What are the key points of the virtual currency tax reform, the future of separate self-assessment taxation, and the effects of amendments to the Fund Settlement Act?

Japan’s Efforts Toward Crypto Asset Tax Reform: Addressing Separate Taxation for Capital Gains

Over the past three years, Japan has made significant progress in reforming its tax system concerning crypto assets (virtual currencies). These advancements have aimed to alleviate tax-related barriers, particularly for startups and self-issued tokens. However, one of the most pressing challenges still remains: the taxation system for capital gains from cryptocurrency transactions.

Currently, any profits earned through virtual currency transactions are categorized as "miscellaneous income" under Japan’s tax framework. This means they are subject to comprehensive taxation, which combines these gains with other incomes, such as employment income. This approach places crypto traders and investors under heavy tax burdens, with a maximum tax rate of up to 55% (inclusive of resident tax)—a notably high rate compared to global standards.

Such a system poses significant challenges for the nation’s crypto economy, as it discourages promising talent, investors, and startups from actively participating in Japan’s market. Many are calling for reforms to introduce separate taxation for crypto-related capital gains in order to create a more competitive and innovation-friendly environment. Addressing this issue is crucial for fostering growth within the country’s crypto ecosystem and retaining its human capital.

Japan’s journey toward optimizing its crypto tax policies will play a pivotal role in shaping the future of its digital asset economy.