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Are you a Japanese Crypto Investor struggling with crypto taxes? Don’t worry you’re not alone. A majority of crypto investors in Japan struggle with crypto taxes given the complexity of the guidelines governing the taxation of such assets and the inherent complexity of crypto as an asset. Japan is among the strictest nations in the world when it comes to crypto taxes having one of the highest tax rates on crypto transactions which may go up to 55% in some instances.
We realise that navigating crypto taxes can be an intimidating task for most investors, that’s why we have curated a detailed tax guide covering all the aspects of crypto taxation in Japan. In this guide, we will cover everything from crypto gains and income to DeFi and NFT taxes. We will also answer pivotal questions like “How is crypto taxed in Japan?”, “How to file crypto taxes?”, “Can the tax authority track crypto?”, “How to calculate crypto gains and losses?” and more.
So let’s hop in.
The Japanese National Tax Authority views crypto as property and any gains incurred from their sale attract income tax. Moreover, crypto received through airdrops, staking, and mining is also subject to income tax. So if the total gain or income from crypto assets exceeds 2,00,000 JPY in a tax year, you need to report your gains/income to the NTA and pay taxes on them in compliance with the Payment Services Act (PSA) and the Financial Instruments and Exchanges Act (FIEA). You can access the detailed guidelines here.
Any income/gain reported by an individual or business is categorized as “Miscellaneous Income” and the tax rates may go up to 55%, that’s pretty steep because gains from securities are taxed at a flat rate of 20% in Japan.
Japan has a progressive tax on miscellaneous income, ranging from 5% to 45% on profits. Moreover, Japanese taxpayers are obligated to pay an inhabitant tax of 10% on their profits, which includes a prefectural rate of 4% and a municipal rate of 6%. Consequently, the effective crypto tax rate varies between 15% and 55%. For non-permanent residents of Japan, a flat 20% tax applies to all income earned within the country.
Crypto exchanges operating in Japan are categorized as Crypto-Asset Exchange Service Providers (CAESP) and have to go through a 6-month long registration process with the NTA that compels them to follow stricter KYC- regulations and share investor details with authorities for better compliance and reporting.
So, if you use a crypto exchange for investing in crypto assets, it is likely that the NTA already knows about it. Moreover, Japan is also a founding member of the FATF (Financial Action Task Force), a global money laundering and terror financing watchdog, and a member of the APG (Asia-Pacific Group for Money Laundering), making Japan one of the most vigilant states in the world when it comes to tax reporting and compliance.
As mentioned earlier there is no capital gains tax on crypto transactions in Japan. Crypto gains are instead added to the income and taxed accordingly. Businesses and investors are pushing for miscellaneous income from crypto assets to be taxed under capital gains tax laws similar to securities, given the lenient capital gains taxation rates.
Since Capital Gains are taxed as income, the tax rates are the same as the income tax rates discussed later in the guide.
Even though there is no capital gains tax in Japan, you still need to calculate the gains incurred from disposing of crypto assets to be able to report them alongside your income and pay taxes on them.
Calculating crypto gains is a pretty straightforward process. All you need to do is to deduct your cost basis from the disposal amount. You can use the following formula to calculate your capital gains:
However, most investors find cost basis intimidating as a concept. The cost basis is simply the amount your pay to acquire a particular asset inclusive of any additional fees paid in the process.
Here’s an example:
Let’s say Toshiro san acquired 1 ETH for 2,00,000 JPY
And he paid 2,500 JPY in transaction fees in the process.
Then the cost basis would simply be (2,00,000 + 2,500) JPY
Let’s say Toshiro san finally decides to dispose of the ETH token for 2,50,000 JPY
In that case,
Capital Gain/Loss = Disposal Amount - Cost Basis = 2,50,000 - 2,02,500 = 47,500 JPY
Unfortunately, you cannot deduct crypto losses in Japan. Currently, only losses from businesses, asset transfers, real estate, and forestry income are considered deductible by the tax authorities and since crypto doesn’t fall in any of these categories, losses from crypto assets are non-deductible in Japan.
Keeping in mind NTA’s strict stance around crypto and the non-deductibility of crypto losses, it is highly likely that you will not be able to deduct lost or stolen crypto from your gains. We suggest contacting an experienced tax professional to have a better understanding of how lost or stolen crypto is treated by the tax authorities.
The way Japan taxes crypto transactions, there’s not much you can do to lower your tax bill. As mentioned earlier, you cannot offset your losses against gains in Japan and beyond there’s barely any way to lower your taxes strategically.
One thing you can consciously decide to do is to dispose of your assets in a low-income year to keep the overall gains under 200,000 JPY, which is the regular income tax exemption limit in Japan. Japan also has an employment income deduction that allows employees from a corporate background to deduct a certain amount from their taxable income. Given below are the income brackets and the deductions allowed in each bracket.
Although it’s not clear whether these deductions are permissible for income from crypto transactions. We suggest seeking guidance from an experienced tax professional to gain clarity on the subject.
Japan allows two accounting methods, the total average accounting method and the moving average accounting method or the ACB (Average Cost Basis Method).
