When it comes to traffic on crypto exchange sites, Japan ranks as the second-highest country worldwide. The current state of taxation and the legal situation of virtual currencies in the land of the rising sun are relatively robust and recent governmental development aims to make the country more attractive for crypto companies and traders. Generally, Bitcoin and Co. are taxed under the category of 'miscellaneous income', which is dependent on your annual income and can reach a maximum tax rate of 55 percent.
The Legal Status of Cryptocurrencies in Japan
As of the current legal situation, cryptocurrencies (仮想通貨 - Kasō tsūka) in Japan are officially regarded as legal property and classified as miscellaneous income. Basically, this tax category serves all types of random sources of income, which means trading crypto is legally treated exactly like selling lemonade on the street. Also, the Japanese National Tax Association (NTA) does not (yet) distinguish between individuals and companies using cryptocurrencies.
Government statements on cryptocurrencies in Japan
The NTA has not made an official statement on cryptocurrencies in general yet, but they have defined Bitcoin as the following:
"Bitcoin can be used to purchase goods, etc. However, profits generated by using this bitcoin are subject to income tax. Gains and losses [...] resulting from using this bitcoin
is [...] classified as miscellaneous income [...]." - The National Tax Agency of Japan (2017).
The Taxation of Cryptocurrencies in Japan
In Japan, all types of virtual currencies are classified as 'miscellaneous income' and are also taxed as such. If you have an annual income and make more than 200,000 yen (ca. 1,600€) in miscellaneous income you have to pay the applicable taxes.
The tax rates for this category depend on your annual income, starting at a low 5% and steadily increase to a maximum of 45%. However, a municipal tax of 10% has to be added at any rate, which ultimately leads to a maximum tax rate of 55%. For those who have a small annual income the tax rates can still be favorable. In Japan though, most crypto traders fall into a higher income band and therefore face the 55% tax rate. In comparison, gains made from a stock portfolio fall into a different category and are taxed at a fixed rate of 20%.
Simply holding cryptocurrency but not trading it is currently not taxed at all. However, there is a tax for buying something using cryptocurrencies. Basically, any profit you make through the use of Bitcoin and Co. is subject to taxation.
Example: You buy a bitcoin for 200,000 yen. The coin reaches the value of 1,000,000 and you use it to buy a product at a store for 1,000,000 yen.
How is this taxed?
The tax rate is based on the price of the product when it was purchased minus the price of the bitcoin when it was purchased.
In numbers: ¥1,000,000 - ¥200,000 = ¥800,000
¥800,000 is the amount that is applicable to taxation. The tax rate then depends on your specific income band.
Trading Cryptocurrencies in Japan
The same principle of taxation applies to trading cryptocurrencies. Any profit you make during the process is subject to taxation under the category of 'miscellaneous income', meaning that a tax rate of max. 55% applies, depending on your yearly income. Recently, Japan’s Financial Services Agency (FSA) has made efforts to regulate trading and now requires cryptocurrency exchanges to be registered, which is due to concerns about cybersecurity and AML/CFT.
In the event of loss from trading crypto, unfortunately, you cannot simply deduct them from your income or other assets. As of now, only losses from real estate, business, asset transfers and forestry income can be deducted from income, and cryptocurrencies do not classify as any of these categories yet.
If the tax payer simply refuses to pay the applicable taxes, certain penalties apply. Usually these are imposed in the form of an additional 20 percent of the initial amount of tax and also a specific penalty for the delay.
In conclusion, the only way to avoid taxes for any actions involving cryptocurrencies entirely is to "hodl", or as the say in Japan ガチホ (Ga-Chi-Ho).
Recent Developments On Tax Rates in Japan
Due to the fact that a tax of 55% on miscellaneous income does not make Japan sound too attractive for cryptocurrency traders, the Japanese Association of New Economy (JANE) has proposed an idea of lowering the taxes imposed on crypto down to a fixed tax of 20%, the rate at which gains from stock sales are also taxed at.
They also argue that there should not be any taxation at all for crypto-to-crypto transactions. However, it is up to the Japanese Financial Services Agency (FSA) do make a decision about these matters in the near future. During the first half of 2020, the Japanese government wants to introduce new laws on the request of data from individuals whose yearly crypto earnings exceed the ¥10,000,000 mark (ca. 82,000€) and also impose penalties for not disclosing the data.
The FSA also shows a growing amount of concern towards AML and tends towards more regulation through the use of a self-regulatory body. The Japanese Virtual Currency Exchange Association (JVCEA) will function as an advisor for exchanges and promote regulatory compliance.
These recent developments show that Japan wants to create a crypto-friendly environment and aims for mutually beneficial regulations. However, only time will tell how exactly the FSA will impose the new laws and when they will come into effect.
Free Crypto Tax & Portfolio Software
In recent years, it has been observed that the trade in cryptocurrencies such as Bitcoin, Litecoin and Ethereum has steadily increased. However, many cryptocurrency owners do not consider that the profits or losses from trading cryptos are taxable. Therefore Blockpit offers software that meets the requirements for traders of Bitcoin, Ether and Co. Besides the webapp Blockpit also offers a mobile app that is free for iOS and Android. With the API import, transactions can be imported from different exchanges without much effort. Taxes on cryptocurrencies do not need to be complicated - use Blockpit
Disclaimer: The information provided in this blog post is for general information purposes only. The information was completed to the best of our knowledge and does not claim either correctness or accuracy. As of now, Blockpit does not support any issues regarding taxation of cryptocurrency in Japan yet, so we highly recommend contacting a certified legal advisor in the country.
National Tax Agency of Japan (2017). http://archive.is/R36aC
Partz, H. (2019). https://cointelegraph.com/news/japan-tax-authorities-say-crypto-traders-owe-them-93-million
Tyton Capital Advisors (n.d.). Japan And Tax On Cryptocurrency. https://www.tytoncapital.com/investment-advice-japan/japan-and-tax-on-cryptocurrency-bitcoin/
Nadeem, A. (2019). Japan eases taxes on crypto exchange and trading income. https://www.cryptopolitan.com/japan-eases-taxes-on-crypto-exchange-and-trading-income/
Comply Advantage (n.d.). https://complyadvantage.com/knowledgebase/crypto-regulations/cryptocurrency-regulations-japan/
Nagata, K. (2018). Cryptoprofits are taxable — have you filed?. https://www.japantimes.co.jp/news/2018/02/18/business/financial-markets/cryptoprofits-taxable-filed/#.XR3dXpMzbUI