic endeavors within the cryptocurrency space.
Holding Cryptocurrency
If you have a strategy to purchase and hold the cryptocurrency simply, you are not liable to pay any taxes, even if you enjoy an unrealized gain. This means you will not incur any tax liability if you do not sell your crypto.
However, if you sell your crypto, you will be subject to income tax on the profits. The tax rate will depend on your marginal tax bracket, which can be as high as 45%.
Receiving Cryptocurrency As A Gift
In Japan, receiving cryptocurrency gifts does not incur any immediate taxation. This exemption applies to domestic and international gifts, offering a favorable incentive for cryptocurrency enthusiasts.
Crypto Tax In Japan for Professional Traders
Crypto taxes in Japan apply equally to both casual and professional traders. Any profits derived from cryptocurrency transactions are subject to income tax regardless of your trading frequency or volume.
There is no distinction between informal traders who engage in cryptocurrency activities as a hobby and professional traders who derive their primary income from cryptocurrency trading.
However, the tax rates for cryptocurrency profits in Japan depend on the trader’s total income and residency status. Japanese citizens and permanent residents are subject to progressive income tax rates ranging from 5% to 45%. In addition, they are also subject to an inhabitant tax of 10%.
This means that the effective tax rate on cryptocurrency profits in Japan can be as high as 55%. On the other hand, non-residents of Japan are also subject to income tax on their cryptocurrency profits.
Income Tax Bracket In Japan
Here are the tax brackets and associated rates for your cryptocurrency income, excluding the fixed 10% local inhabitant’s tax rate.
Taxable Income (¥) | Income Tax Rates |
Less than 1.95 million | 5% |
1.95-3.3 million | 10% |
3.3-6.95 million | 20% |
6.95-9 million | 23% |
9-18 million | 33% |
18-40 million | 40% |
Above 40 million | 45% |
Japan Crypto Taxes For Businesses
Japanese firms are currently subject to a set 30% corporate tax rate on their crypto holdings, even if they haven’t realized a profit through a sale. This has been a major disincentive for businesses to operate in Japan’s crypto sector, as it can significantly reduce their profits.
However, to attract and retain crypto businesses, the government is considering a proposal to remove crypto taxes in Japan on paper gains for crypto companies. Paper gains refer to the unrealized profits that accrue when the value of a crypto asset increases. This proposal would exempt crypto companies from paying taxes on their crypto holdings until they are sold.
The Ministry of Finance is reviewing the country’s tax laws and is expected to announce changes for Japan’s next financial year, which begins on April 1, 2024. The proposal to remove taxes on paper gains may be implemented then.
If the proposal to remove taxes on paper gains is implemented, it would significantly boost Japan’s crypto sector. It would make it more attractive for businesses to operate in Japan, and it could lead to increased investment and innovation in the space.
How To Calculate Crypto Taxes In Japan?
Japan’s income tax system is based on a progressive tax structure, meaning that the higher your income, the higher the tax rate you will pay. Here are the current income tax brackets and corresponding tax rates for miscellaneous income, which includes cryptocurrency gains:
Taxable Income (¥) | Income Tax Rates | Effective Tax Rate (Including Inhabitant Tax Rate of 10%) |
Less than 1.95 million | 5% | 15% |
1.95-3.3 million | 10% | 20% |
3.3-6.95 million | 20% | 30% |
6.95-9 million | 23% | 33% |
9-18 million | 33% | 43% |
18-40 million | 40% | 50% |
Above 40 million | 45% | 55% |
How To Calculate Crypto Gains?
To calculate your crypto taxes in Japan, you need first to determine your crypto gains; you will need to find the purchase price of the cryptocurrency you sold and the fair market value of the cryptocurrency on the date of sale. You can then use the following formula to calculate your taxable gain:
Taxable Gain = Fair Market Value – Purchase Price
Once you have calculated your taxable gain, you must apply the appropriate tax rate based on your income tax bracket.
For example, if you purchased 1 BTC for ¥200,000 and sold it for ¥300,000, your taxable gain would be ¥100,000. If you are in the 5% income tax bracket, you would pay ¥5,000 in taxes on your crypto gains.
Cost-Basis Methods
When calculating crypto taxes in Japan, the cost-basis method determines the taxable capital gains or losses incurred from cryptocurrency transactions. The cost basis represents the original acquisition price of a cryptocurrency, including any transaction fees paid.
It is a reference point for measuring the profit or loss realized when the cryptocurrency is sold or exchanged.
In Japan, the NTA recognizes two primary cost-basis methods: the moving average method (MAM) and the total average method (TAM). The choice of method depends on the taxpayer’s preference and the specific circumstances of their cryptocurrency transactions.
Moving Average Method (MAM)
The moving average method, also known as the average cost basis (ACB) method, calculates the cost basis by averaging the acquisition prices and transaction fees of all cryptocurrency units of the same type held by the taxpayer.
This method is applied continuously, with the average cost basis recalculated each time a new purchase or sale occurs.
Total Average Method (TAM)
The total average method, or the total cost basis (TCB) method, determines the cost basis by summing the acquisition prices and transaction fees of all cryptocurrency units of the same type acquired up to the point of sale. The cost basis remains fixed until the next sale occurs, even if additional purchases are made.
Reporting Crypto Tax In Japan
In Japan, you must report cryptocurrency gains in your annual tax return if you profit more than ¥200,000 (approximately $1,600) from cryptocurrency transactions during the year. This includes profits from buying and selling cryptocurrency and mining, staking, and receiving airdrops.
