Crypto Taxes in Japan: In-Depth Tax Guide
Japan is considered to have some of the worst crypto tax laws around the globe. But what is it about crypto taxes in Japan that makes it bad?
In Japan, you pay income tax rates on crypto gains and earnings.
To understand how this tax treatment for cryptocurrency is not only unfair but ineffective in the long run, first, we must know how the Japanese National Tax Association (NTA) views crypto and how income taxes in Japan work.
By the end of this guide, you’ll have a complete understanding of how crypto is taxed in Japan and how to calculate and reduce your crypto taxes. And lastly, when, where and how to report your crypto taxes in your tax return.
How Does the Japanese National Tax Association (NTA) View Cryptocurrency?
Unfortunately, the Japanese National Tax Association (NTA) hasn’t yet cleared its position on cryptocurrency. But the NTA did clarify what they don’t classify crypto as – fiat currency.
For tax purposes, however, crypto earnings and gains will be treated as miscellaneous income under the Payment Services Act (PSA) and the Financial Instruments and Exchange Act (FIEA).
How is Crypto Taxed in Japan?
As mentioned, the NTA views crypto earnings and gains as miscellaneous income, and miscellaneous income is taxed under income tax rates. Therefore, you’ll pay income tax rates on your crypto gains and earnings.
So, if you’re selling, spending, swapping or disposing of your crypto in any way and realize a gain in the process, you’ll be liable to income taxes.
Similarly, if you receive crypto as a reward or revenue for your services or products, you’ll pay income tax rates on your crypto’s fair market value (on the date of acquisition). And you’ll pay income taxes again when you sell or dispose of these cryptocurrencies in the future.
Income tax rates range from 5% to 45% in Japan, depending on your tax brackets and deductions, plus a 10% municipal tax rate on all income (applicable on all income levels). This means you may have to pay a maximum of 55% tax rate on your crypto earnings.
The following table is extracted from the official page of the Japanese National Tax Agency, showing different tax rates according to different income brackets:
| Taxable income (JPY) | Tax rate (%) | Deduction | Tax on Column 1 (JPY) | |
| Over (Column 1) | Not over | |||
| 0 | 1,950,000 | 5 | 0 | 0 |
| 1,950,000 | 3,300,000 | 10 | 97,500 | 97,500 |
| 3,300,000 | 6,950,000 | 20 | 427,500 | 232,500 |
| 6,950,000 | 9,000,000 | 23 | 636,000 | 962,500 |
| 9,000,000 | 18,000,000 | 33 | 1,536,000 | 1,434,000 |
| 18,000,000 | 40,000,000 | 40 | 2,796,000 | 4,404,000 |
| 40,000,000 | 45 | 4,796,000 | 13,204,000 |
Japan provides an exemption for you too. If you make less than ¥200,000 in crypto earnings (miscellaneous income) in a financial year, you’re exempted from paying crypto taxes in Japan.
However, if you file for deductions, such as medical expense deductions or hometown tax deductions, you’ll be liable to pay taxes even if you make less than ¥200,000 in crypto earnings.
And since your crypto earnings come under miscellaneous income, you also can’t offset losses incurred during crypto trades.
Seems unfair, right?
Well, all of this might change sooner than you think.
Last month, In August, the Japan Crypto-Asset Business Association (JCBA) and the Japan Crypto-Asset Exchange Association (JVCEA), the two most prominent crypto advocacy branches in Japan, requested a tax reform for cryptocurrency.
The tax reform calls for a separate 20% tax on crypto gain and earnings with exemptions and the ability to offset losses and carry them forward to future years. Basically, pretty much how capital gains taxes work.
How to Calculate Crypto Taxes in Japan
Calculating crypto taxes in Japan is pretty straightforward – Subtract the selling price from the cost basis, or vice versa, to come with the gain (or loss).
Cost Basis – FMV (Selling Price) = Capital Gains
The tricky part is calculating the cost basis. The Japanese National Tax Agency allows you to use both the moving average method and the total average method.
Moving Average Method – The moving average method is essentially the same as the average cost basis method.
Here’s how you calculate the cost basis using the moving average method – You divide the total number of units of a cryptocurrency you hold by their total acquisition cost.
So, for example, suppose you bought 1 BTC in June for ¥60,000. You then buy another 2 BTC in July for ¥65,000 and 3 BTC in August for ¥70,000, before selling 2 BTC later that month for ¥67,000.
So, what’s the cost basis for the 2 BTC?
1+2+3 (total units of a crypto) / 60,000+65,000+70,000 (total acquisition cost) = ¥32,500
Hence, the cost basis of the 2 BTC is ¥65,000. Therefore, you would realize a gain of ¥2000.
