Japanese Cryptocurrency Traders Will See Profits Taxed 15% to 55% This Year

Last summer, Japan became one of the first countries to formally recognize cryptocurrencies as legal tender. Now, it has announced new tax measures to govern the trade, sale and exchange of digital assets.

“Miscellaneous Income”

In Japan, capital gains on cryptocurrency transactions are deemed “miscellaneous income,” according to a Dec. 1 ruling by the National Tax Agency. As such, cryptocurrency investors will be taxed 15% to 55% on their profits this year.

The top bracket is much higher than winnings on stocks and forex, which are taxed around 20%.  The top amount applies to tax payers with annual income of 40 million yen, which is equivalent to about $365,000 U.S.

Under the tax law, “miscellaneous income” doesn’t just apply to cryptocurrency trading on exchanges, but also on gains collected from sales, purchases, mining and associated network fees.

It is estimated that 40% of bitcoin transactions are funded in Japanese yen, a testament to the nation’s wide scale adoption of cryptocurrency. However, as Bloomberg reports, cryptocurrency-rich investors are  feeling skittish about the new tax laws, with a handful of big name players already leaving the country. Some of them could be headed to jurisdictions like Singapore, which offer zero capital gains tax on long-term cryptocurrency investments.

Local experts have described the new tax process as unclear, leaving investors guessing on how to meet their obligations. In Japan, annual filings are due Feb. 16-Mar. 15.

Evolving Tax Laws

Although Japan is much further ahead when it comes to regulating cryptocurrency, it is not the first nation to impose tax levies on the digital asset class. South Korea – another hotbed for everything crypto – has decided to tax digital currency exchanges at a rate of 24.2%. That is the same tax bracket applied to most local companies.

Meanwhile, the United States has classified cryptocurrencies as regular securities, which means they are taxed accordingly.

In the European Union, cryptocurrencies are defined as actual currencies instead of property, which means they are subject to capital gains and income taxes. In places like Germany, a “wealth” tax is also involved.

Tax legislation will likely evolve further in the coming years as regulators play the game of perpetual catch up with the market. As U.S. lawmakers recently demonstrated, the regulatory landscape could evolve more favorably than some traders initially suspected.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.


Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi