In August 2025, Japan’s Financial Services Agency (FSA) published its proposals for reform of the tax regime related to cryptocurrencies (virtual currencies).
This was compiled as part of the fiscal year 2026 tax reform proposals, calling for a fundamental review of the system to address long-standing issues such as “excessively high tax rates” and “the lack of recognition for transferable losses.”
These proposals aim to reduce the tax burden on individual investors, stimulate the domestic cryptocurrency market, and curb capital outflows.
- Current tax regime for cryptocurrencies
Under the current regime, profits earned by individuals from the sale of cryptocurrencies or exchanging them for other currencies or goods are considered “miscellaneous income” and are subject to comprehensive taxation.
As a result, these profits are added to other income such as salaries, which can lead to a combined taxation on income and residence exceeding 55%.
Furthermore, losses arising from cryptocurrency trading cannot be carried forward to future years, unlike losses from stock or foreign exchange trading.
In addition, transactions involving the exchange of one crypto asset for another (for example, Bitcoin → Ethereum) are also taxable. This has raised concerns about practical complexities and a lack of clarity regarding the timing of taxation.
This regime has been heavily criticized for placing Japan’s investment environment at a disadvantage compared to overseas markets, leading to increasing calls for reform from both domestic and international players.
- Contents of the proposed tax reform
The main points of the FSA’s 2025 tax reform proposal are as follows:
(1) Introduction of separate taxation.
A shift from the current “comprehensive taxation” to “separate taxation” (flat-rate taxation), similar to the system for stock trading and foreign Exchange.
(2) A flat tax rate of 20.315%
(15.315% income tax + 5% residence tax).
(3) Introduction of deduction for accumulated losses.
This system would allow losses from crypto-asset trading to be carried forward and be offset against gains for the following three years.
This is expected to ensure continuity and fairness in investment activities.
(4) Review of the trigger for taxation.
Currently, taxation applies even when one cryptocurrency is exchanged for another. The proposal considers simplifying this into a more practical system, such as taxing only when converted into fiat currency.
(5) Clarification of valuation methods for inheritance and transfer.
Clarifying valuation methods when cryptocurrencies are acquired through inheritance or donation, treating them similarly to listed securities.
- Future Outlook
The content outlined here is still at the stage of a “tax reform proposal.” Effective legislative amendment and implementation require:
(i) deliberation by the Government Tax Commission at the end of the year,
(ii) the elaboration of the tax reform outline by the governing party (usually published in December), and (iii) subsequent deliberation in the Diet the following year.
Therefore, even if the proposed changes are approved, they are not expected to take effect before 2026.
- Scope of Application
This tax regime applies only to individuals considered “residents” under Japanese tax law.
Residence is defined in Article 2 of the Income Tax Act as “an individual who has a domicile in Japan or who has maintained a residence in Japan for one year or more up to the present time.”
- Conclusion
The FSA’s August 2025 proposals represent a significant step toward harmonizing Japan’s cryptocurrency taxation regime with international standards.
If implemented, the reform is expected to result in lower tax rates, the introduction of loss carry-forward mechanisms, and simplified tax procedures, providing substantial relief for individual investors and national businesses.
However, since formal reform will take time, investors should continue to closely monitor future Diet deliberations and government policies, while diligently preparing their tax filings under the current system.
Satoshi Minami
Vilá Abogados
For more information, please contact:
14th of November, 2025