The total average accounting method is what the investors/traders are supposed to use by default. However, if you choose to use the moving average accounting method, make sure you use it for all your cost-basis calculations to avoid discrepancies in your tax report.
The moving average method also known as the Average Cost Base (ACB) method, assumes the average cost of the assets of the same kind you currently possess as the cost basis for a subsequent disposal. The total average method is quite similar with just one exception, it considers the average cost of all the assets (of a particular kind let’s say ETH) that you’ve bought in a financial year.
In simpler terms, the cost basis might change for every disposal depending upon the disposal. However, when you use the total average accounting method, you have a constant cost basis regardless of time, place, or the sequence of your disposal.
Here’s an example to understand how the Moving average accounting method works:
2022/02/21 - Ishida san bought 1 ETH for 2,00,000 JPY
2022/03/17 - Ishida san bought 3 ETH for 1,90,000 JPY each
2022/05/23 - Ishida san sold 1 ETH for 2,10,000 JPY
2022/06/04 - Ishida san bought 2 ETH for 1,70,000 JPY each
2022/08/27 - Ishisa san sold 1 ETH for 2,40,000 JPY
As evident from the above ledger of transactions, Ishida san made two disposals.
Let’s use the Moving Average Accounting Method to calculate the cost basis for both disposals.
Now, before the first disposal was made, ETH tokens were acquired on two separate occasions. So we have to calculate the average acquisition price:
Average Acquisition Price = (1*2,00,000 + 3*1,90,000)/4 = 1,92,500 JPY
So the cost basis now becomes 1,92,500 JPY for the disposal
Capital Gain on the first disposal = Disposal Amount - Cost Basis = 2,10,000 - 1,92,500 JPY = 17,500 JPY
But now since 1 ETH token is disposed, the total number of ETH tokens in possession goes down to three. And on top of that Ishida san bought 2 more ETH tokens at an average price of 1,70,000 JPY each.
So now the average acquisition price changes.
Value of 3 ETH tokens in possession = 1,92,500 * 3 = 5,77,500 JPY
Value of 2 ETH tokens acquired after 1st disposal = 1,70,000 * 2 = 3,40,000 JPY
Average Acquisition Price = (5,77,500 + 3,40,000)/5 = 9,17,500/5 = 1,83,500 JPY
Now the cost basis changes to 1,83,500 JPY
So, for the second disposal
Capital Gain = Disposal Amount - Cost Basis = 2,40,000 - 1,83,500 = 56,500 JPY
Total Gain from both Disposals = 74,000 JPY
Let’s now consider the same ledger of transactions and use the total average method for calculating the capital gains for both disposals.
Using the total average method is a lot simpler as it considers the average cost of all acquisitions made in a financial year divided by the total number of assets.
So, the average acquisition price = (1*2,00,000 + 3*1,90,000 + 2*1,70,000)/6 = 1,85,000 JPY
Which imputes a cost basis of 1,85,000 JPY
Now for the 1st Disposal
Capital Gain = Disposal Amount - Cost Basis = 2,10,000 - 1,85,000 = 25,000 JPY
And for the 2nd Disposal
Capital Gain = Disposal Amount - Cost Basis = 2,40,000 - 1,85,000 = 55,000 JPY
Total Gain from both disposals = 80,000 JPY
Notice that the capital gain is 6,000 JPY higher when you use the total average accounting method.
As mentioned earlier, any gains or income from crypto transactions is taxed as miscellaneous income by the NTA. You are viewed to be making miscellaneous income in Japan if you participate in the following transactions:
Any income or gain incurred from such transactions is to be added and reported in your tax return. The tax rate on such income can go up to 55% depending on the nature of transactions and where you reside in Japan.
The crypto tax rate in Japan can go up to 45% depending on which tax bracket you fall into. You will also have to pay a local inhabitant tax of 10% on top of the income tax. The following are the income tax rates in Japan:
Calculating your crypto income is pretty straightforward. You just need to add the gains/income from all transactions. We’ve discussed in the above sections how you can calculate your gains from crypto transactions, any tokens that you’ve received from airdrops, staking, mining, or liquidity pools shall be perceived as income and you must track the fair market value of the tokens on receipt, to later add it to your gains and report your actual taxable income base.
Following are some tax-free crypto transactions in Crypto:
Following are some taxed crypto transactions in Crypto:
Any rewards from mining crypto tokens are viewed as miscellaneous income and taxed under income tax laws regardless of whether you are an individual investor or a business.
Although mining and staking are different in the way they add and validate new transactions on a public ledger (blockchain), both mining and staking rewards are treated similarly by tax jurisdictions around the globe and Japan is no exception.
Both mining and staking rewards are viewed as miscellaneous income and are taxed under income tax laws. The value of the tokens is simply taken to be the fair market value of the tokens at the time of receipt.
Any new tokens received through airdrops and hard forks are grouped under miscellaneous income and are taxed according to income tax laws.
The NTA is yet to release specific guidance on how crypto gifts and donations are taxed in Japan. However, if we consider crypto gifts and donations to be the same, we can extrapolate the tax implications of such transactions. Gifts up to 25 million JPY are exempt from taxation in Japan. However, if the total amount of gifted assets exceeds the exemption limit, then you’re liable to pay gift taxes in Japan.