But notice that while calculating the average cost basis, we only calculated the total acquisition cost up until the point of the sale. You may have made more transactions after the sale, but only the ones before the sale count. Remember this point as we discuss the total average method next.
Total Average Method – The total average method is essentially the same as the moving average method with one key distinction.
Instead of adding up the acquisition cost of all the crypto bought before the sale, the total average method requires you to calculate the total acquisition cost of all crypto bought within an entire financial year.
So, taking the same example as before, say you would have bought another 3 BTC in September for ¥75,000. Now, even though you sold the 2 BTC in August, you’ll add the acquisition cost of the crypto bought in September while calculating the cost basis of those 2 BTC.
So, this is what it’ll look like –
1+2+3+3 (total units of a crypto) / 60,000+65,000+70,000+75,000 (total acquisition cost) = ¥30,000
Now, the cost basis for the 2 BTC becomes ¥60,000, and you would have to report a gain of ¥7,000.
Which Method Should You Use?
Though both methods are perfectly valid, it’s better to stick to the total average method to avoid further complications and complexity while filing your taxes.
All of this may be a little too overwhelming and if it is, understand that you don’t necessarily have to do all the calculations yourself.
Instead, using a crypto tax tool like Bitcoin.Tax is probably a better way to go about it. All you have to do is select your preferred accounting method, and the software will automatically calculate and create a tax report using your preferred accounting method.
Crypto Taxable Events
The following are some of the most common crypto transactions and their tax consequences:
Selling or Spending Crypto
If you realize a gain while selling, spending or even swapping your crypto, meaning if the fair market value (FMV) or selling is more than the cost basis of your crypto, you’ll be liable to income tax rates.
Getting Paid in Crypto
If you receive your salary in crypto or receive crypto as compensation for your services and products, you’ll pay income tax rates on their fair market value (FMV at the time of acquisition).
Note that you’ll pay income taxes again if you sell the same crypto received as income and realize a gain in the future.
Mining Crypto
Crypto miners receive mining rewards, which are treated the same way as getting paid in crypto. Therefore, the same tax rule applies to crypto mining as getting paid in crypto.
Staking or Lending Rewards
Any interest-bearing transaction, such as staking crypto or lending crypto, will attract income taxes under the same logic of crypto earnings being miscellaneous income, which are taxed under income tax rates in Japan.
Airdrops & Hardforks
Airdrops and Hardforks are also considered miscellaneous income. Therefore, they attract income taxes too.
Gifting Crypto
Unfortunately, unlike in many other countries, gifting crypto in Japan is seen as a disposal. Therefore, you’ll attract income taxes (if you realize a gain). And if you’re on the receiving end of the gift, you’ll pay income tax rates on the FMV of the crypto.
Tax-Free Crypto Transactions
The following are some of the crypto transactions that have no tax consequences.
Buying and Holding Crypto
Since you’re not disposing of your crypto, buying and holding crypto is not a taxable event. Therefore, it’s tax-free.
Transferring Crypto Between Wallets
Once again, since you’re not disposing of your crypto while transferring crypto from one wallet to another, it doesn’t qualify as a taxable event. Hence, transferring crypto between wallets is tax-free.
Crypto Donations
Not only are crypto donations tax-free, they are tax-deductible, meaning you can deduct the donated amount (minus ¥2,000) from your total taxable income. However, there’s a limit to how much you can donate, and it’s 40% of your gross income.
How to Avoid Crypto Taxes in Japan
Unfortunately, there’s no way you can completely avoid paying crypto taxes in Japan. At least, not legally.
Since the Japanese government and NTA work closely with most crypto exchanges, they can track your transaction history and know if you’re not paying your taxes correctly.
Just last year, a 56-year-old man received a year in jail time and had to pay around a $200,000 penalty for not paying his taxes on crypto.
Unfortunately, since you can’t offset your crypto losses in Japan, the tax-loss harvesting strategy is useless.
The tax allowance of ¥ 200,000 is something you can utilize to your advantage, but once you’re over that limit, there isn’t much you can do to reduce your tax bills. This is partly why many Japanese taxpayers think the current tax guidelines for cryptocurrency are unfair.
Nonetheless, you can still consult a tax professional and discuss some tax-saving strategies that fit your situation.
How to Report Crypto Taxes in Japan
The Japanese financial year starts on January 1 and ends on December 31. Taxpayers can file their tax returns online during the tax season, starting from February 16 to March 15.
Make sure you provide all the relevant documents and data while reporting your gains and earnings. If you actively buy and sell crypto, furthermore, if you’re involved in complex crypto transactions like staking and liquidity pools, it’s best to use Bitcoin.Tax. It will automatically calculate all your crypto gains and taxes and create a tax report for you.