The reason for this reporting requirement is that the Japanese government considers cryptocurrency to be a taxable asset. As such, gains from cryptocurrency transactions are treated as miscellaneous income and are subject to income tax. The tax rate for cryptocurrency gains is the same as your regular income tax rate, which ranges from 15% to 55%.
Moreover, the deadline for filing tax returns in Japan is March 15, following the tax year. For example, the deadline for filing taxes for the 2023 tax year is March 15, 2024.
Taxpayers can file their taxes online or by paper. To file online, they must register for an account with the NTA website. They can obtain the necessary forms from the website or their local tax office to file by paper.
You may need to use two primary tax filing forms when reporting cryptocurrency gains: Form A and Form B.
- Form A reports miscellaneous income, including gains from cryptocurrency transactions. It is your most common form, with only a few cryptocurrency transactions to report.
- Form B reports income from business activities, including cryptocurrency trading. It is more complex than Form A and is typically used by you if you trade cryptocurrency frequently or have other business income.
Tips To Minimize Crypto Taxes In Japan
Navigating the complexities of cryptocurrency taxation can be daunting, especially in countries like Japan, where crypto is considered miscellaneous income and subject to progressive tax rates. However, adopting innovative strategies can effectively minimize your crypto taxes in Japan and maximize your profits.
Holding And Selling In Low-Income Years
A straightforward approach to reducing crypto taxes is to time your cryptocurrency sales to coincide with lower-income years. This involves strategically selling your crypto assets when your overall income is lower, resulting in a reduced tax liability.
By carefully planning your sales, you can take advantage of lower tax brackets and avoid falling into higher tax tiers.
Strategic Approaches To Keep Earnings Under The Tax Threshold
In Japan, cryptocurrency gains under ¥200,000 are exempt from taxation. This threshold minimizes tax liability by keeping your realized gains below this limit. To achieve this, consider spacing out your cryptocurrency sales throughout the year to avoid exceeding the tax threshold.
Additionally, if you have multiple crypto holdings, prioritize selling those with lower profit margins to maximize the number of transactions under the tax-exempt threshold.
Limitations On Offsetting Losses Year Over Year
Unlike some countries, Japan does not allow the carryover of capital losses from one year to the next. This means you cannot offset cryptocurrency losses incurred in one year against gains realized in subsequent years.
Therefore, it’s crucial to be mindful of your overall crypto trading performance and avoid accumulating significant unrealized losses.
KoinX In Action
KoinX is a platform that helps you easily manage crypto assets and transactions. Whether you are a trader, an investor, or a casual user, KoinX can help you track your portfolio performance, calculate your crypto taxes in Japan, and generate reports for your accounting needs.
Let’s see how KoinX can simplify your crypto calculation and reporting tasks.
Seamless Connectivity
First, connect your wallets and exchanges to KoinX using the API keys or the CSV files. KoinX supports over 180+ exchanges, blockchains, and wallets, so you can easily import your transaction history from any source.
Comprehensive Portfolio Overview
Next, you can view your portfolio dashboard, where you can see the current value, profit/loss, and allocation of your crypto assets. You can filter by date range, asset type, or exchange to get a more detailed portfolio breakdown.
Effortless Tax Estimation
The tax calculator can estimate your tax liability based on your transactions and country’s tax rules. KoinX supports over 100 countries and regions and automatically applies relevant tax rates and methods to each jurisdiction. You can also customize your tax settings, such as the cost basis method, the holding period, or the tax year.
Tailored Reporting Options
Finally, you can generate reports for your personal or professional use. KoinX allows you to create various reports, such as capital gains, income, transactions, or audit reports. You can also export your reports in PDF or CSV format or share them with your accountant or auditor via email or a secure link.
KoinX is the ideal solution for crypto calculation and reporting. It saves you time, money, and hassle by automating the complex and tedious processes of managing your crypto finances. Try it today and see the difference for yourself!
Conclusion
The framework for crypto taxes in Japan is one of the most comprehensive and stringent in the world, subjecting cryptocurrency transactions to a progressive tax rate ranging from 5% to 45%. Additionally, a 10% inhabitant tax is levied on all profits, resulting in an effective tax rate of up to 55%. While crypto losses can offset miscellaneous income within the same tax year, they cannot be carried forward to future years.
Despite the high tax rates, Japan’s crypto market remains active, with many individuals and institutions engaging in cryptocurrency transactions. However, the manual calculation of such taxes can be time-consuming. Hence, you can use KoinX to receive accurate crypto tax reports in minutes. So why wait? Sign up on KoinX today and make your crypto tax process easier.
Frequently Asked Questions
Here are some of the most asked questions about crypto taxes in Japan.
How Do I Report My Cryptocurrency Gains And Losses On My Japanese Tax Return?
You must report your cryptocurrency gains and losses on your Japanese tax return if you have any taxable cryptocurrency transactions. You will need to fill out a separate form for cryptocurrency transactions.
Can I Deduct My Cryptocurrency Losses From My Taxable Income?
You can deduct your cryptocurrency losses from your taxable income if they exceed your cryptocurrency gains. However, you cannot deduct cryptocurrency losses from other sources of income.
What Are The Record-Keeping Requirements For Cryptocurrency Transactions In Japan?
You must keep records of all your cryptocurrency transactions for at least seven years. These records should include the date of the transaction, the type of transaction, the amount of cryptocurrency involved, and the value of the cryptocurrency at the time of the transaction.
What Are The Prospects Of Cryptocurrency Taxation In Japan?
The Japanese government is currently reviewing its cryptocurrency taxation policies. The tax rates on cryptocurrency could be lowered in the future.