Gifts in Japan are taxed at a rate of 20% on the amount exceeding the cumulative threshold of JPY 25 million. If gift tax is applicable, it will be treated as a prepayment of tax towards any potential future inheritance tax liability.
In Japan, charitable contributions made to organizations designated by the Ministry of Finance are eligible for tax deductions, but with certain limitations. Generally, only charities based in Japan qualify for these deductions.
Qualified contributions or donations, totaling JPY 2,000 or more in aggregate, are deductible when calculating the national tax. However, the total deduction is limited to 40% of the individual's income, less JPY 2,000.
Note that this is just a speculation and crypto gifts and donations might not be treated the same way as other assets. Therefore, we suggest seeking the advice of an experienced tax professional to better understand the regulations around the same.
Since no regulation separates professional traders from individual investors when it comes to crypto, income from margin and leverage trades would likely be treated as miscellaneous income and taxed under the income tax laws.
However, we do suggest reaching out to an experienced tax professional to better understand the tax implications of such transactions.
ICOs (Initial Coin Offerings) and IEOs (Initial Exchange Offerings) are special events that allow investors to gain access to native tokens from an unreleased project in exchange for mainstream tokens like ETH and BTC. They are similar to IPOs in the traditional securities market.
Since ICOs involve the exchange of mainstream tokens like BTC and ETH for project-native tokens, they’re simply viewed as crypto-to-crypto trades and the new tokens received from the event are viewed as miscellaneous income and taxed under the income tax laws.
There is no specific guidance on how NFT transactions are taxed in Japan. However, any proceeds from the sale or trade of NFTs will likely be treated as miscellaneous income and taxed at the regular income tax rates.
We do suggest seeking guidance from an experienced tax professional to better understand the tax implications of such transactions.
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. DAOs are new-age institutions that aim to democratise decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and enable members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
The NTA categorizes any gains realised by the sale of crypto assets, or any assets received as a reward, as miscellaneous income. And income from DAOs is likely to be under the same list. Since these rewards are compensation for active contributions in the DAO, they can be treated as salary and taxed at regular income tax rates.
Any new coins you receive from engaging in DeFi transactions are categorized as miscellaneous income and are taxed at regular income tax rates.
The Japanese tax year runs from January 1st to December 31st, and you can file your taxes between February 16 and March 15 every year.
There are two ways you can file your tax return in Japan.
If you wish to file your crypto taxes using paper forms, you should use Form A to declare your employment and miscellaneous income. However, note that if the miscellaneous income from other sources does not exceed 2,00,000 JPY, you’re not eligible to file a tax return.
Here’s a stepwise tutorial on how you can file your crypto taxes using NTA’s online portal:
There is no official guidance on crypto record keeping by the NTA. However, it would be prudent to maintain detailed records for all your transactions dating back to at least 3 years to ensure a hassle-free tax filing experience. Following is the list of documents you should maintain:
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
If you still need clarification regarding the integrations or generating your tax reports, you refer to our video guide here.
Japan has taken a strict stance on crypto taxation, so there are not many options for someone looking to save some taxes by employing tax-saving strategies like tax-loss harvesting. However, there are a couple of ways you can save up on your tax bill:
1. Is crypto legal in Japan?
Yes, cryptocurrencies are legal in Japan. Japan has taken a progressive approach to regulating cryptocurrencies and blockchain technology. In April 2017, the Japanese government passed a law that officially recognised Bitcoin as a legal payment method. This move allowed businesses to accept Bitcoin and other cryptocurrencies as a form of payment.
Moreover, the Japanese Financial Services Agency (FSA) implemented a licensing system for cryptocurrency exchanges in 2017. Exchanges are required to register with the FSA and comply with certain regulatory requirements to operate legally in the country.
However, it's worth noting that Japan also has strict regulations to prevent money laundering and protect investors. The FSA closely monitors the cryptocurrency industry to ensure compliance with these regulations and protect consumers. As a result, some cryptocurrency exchanges have faced regulatory challenges and have been required to improve their security and customer protection measures.
2. Are crypto gains subject to income tax or capital gains tax?
There is no capital gains tax in Japan and income from all crypto transactions is categorized as miscellaneous income and is taxed under the existing income tax laws. The income tax rate varies between 0 to 45% depending on the amount of income made by an individual taxpayer.
3. Are there any tax exemptions for long-term crypto investors?
Since no tax framework separates short-term capital gains tax from long-term capital gains tax in Japan, there are no relaxations of benefits offered to long-term investors. However, investors may choose to hold on to their assets in a high-income year and later dispose of them in a low-income year to stay under the income-tax exemption limit of 2,00,000 JPY to avoid any taxation on their gains.
4. How can Kryptos simplify crypto taxes for you?
We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a stepwise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. Although, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.
Where all you need to do is log in on the platform, add all your trading accounts, wallets, and Defi accounts and sip coffee while Kryptos does all the heavy lifting for you. The platform can auto-fetch all your transactions from the tax year and generate a legally compliant tax report within minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.
All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!