Tax incentives for cryptocurrencies confirmed, transition to separate taxation — possibly starting in 2028

The outline of the tax reform for fiscal year 2026 was decided on the 19th, clearly indicating a major revision of the tax system for cryptocurrency transactions. It was confirmed that, moving forward, cryptocurrencies meeting certain conditions will be subject to “separate taxation,” and a new deduction system allowing losses to be carried over for three years will also be established.

Tax Burden Disparity Between Cryptocurrencies and Financial Products Under the Current System

In Japan, profits from cryptocurrency trading are currently classified as miscellaneous income and are subject to comprehensive taxation combined with salary and business income. As a result, the tax rate, including resident tax, can reach up to 55%, leading to a very high burden on taxpayers.

In contrast, existing financial products such as stocks and investment trusts are subject to approximately 20% declared separate taxation, and loss carryover deductions are permitted. This disparity in the system has been a concern among market participants.

Contents and Scope of the New Separate Taxation System

The outline explicitly states that the application of separate taxation will be limited to “cryptocurrencies contributing to the formation of assets for the public.” Transactions covered include not only spot and derivative trading but also income generated from cryptocurrency-related ETFs (Exchange-Traded Funds).

The newly established loss carryover deduction system is expected to facilitate medium- to long-term investment decisions by allowing losses to be carried forward for three years.

Background for System Introduction and the Flow of the Financial Instruments and Exchange Act (FIEA) Revision

The driving force behind this tax reform is the review of the regulatory framework by the Financial Services Agency (FSA). The agency is solidifying its plan to reclassify cryptocurrencies from their current status as settlement tools under the “Payment Services Act” to financial products under the “Financial Instruments and Exchange Act (FIEA).”

In the next ordinary Diet session, it is anticipated that a bill to amend the FIEA based on this policy will be submitted and enacted, advancing the system development.

Logic Behind the Implementation Start Date and Expected Schedule

The outline specifies the specific implementation timing of the new tax system. The start date is set as “January 1 of the year following the enforcement of the amended Financial Instruments and Exchange Act.”

In other words, the start date of the new tax system will depend on when the FIEA amendment is enacted and enforced. If approximately one year is needed from the Diet approval to the law’s implementation, there is a possibility that the start could be delayed until January 2028.

In the previous year’s outline, the establishment of this regulatory positioning was only mentioned as “considering review,” but this outline provides more concrete and definitive language, indicating a stronger intention to implement the policy.

Next Steps and Market Impact

The government plans to approve the tax reform outline at the Cabinet meeting within the year based on the summarized content. This will enable market participants to prepare more specifically for the system changes.

If the tax system for cryptocurrencies shifts to separate taxation, it will unify the treatment with existing financial products and strengthen their positioning as investment targets.