Japan Plans 20% Crypto Tax Reform to Draw Investors and Align with Stock Market Regulations

Japan to Revamp Cryptocurrency Taxation

Japan is preparing to introduce major changes to how cryptocurrency profits are taxed, with government support for lowering the maximum tax rate on crypto earnings to a uniform 20%. This adjustment will bring crypto taxation in line with the rates applied to stocks and investment funds. The Financial Services Agency (FSA) has put forward this proposal to replace the current complicated, progressive tax system—which can reach up to 55% for high-income individuals—with a simpler, more accessible structure. The new approach, anticipated to be presented to parliament in early 2026, will also reclassify digital assets as financial products under the Financial Instruments and Exchange Act, subjecting them to the same regulations as traditional securities.

Currently, profits from cryptocurrency are categorized as "miscellaneous income" and are taxed on a sliding scale from 5% to 45%, with an additional 10% local tax for top earners, resulting in a maximum rate of 55%. This has discouraged both individual and institutional investors, prompting some to look for opportunities outside Japan. By shifting to a flat 20% tax—split between a 15% national tax and a 5% regional tax—the government aims to make crypto trading more appealing and ensure equal tax treatment with other financial assets.

Enhanced Investor Protections and Regulatory Measures

The reform package also includes stronger safeguards for investors. The FSA intends to prohibit insider trading within crypto markets and will require exchanges to adhere to stricter disclosure standards, mirroring those for conventional securities. These initiatives are part of a broader strategy to fully integrate digital assets into Japan’s financial system, including mandatory reserves for exchanges to cover potential losses from hacks or operational issues. The Japan Blockchain Association (JBA) has long supported these reforms, arguing that the current tax structure hinders growth and innovation in the sector.

Streamlined Compliance and Institutional Access

By reclassifying crypto assets under the Financial Instruments and Exchange Act, the government aims to simplify compliance for financial institutions. Approved tokens will be eligible for banking custody services and benefit from clearer accounting rules, which could open the door to greater institutional investment previously held back by regulatory uncertainty. The FSA is also preparing a whitelist of around 150 tokens that will qualify as eligible assets, while tokens not on the list will face stricter limitations.

Positioning Japan as a Crypto Innovation Leader

Experts see these reforms as a calculated effort to establish Japan as a leading center for cryptocurrency development in Asia. By easing tax burdens and clarifying regulations, the government hopes to attract both local and international investors, increase market liquidity, and create a more stable environment for digital assets. These changes are expected to benefit exchanges, custodians, and asset managers, contributing to a stronger digital asset ecosystem.

With the FSA’s legislative proposal scheduled for parliamentary consideration in 2026, Japan’s cryptocurrency landscape could undergo significant transformation. Aligning crypto taxation with traditional financial products and introducing tighter oversight reflects a global movement toward regulatory harmonization. As these reforms move forward, they may serve as a model for other countries seeking to integrate digital assets into their financial systems.